Working Paper

Can Everyone Tap into the Housing Piggy Bank? Racial Disparities in Access to Home Equity

Abstract: This paper documents large racial disparities in the ability of homeowners to access their housing wealth without moving. During the 2018–2021 period, Black homeowners’ mortgage equity withdrawal (MEW) product applications were rejected at almost double the rate of White homeowners (44% versus 23%), while Hispanic and Asian homeowners also experienced significantly higher denial rates (32% and 30%, respectively). These racial disparities in denials are much larger than those associated with purchase and rate/term refinance mortgage applications. Controlling for loan and borrower characteristics commonly used in the underwriting process significantly reduces the MEW disparities, with the Black-White denial rate gap falling by approximately 83%, and the Hispanic-White gap falling by 73%. Credit scores and debt-to-income ratios are the most important factors explaining the racial gaps, while differences in loan-to-value ratios contribute only modestly. Large disparities remain after controlling for underwriting factors, and these “residual” disparities vary significantly across lenders. While there are numerous potential drivers of the residual disparities, the pa per shows that they tend to be larger in geographic areas characterized by more racial animus, which suggests that discriminatory forces may play a role.

Keywords: housing wealth; mortgage; home equity; racial disparities;

JEL Classification: G21; G51; J15;

https://doi.org/10.21799/frbp.wp.2023.25

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2023-11-09

Number: 23-25