[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/fip/fedpwp/97266.html
   My bibliography  Save this paper

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

Author

Listed:
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.

Suggested Citation

  • James Conklin & Kristopher Gerardi & Lauren Lambie-Hanson, 2023. "Can Everyone Tap into the Housing Piggy Bank? Racial Disparities in Access to Home Equity," Working Papers 23-25, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:97266
    DOI: 10.21799/frbp.wp.2023.25
    as

    Download full text from publisher

    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2023/wp23-25.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.21799/frbp.wp.2023.25?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. James Kau & Donald Keenan & Henry Munneke, 2012. "Racial Discrimination and Mortgage Lending," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 289-304, August.
    2. Gabriel, Stuart A. & Rosenthal, Stuart S., 2005. "Homeownership in the 1980s and 1990s: aggregate trends and racial gaps," Journal of Urban Economics, Elsevier, vol. 57(1), pages 101-127, January.
    3. Boehm, Thomas P. & Schlottmann, Alan M., 2004. "The dynamics of race, income, and homeownership," Journal of Urban Economics, Elsevier, vol. 55(1), pages 113-130, January.
    4. Stephens-Davidowitz, Seth, 2014. "The cost of racial animus on a black candidate: Evidence using Google search data," Journal of Public Economics, Elsevier, vol. 118(C), pages 26-40.
    5. W. Scott Frame & Ruidi Huang & Erik J. Mayer & Adi Sunderam, 2022. "The Impact of Minority Representation at Mortgage Lenders," NBER Working Papers 30125, National Bureau of Economic Research, Inc.
    6. Kerr, Sari Pekkala & Kerr, William R. & Nanda, Ramana, 2022. "House prices, home equity and entrepreneurship: Evidence from U.S. census micro data," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 103-119.
    7. Coulson, N. Edward & Dalton, Maurice, 2010. "Temporal and ethnic decompositions of homeownership rates: Synthetic cohorts across five censuses," Journal of Housing Economics, Elsevier, vol. 19(3), pages 155-166, September.
    8. Begley, Jaclene, 2017. "Legacies of homeownership: Housing wealth and bequests," Journal of Housing Economics, Elsevier, vol. 35(C), pages 37-50.
    9. Francine D. Blau & Lawrence M. Kahn, 2017. "The Gender Wage Gap: Extent, Trends, and Explanations," Journal of Economic Literature, American Economic Association, vol. 55(3), pages 789-865, September.
    10. Andrew Benito, 2009. "Who Withdraws Housing Equity and Why?," Economica, London School of Economics and Political Science, vol. 76(301), pages 51-70, February.
    11. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
    12. Paul S. Willen & David Hao Zhang, 2020. "Do Lenders Still Discriminate? A Robust Approach for Assessing Differences in Menus," Working Papers 20-19, Federal Reserve Bank of Boston.
    13. Phillip B. Levine & Dubravka Ritter, 2024. "The racial wealth gap, financial aid, and college access," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 43(2), pages 555-581, March.
    14. Kerwin Kofi Charles & Erik Hurst, 2002. "The Transition To Home Ownership And The Black-White Wealth Gap," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 281-297, May.
    15. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
    16. Chau Do, 2012. "Withdrawing Home Equity: Differences Across Race and Ethnicity," Housing Studies, Taylor & Francis Journals, vol. 27(3), pages 299-323.
    17. Brent W Ambrose & James N Conklin & Luis A Lopez, 2021. "Does Borrower and Broker Race Affect the Cost of Mortgage Credit? [Why don’t lenders renegotiate more home mortgages? Redefaults, self-cures and securitization]," The Review of Financial Studies, Society for Financial Studies, vol. 34(2), pages 790-826.
    18. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
    19. Moulton, Stephanie & Haurin, Donald R. & Shi, Wei, 2015. "An analysis of default risk in the Home Equity Conversion Mortgage (HECM) program," Journal of Urban Economics, Elsevier, vol. 90(C), pages 17-34.
    20. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
    21. Lauren Krivo & Robert Kaufman, 2004. "Housing and wealth inequality: Racial-ethnic differences in home equity in the United States," Demography, Springer;Population Association of America (PAA), vol. 41(3), pages 585-605, August.
    22. Stefano Corradin & Alexander Popov, 2015. "House Prices, Home Equity Borrowing, and Entrepreneurship," The Review of Financial Studies, Society for Financial Studies, vol. 28(8), pages 2399-2428.
    23. Sumit Agarwal & Brent W. Ambrose & Souphala Chomsisengphet & Chunlin Liu, 2011. "The Role of Soft Information in a Dynamic Contract Setting: Evidence from the Home Equity Credit Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 633-655, June.
