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Summary:

The COVID-19 pandemic was characterized by both high refinancing volumes and high rates of mortgage nonpayment. Refinancing activity differed significantly across racial and ethnic groups, and we show that the benefits from the lower interest rate environment were not shared equally. Compared to white borrowers, Black and Hispanic mortgage borrowers experienced higher rates of nonpayment, which reflected both a greater transition into nonpayment status for Black and Hispanic borrowers and a lower likelihood of resuming payments. However, strong house price appreciation in recent years, particularly in 2020, means that foreclosure risk is lower for past-due borrowers as compared to the 2007–10 period. In addition, borrowers in nonpayment have significantly higher credit scores now than in the 2007–10 period, in part thanks to the widespread availability of forbearance for federally backed mortgages.

Key findings:

  1. In a sample of 5 million owner-occupied mortgages, we estimate that between January and October 2020, only 6 percent of Black borrowers refinanced, compared to 12 percent of white borrowers, 14 percent of Asian borrowers, and 9 percent of Hispanic borrowers.
  2. Among those who refinanced to a new 30-year mortgage, we estimate that borrowers saved an average of $280 per month. There aren't significant differences in the average dollar amount of payment savings between racial groups, but since Black borrowers were less likely to refinance, they received a disproportionately small share of the aggregate savings that went to refinancers.
  3. Using a sample of all borrowers who were current in February 2020, we find that 15.6 percent of Black borrowers missed at least one payment, compared to 6.5 percent of white borrowers.
  4. Our analysis shows that the vast majority of borrowers with active mortgages in February 2021 had accumulated significant housing wealth, due in large part to robust house price growth in the prepandemic and pandemic periods. The median value of equity in our sample is 45.2 percent, with significant variation across race/ethnic groups. The median Black borrower and median Hispanic borrower have accumulated significantly less equity.

Center for Housing and Policy

JEL classification: G21, G51, E52, J15

Key words: mortgage refinancing, mortgage repayment, home equity, racial inequality

https://doi.org/10.29338/ph2021-06


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