Philly Fed Report: Black Homeowners Face More Refinance Denials | Local News
Home loan refinance activity increased by more than 200% in Pennsylvania, New Jersey and Delaware in 2020 during the pandemic, the growth rate for black and weak and moderate homeowners was between 85% and 178%. The refinance growth rate for Black and Weak and Moderate homeowners was about 50-75% of the growth rate for all borrowers.
In a low interest rate environment, mortgage refinancing is important during a pandemic-induced economic downturn because it can reduce a homeowner’s monthly mortgage payment, cash flow, and even reduce risk. of default of payment.
For example, if you had a $100,000 30-year fixed rate mortgage for three years with an interest rate of 6.5% and refinanced with a rate of 5%, you would save $114 per month or about $29,000 over the life of the loan, according to Freddie Mac Mortgage. With these savings, closing costs can be prepaid or rolled into your monthly mortgage payment.
In January 2021, interest rates on a 30-year fixed-rate loan fell to an all-time low of 2.65%, before rising again, making this the perfect time to refinance. Several bankers in the region have said they expect 2022 to be a big year for the refinancing industry.
The report, released Tuesday by the Federal Reserve Bank, explores disparities by race and income in the refinance mortgage sector in the tri-state area.
According to the report, black and low-to-moderate income homeowners were denied refinance mortgages at a higher rate than applicants overall.
For black homeowners, the most common reason a refinance mortgage was turned down was a bad credit history, according to the report. For low- and middle-income homeowners, the most common reason for denial was a high debt-to-income ratio.
“These results inform the public policy debate regarding the role of supply refinancing and mortgage affordability in supporting homeowners during difficult economic times,” said Kyle Demaria, author of the Reserve report. federal, in a press release.
“We recognize that there is a significant gap between white, non-Hispanic and minority homeownership rates in the United States,” said Ernest Campbell, Wells Fargo mortgage market manager for Pennsylvania, New Jersey. and Delaware. “Systemic inequalities in the housing industry that go back decades have created these homeownership gaps and are having a ripple effect on the mortgage industry, even when it comes to refinances.”
Campbell said that over the past 10 years, “we are very proud that Wells Fargo has extended more home loans to Black and Hispanic consumers than any other bank and is one of the top lenders overall.”
In fact, he said, Kristy Fercho, head of Wells Fargo Home Lending and president of the Mortgage Bankers Association, recently wrote an opinion piece for American Banker and National Mortgage News that covered some of the key issues and what what the industry is doing to solve them.
For example, Fercho said in his article that Wells Fargo is working hard to close these gaps and create a more inclusive housing system through targeted outreach efforts and new offerings, including:
Wells Fargo’s Community HMC program provides a mortgage presence in bank branches to conduct community outreach activities through seminars, workshops and other visible activities to meet customers where they are in their financial journey towards home ownership
In 2021, we launched the Wells Fargo Dream.Plan.Home.SM Mortgage, which offers a down payment as low as 3% and supports approval for those with non-traditional credit.
The dream. Plan. The Home.SM Closing Cost Credit – currently available in eight markets – can provide up to $5,000 for one-time closing costs, making it easier for low- and middle-income families to buy a home .
The NeighborhoodLIFT Down Payment Assistance Program offers an interest-free, repayable down payment loan with no payment required that eligible homebuyers in select markets can use towards the down payment and closing costs of a mortgage .
During the pandemic, which began in 2019, many homeowners lost their jobs and income the following year, hurting their financial security, the report said. But not all households have suffered the same financial shock from the pandemic as some professions and industries have been hit harder than others, such as catering.
For example, employment rates fell the most for black and Hispanic men and women in Pennsylvania, New Jersey and Delaware, especially those with a high school diploma or less, the report said.
According to the US Census Household Pulse Survey, about 12% of homeowners said they weren’t caught up with their mortgage payments and about 15% said they didn’t think they could make next month’s mortgage payment.
These rates were higher for black, Hispanic, and low-income homeowners.
During the pandemic, the federal government provided assistance to homeowners in financial difficulty. For example, the CARES Act (Coronavirus Aid, Relief and Economic Security Act) established the guidelines so that homeowners with federally guaranteed mortgages would be eligible to delay payments with risk of foreclosure. This act also created a moratorium on foreclosures with federally guaranteed mortgages that remained in effect until July 2021.