    24. Deng, Yongheng & Ross, Stephen L. & Wachter, Susan M., 2003. "Racial differences in homeownership: the effect of residential location," Regional Science and Urban Economics, Elsevier, vol. 33(5), pages 517-556, September.
    25. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
    26. Patrick Kline & Evan K Rose & Christopher R Walters, 2022. "Systemic Discrimination Among Large U.S. Employers [“Teachers and Student Achievement in the Chicago Public High Schools,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(4), pages 1963-2036.
    27. Liz Marshall & Sabrina Pellerin, 2017. "Credit Unions: A Taxing Question," Econ Focus, Federal Reserve Bank of Richmond, issue 2Q, pages 20-23.
    28. Matteo Benetton & Marianna Kudlyak & John Mondragon, 2022. "Dynastic Home Equity," Working Paper Series 2022-13, Federal Reserve Bank of San Francisco.
    29. Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2018. "What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders," The Review of Financial Studies, Society for Financial Studies, vol. 31(1), pages 175-205.
    30. Amir Kermani & Francis Wong, 2021. "Racial Disparities in Housing Returns," NBER Working Papers 29306, National Bureau of Economic Research, Inc.
    31. Hilber, Christian A.L. & Liu, Yingchun, 2008. "Explaining the black-white homeownership gap: The role of own wealth, parental externalities and locational preferences," Journal of Housing Economics, Elsevier, vol. 17(2), pages 152-174, June.
    32. Dawkins, Casey J., 2005. "Racial gaps in the transition to first-time homeownership: The role of residential location," Journal of Urban Economics, Elsevier, vol. 58(3), pages 537-554, November.
    33. Alex Carlin, 2018. "Home Improvement Lending in the Third Federal Reserve District: Patterns by Income, Race, and Gender," Cascade Focus, Federal Reserve Bank of Philadelphia, December.
    34. Duca, John V. & Kumar, Anil, 2014. "Financial literacy and mortgage equity withdrawals," Journal of Urban Economics, Elsevier, vol. 80(C), pages 62-75.
    35. Laurie S. Goodman & Christopher Mayer, 2018. "Homeownership and the American Dream," Journal of Economic Perspectives, American Economic Association, vol. 32(1), pages 31-58, Winter.
    36. Neil Bhutta & Aurel Hizmo, 2021. "Do Minorities Pay More for Mortgages? [Higher-priced home lending and the 2005 HMDA data]," The Review of Financial Studies, Society for Financial Studies, vol. 34(2), pages 763-789.
    37. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(1), pages 120-144, spring.
    38. Bartlett, Robert & Morse, Adair & Stanton, Richard & Wallace, Nancy, 2022. "Consumer-lending discrimination in the FinTech Era," Journal of Financial Economics, Elsevier, vol. 143(1), pages 30-56.
    39. Bradford Case & Ann B. Schnare, 1994. "Preliminary Evaluation of the HECM Reverse Mortgage Program," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 301-346, June.
    40. Agarwal, Sumit & Ambrose, Brent W. & Liu, Chunlin, 2006. "Credit Lines and Credit Utilization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 1-22, February.
    41. Matthew E. Kahn, 2024. "Racial and ethnic differences in the financial returns to home purchases," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 908-927, May.
    42. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
    43. Ben Jann, 2008. "The Blinder–Oaxaca decomposition for linear regression models," Stata Journal, StataCorp LP, vol. 8(4), pages 453-479, December.
    44. Wainer, Allison & Zabel, Jeffrey, 2020. "Homeownership and wealth accumulation for low-income households," Journal of Housing Economics, Elsevier, vol. 47(C).
    45. Glenn B. Canner & Thomas A. Durkin & Charles A. Luckett, 1998. "Recent developments in home equity lending," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 84(Apr), pages 241-251, April.
    46. Jensen, Helen H., 1985. "Home Equity Use and the Life Cycle Hypothesis," Staff General Research Papers Archive 11234, Iowa State University, Department of Economics.
    47. Neil Bhutta & Steven Laufer & Daniel R. Ringo, 2017. "Residential Mortgage Lending in 2016: Evidence from the Home Mortgage Disclosure Act Data," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 103(6), November.
    48. Gabriel, Stuart & Painter, Gary, 2003. "Pathways to Homeownership: An Analysis of the Residential Location and Homeownership Choices of Black Households in Los Angeles," The Journal of Real Estate Finance and Economics, Springer, vol. 27(1), pages 87-109, July.
    49. Gyourko, Joseph & Linneman, Peter & Wachter, Susan, 1999. "Analyzing the Relationships among Race, Wealth, and Home Ownership in America," Journal of Housing Economics, Elsevier, vol. 8(2), pages 63-89, June.
