Fed: Low Loan Rates Led to Refis, but Fewer Blacks Did So

3 Fed banks looked at home refis in the first 9 months of 2020. They found that 6% of Black borrowers switched to a lower rate compared to 12% of white borrowers.

ATLANTA – The Federal Reserve Banks of Atlanta, Philadelphia and Boston estimated that only 6% of Black borrowers refinanced their mortgages from January to October 2020, compared to 12% of white borrowers, 14% of Asian borrowers and 9% of Latino borrowers.

Just 3.7% ($198 million) of an estimated $5.3 billion of savings for all households that refinanced in that period went to Black households.

Data from Freddie Mac indicate that historically low rates plus people staying at home longer led millions to renegotiate the terms of their mortgages, with 8 million refinances transpiring throughout last year.

The mortgage giant estimates that refinancing could save nearly half of Black and Latino households around $1,200 annually. Although borrowers with variable mortgages could do well when central banks lower interest rates, America’s most popular home loan is the 30-year fixed mortgage, which requires refinancing to take advantage of reduced rates.

“The Fed is in this era of monetary policy accommodation, but I would argue it benefits people who are already more well-off,” says Freddie Mac’s Sam Khater.

Fed researchers also cite practical and historical variables hindering Black and Latino mortgage refinancing, such as average closing costs of about $5,000, the pandemic’s disproportionate economic impact on Black and Latino households, and a legacy of discrimination.

“For a lot of people, they may have struggled to qualify for their first mortgage and they may be able to make those payments, and so they think well, I don’t want to go through the ordeal of qualifying for a mortgage again,” adds University of Pennsylvania Professor Benjamin Keys.

Source: Wall Street Journal (06/23/21) McCorvey, J.J.; Carpenter, Julia

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