Minority homeowners face greater difficulty leveraging equity

Leveraging Home Equity, Growth by leaps and bounds A recently released report shows that in recent years, housing has remained out of reach for many minority homeowners.

A Federal Reserve Bank of Philadelphia analysis of Home Mortgage Disclosure Act (HMDA) data found that minority homeowners were turned away at higher rates than white homeowners between 2018 and 2021.

Specifically, black, Hispanic, and Asian homeowners declined HELOC products at 44%, 32%, and 30%, respectively, compared to 23% for white homeowners.

The report suggests that the reason for this difference may stem from discrimination by lenders.”[playing] Home equity loans can do more than automate purchase and refinance loans because HELOC and HELoan loans are less automated and rely more on face-to-face interaction between borrowers and lenders. “

Reports show that credit unions have higher HELOC denial rates for minority homeowner banks than non-bank institutions.

“This finding is closely related to empirical evidence showing that credit unions do not serve low- and moderate-income individuals as well as banks,” the report’s authors wrote. “Our results illustrate another dimension of credit union inclusion in credit provision: race.” sex.” .

According to an analysis by the Federal Reserve Bank of Philadelphia, Black homeowners applied for more than $46 billion in credit to draw down their home equity during the period analyzed in the report, but were denied $23 billion. On the other hand, white applicants were denied a total of only $11.8 billion.

Generally speaking, HELOC loans have higher rejection rates than purchase and refinance loans. According to the report, 26% of HELOC loan requests are denied, while the denial rate for purchase and refinance requests is 10%.

For HELOC products, the gap in denial rates is 21.9% for blacks, 9% for whites, 9% for Asians, and 7% for Asians, respectively, and the gap in denial rates for HELOC loan products is two to seven times greater than for non-HELOC mortgages .

Studies indicate that minority acceptance rates for HELOC products are lower than 80% of whites, indicating potential adverse effects.

“These large unconditional differences suggest that, on average, minority homeowners do not have the same ability as white homeowners to use their accumulated housing wealth to improve their overall economic and financial well-being,” the report states. The results indicate that Even if policymakers are able to close the large gap in homeownership among white minorities, a significant source of racial inequality will remain due to differences in the ability to reap the economic benefits of homeownership. “

Factors that influence rejection rates can be explained by the homeowner’s credit score, debt-to-income ratio, loan amount applied for and the applicant’s income level. The report said collateral, or lack of equity, played a “surprisingly small” role in rejection rates.

The analysis by the Federal Reserve Bank of Philadelphia also showed a positive correlation between geographic location and the level of racial hostility in a metropolitan statistical area and the residual black-white rejection rate gap. This suggests that discrimination may be driving some of the conditional racial disparities in HELOC denial rates, the report states.

HELOC products have gained popularity over the past year, with leading industry players including Figure Technologies expands its product range to its customers.

However, despite the product’s growing popularity, Report by pointHome equity platforms indicate that access to home equity remains an ongoing challenge due to high rejection rates for HELOC loans. One factor affecting denials of this product type may be stricter underwriting standards.

According to Point’s analysis of Home Mortgage Disclosure Act data, the denial rate for HELOCs is 46%, compared with 12% for conventional mortgages.

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