    50. Davidoff, Thomas & Gerhard, Patrick & Post, Thomas, 2017. "Reverse mortgages: What homeowners (don’t) know and how it matters," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 151-171.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shaun A. Bond & Michael D. Eriksen, 2021. "The role of parents on the home ownership experience of their children: Evidence from the health and retirement study," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(2), pages 433-458, June.
    2. Zorlu, Aslan & Mulder, Clara H. & van Gaalen, Ruben, 2014. "Ethnic disparities in the transition to home ownership," Journal of Housing Economics, Elsevier, vol. 26(C), pages 151-163.
    3. Hilber, Christian A.L. & Liu, Yingchun, 2008. "Explaining the black-white homeownership gap: The role of own wealth, parental externalities and locational preferences," Journal of Housing Economics, Elsevier, vol. 17(2), pages 152-174, June.
    4. Hurtado, Agustin & Sakong, Jung, 2022. "The effect of minority bank ownership on minority credit," Working Papers 325, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    5. Chunhui Ren, 2020. "A Framework for Explaining Black-White Inequality in Homeownership Sustainability," Demography, Springer;Population Association of America (PAA), vol. 57(4), pages 1297-1321, August.
    6. Stephen L. Ross, 2005. "The Continuing Practice and Impact of Discrimination," Working papers 2005-19, University of Connecticut, Department of Economics, revised Jul 2006.
    7. Laurent Gobillon & Matthieu Solignac, 2020. "Homeownership of immigrants in France: selection effects related to international migration flows [A nation of immigrants: assimilation and economic outcomes in the age of mass migration]," Journal of Economic Geography, Oxford University Press, vol. 20(2), pages 355-396.
    8. Paolo Emilio Mistrulli & Md Taslim Uddin & Alberto Zazzaro, 2023. "Discrimination of Immigrants in Mortgage Pricing and Approval: Evidence from Italy," CSEF Working Papers 675, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    9. Durba Chakrabarty & Michael J. Osei & John V. Winters & Danyang Zhao, 2019. "Which immigrant and minority homeownership rates are gaining ground in the US?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(2), pages 273-297, April.
    10. Neil Bhutta & Aurel Hizmo & Daniel R. Ringo, 2022. "How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions," Finance and Economics Discussion Series 2022-067, Board of Governors of the Federal Reserve System (U.S.).
    11. Chakrabarty, Durba & Osei, Michael J. & Winters, John V. & Zhao, Danyang, 2017. "Are Immigrant and Minority Homeownership Rates Gaining Ground in the US?," IZA Discussion Papers 10852, Institute of Labor Economics (IZA).
    12. Bartlett, Robert & Morse, Adair & Stanton, Richard & Wallace, Nancy, 2022. "Consumer-lending discrimination in the FinTech Era," Journal of Financial Economics, Elsevier, vol. 143(1), pages 30-56.
    13. Ashleigh Eldemire & Kimberly F Luchtenberg & Matthew M Wynter, 2022. "Does Homeownership Reduce Wealth Disparities for Low-Income and Minority Households?," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 11(3), pages 465-510.
    14. Neil Bhutta & Aurel Hizmo & Daniel R. Ringo, 2024. "How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions," Working Papers 24-09, Federal Reserve Bank of Philadelphia.
    15. Dawkins, Casey J., 2005. "Racial gaps in the transition to first-time homeownership: The role of residential location," Journal of Urban Economics, Elsevier, vol. 58(3), pages 537-554, November.
    16. Rosenthal, Stuart S. & Ross, Stephen L., 2015. "Change and Persistence in the Economic Status of Neighborhoods and Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1047-1120, Elsevier.
    17. Laura Blattner & Scott Nelson, 2021. "How Costly is Noise? Data and Disparities in Consumer Credit," Papers 2105.07554, arXiv.org.
    18. Hagendorff, Jens & Nguyen, Duc Duy & Sila, Vathunyoo, 2022. "Does marriage equality promote credit access? Evidence from same-sex marriage laws," Journal of Corporate Finance, Elsevier, vol. 77(C).
    19. Mayock, Tom & Malacrida, Rachel Spritzer, 2018. "Socioeconomic and racial disparities in the financial returns to homeownership," Regional Science and Urban Economics, Elsevier, vol. 70(C), pages 80-96.
    20. Sean Lewis-Faupel & Nicholas Tenev, 2024. "Racial and Ethnic Disparities in Mortgage Lending: New Evidence from Expanded HMDA Data," Papers 2405.00895, arXiv.org.

    More about this item

    Keywords

    housing wealth; mortgage; home equity; racial disparities;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:97266. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Beth Paul (email available below). General contact details of provider: https://edirc.repec.org/data/frbphus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.