PHILADELPHIA (KYW Newsradio) — A recent study by the Federal Reserve Bank of Philadelphia revealed a disturbing trend among homeowners in Pennsylvania, New Jersey, and Delaware during the COVID-19 pandemic.
Refinancing can reduce a homeowner’s monthly mortgage payment, which lowers the risk of default and can provide for more savings.
Mortgage refinances were up 200% during the pandemic, but that was not the case for Black and low and moderate-income homeowners.
Those homeowners were less likely to apply and be approved for a re-fi than homeowners overall.
In 2020, the application growth rate for that group was about half of that for overall applicants.
The denial rate for refinancing for that group declined considerably in 2020 compared to the previous two years, but that was still seven to 14% above the denial rate for applicants overall.
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"The research found that the most common reason that a Black homeowner was denied a refinance mortgage was credit history, and the most common reason that a low or moderate-income homeowner was denied a refinance mortgage was a high debt to income ratio," said Kyle DeMaria, a community development resource associate with the Federal Reserve Bank of Philadelphia.
He added that the smaller application growth rate and higher denial rate may suggest that there’s a barrier.
“To what extent is the marketing that financial institutions pursue reaching black and low in moderate-income homeowners?" he asked.
"Are those homeowners aware of the value of pursuing low-interest-rate mortgages, especially in this low-interest-rate environment?”
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He said it also means many who could have really benefitted have missed out on big savings.
“Interest rates had declined to a point that [they] were lower than when many homeowners first originated their home mortgage," he said.
"There was an opportunity for many homeowners to take advantage of the lower interest rate environment they found themselves in.“
He said another reason could be that many homeowners chose to enter into forbearance programs. Before the spring of 2020, there was a 12-month waiting period for exiting before being eligible to apply for a refinanced mortgage.
DeMaria said research suggests there might be a role for financial institutions and other organizations that support homeowners to work with them to improve credit history or debt-to-income ratio to improve outcomes.
"If a homeowner is able to develop a good relationship with a personal banker to help provide guidance and understand the homeowners' complete financial history, that relationship might be valuable in helping a homeowner access the different financial resources or products that can help them," said DeMaria.
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