Black homeowners missed mortgage refinancing boom, Fed study results

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Underline persistent racial wealth gap In the housing sector, black homeowners lost their financial footing during the coronavirus recession. new research Federal Reserve Banks of Atlanta, Boston and Philadelphia.

The report analyzed 5.6 million mortgage loans and concluded that black borrowers were more likely to lag behind and delay loan payments. Another grim takeaway: Black homeowners are less likely to cash in on last year’s mortgage rates by refinancing. The authors of the report are economists Christopher Girardi of the Atlanta Fed, Lauren Lambi-Hanson of the Philadelphia Fed, and Paul Willen of the Boston Fed.

Black borrowers were more likely to lag behind

Generous mortgage benefits from the federal government staved off a wave of foreclosures during the pandemic. However, not all news is good. Fed economists found that among Americans who had mortgages as of January 2020, before the pandemic began, 12.3 percent of black homeowners were late in October 2020. Only 4.3 percent of white homeowners are late on home loans in the United States. Fall.

The report also indicates that 44 percent of black homeowners who were late in payments due to the pandemic were still late in October 2020. In comparison, 35 percent of white borrowers were left behind.

“To date, treatment rates for non-payments among black borrowers are particularly low, indicating that they have experienced the most persistent mortgage crisis due to the pandemic,” the authors write.

Black workers have been hit harder by the coronavirus recession, according to the Labor Department. The official unemployment rate for African Americans in May was 9.1 percent, compared with 5.1 percent for white workers.

Black borrowers are less likely to refinance

Until October 2020, only 6 percent of black borrowers were refinanced, compared with nearly 12 percent of white borrowers, 14 percent of Asian borrowers and 9 percent of Latin American borrowers, Fed economists found.

Another way to look at the numbers: For all the American homeowners who participated in the refinancing boom, the cumulative savings are $ 5.3 billion a year. However, black homeowners earned just $ 198 million, or 3.7 percent of total savings.

African Americans are less likely to refinance, in part due to lower credit ratings and higher loan-to-value ratios.

The Fed’s report is just the latest evidence of a persistent racial divide in the housing market. Fewer than half of African Americans own homes, compared with nearly three-quarters of white Americans.

What You Can Do: Bridging the Wealth Gap

Indeed, there is little that humans can do to combat systemic inequality. But borrowers have ways to tilt the mortgage game in their favor. Four strategies:

  • Improve your credit score… This is the main benchmark used by lenders to set interest rates. The higher your score, the more profitable you will get a mortgage. One caveat: this is not a quick fix. Depending on your financial situation, polishing your credit history can take months or years.
  • Take a closer look at the shops. Even for borrowers with an outstanding credit history, rates and closing costs can vary greatly from lender to lender. For borrowers with less than ideal credentials, looking around becomes more important. Don’t limit your purchases to regular branches – the best deals often come from lenders who don’t have an office in your area.
  • Take advantage of record low rates. According to research by the Black Knight Company, millions of Americans of all races could benefit from refinancing, but did not. African Americans may be overrepresented in this total.
  • Carry out investigations first-time homebuyer assistance programs… Many states and some cities offer grants and loans to cover closing costs or down payments. These programs often identify newcomers as those who have not owned one in the past three years.

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