Millions of Americans refinanced last year, but fewer black and Latin homeowners

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From January to October of last year, only 6% of black borrowers refinanced their mortgage, compared to 12% of white borrowers. The results will appear in a new report from an economist at the Federal Reserve Bank in Atlanta, Philadelphia and Boston.

Researchers compared borrower data for Fannie Mae, Freddie Mac, and FHA loans with data from companies that track mortgage performance, such as Equifax and mortgage data firm Black Knight. Co., Ltd.

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According to the report, 14% of Asian borrowers refinanced, while Latino borrowers deposited at 9%.

Of the $ 5.3 billion in refinancing savings of all households over the 10-month period examined in the Federal Reserve’s report, only $ 198 million (3.7%) went to black households. . .. Refinance borrowers generally pay fees to set interest rates low and reduce the total cost of the loan.

Data from Freddie Mac shows millions of people renegotiating mortgage terms and refinancing 8 million cases in 2020, combined with historically low interest rates and people spending more time at home. Bring.

The savings from refinancing can be significant. Freddie Mac estimates that this will save nearly half of black and Latino households about $ 1,200 a year.

Floating mortgage borrowers could benefit from lower interest rates by the central bank, but the most common mortgages in the United States are 30-year fixed mortgages, and the refinancing process is necessary to take advantage of the mortgage rates. low interest. Must go.

“This poses a problem: who will it help when prices fall? Said Sam Carter, vice president and chief economist of Freddie Mac’s Economic Housing and Research Division. “The Fed is in this era of coordinating monetary policy, but I argue it is already benefiting the wealthy.”

Both practical and historical factors may prevent black and Latino households from using refinancing, federal researchers say.

For one thing, Freddie Mac estimates that the closing costs associated with refinancing are on average around $ 5,000. Additionally, Councilor Lauren said debt could undermine the benefits of refinancing, as homeowners with limited cash and assets will pass additional costs such as title insurance and origination fees on new mortgages. Lambie Hanson said. A Philadelphia Federal Reserve Bank researcher who worked on the report.

The economic impact of the pandemic, which had a disproportionate impact on the employment and finances of black and Latino households, further complicated their decision-making regarding loan changes.

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“In the pandemic, we know that unemployment has increased the most and has slowed the recovery for minority borrowers,” said Lambi Hanson. In February 2021, she and her research team found that 15.6% of black borrowers had a mortgage in February 2021, compared to 6.5% of white borrowers in February 2020. I found out that I had defaulted on the mortgage. minus one payment. Tolerant borrowers are not eligible to refinance their mortgage.

“So if you have a lot of money, there are those frictions that are a lot easier to navigate,” said Lambi Hanson.

The legacy of discrimination against minorities in the financial system, including the history of practices including redlining (denying or limiting financial services on the basis of race), involves questioning the options for refinance and demand better rates. This can discourage calling the lender.

Many minority families are wary of the country’s real estate and banking infrastructure. Benjamin Keys, associate professor of real estate and finance at the Wharton School at the University of Pennsylvania, said he is often hesitant to apply for programs where mortgages can benefit distressed homeowners.

“For many, they may have a hard time qualifying for their first mortgage, and they may be able to pay them off, and they think twice about it, I don’t want to take the mortgage qualifying test again, Mr. Keys said, “I don’t have to retrieve my credit report and go through it. Someone has come to my house and you don’t need to be assessed. “

Earlier this month, to commemorate the 100th anniversary of the 1921 Tulsa racial massacre, the Biden administration announced a new agenda to tackle housing inequalities, including interdepartmental efforts to tackle discrimination in the housing appraisal process. Did. The government has on average $ 48,000 dumped for black-owned homes, with cumulative losses of $ 156 billion, according to a study by the Brookings Institution.

Andre Perry, Principal Investigator at the Brookings Institution and author of “Know Your,” said: Award: Assess the lives and assets of blacks in black towns in the United States, ”the report co-wrote.

“It’s really disappointing when people try to refinance and find that their home is worth less than it should be,” said Perry.

Write to Julia Carpenter at [email protected]

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