Ethno-Racial Stratification in the Refinanced Mortgage Market

Abstract

The mortgage industry is a key component of ethno-racial stratification in wealth and homeownership. Previous research demonstrates that unequal treatment of minorities has created inequality in access and exclusion to low-cost mortgage loans in the housing market. While prior studies have documented the disadvantages Black and Latino home seekers face in obtaining a mortgage, these studies have not considered the obstacles that current homeowners face when seeking to refinance their mortgage. This study draws on annual data from the Home Mortgage Disclosure Act (HMDA) from 2018 to 2019 to assess ethno-racial disparities in refinanced mortgage outcomes by loan purpose. I demonstrate that loan rejections and high-cost loans are highest among Black homeowners seeking to refinance their home, especially when trying to make home improvements or cashing-out equity from their home. In general, Asians and Latinos perform in between Whites and Blacks across mortgage outcomes and loan purpose. These trends are particularly true when examining adverse loan outcomes for applicants seeking a cash-out refinance. Implications for ethno-racial stratification and the wealth gap are discussed.