Despite historically low interest rates, not everyone can access capital to buy or fix a home or switch to a lower-interest loan. According to the most recent Home Mortgage Disclosure Act (HMDA) data, 16.1 percent of all mortgage applications in 2020 were denied. Of those denials, Black borrowers had the highest denial rate (27.1 percent), whereas white borrowers had the lowest (13.6 percent).

The simplest way to calculate mortgage denial rates is to divide all denied loans by total loan applications. But breaking out different types of mortgages to calculate the most relevant denial rates reveals often-overlooked racial disparities in the mortgage market.

Using other methods of calculating denial rates can help researchers uncover more details about who is denied for what loans and why and can inform strategies to increase homeownership, make it more affordable, and make home improvement and home equity extraction easier and safer.

In 2020, HMDA data show home improvement loan applications had the highest denial rate (38.8 percent). Though they’re more likely to live in older homes, more than half of Black (63.0 percent) and Hispanic (56.6 percent) home improvement applicants were denied loans to make necessary repairs and renovations.

Compared with white and Asian borrowers, Black and Hispanic borrowers were also significantly more likely to be denied home purchasing loans and refinancing loans for existing mortgages that would allow them to take advantage of historically low interest rates. The denial rate was also high for cash-out refinances, particularly for Black and Hispanic households. This suggests that even with sufficient home equity from the recent rise in home prices, homeowners of color face greater barriers to extracting cash from their housing wealth when needed.

Read the full article about racism in the mortgage market by Jung Hyun Choi and Peter J. Mattingly at Urban Institute.