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The Role of Race in Mortgage Application Denials


Kim-Eng Ky Senior Data Scientist, Community Development and Engagement (former)
Katherine Lim Economist, Community Development and Engagement
The Role of Race in Mortgage Application Denials


Using the confidential Home Mortgage Disclosure Act (HMDA) data from 2018 to 2020, we estimate differences in denial rates for conventional mortgage applications for home purchases between racial and ethnic groups. Our work extends the existing literature by controlling for newly available characteristics of the borrower, including credit score and more detailed loan-to-value and debt-to-income ratios associated with an application. In our baseline specification, we estimate that Black applicants are 2.9 percentage points more likely to have their mortgage application denied relative to White applicants, while Asian and Latinx applicants are 2.2 percentage points and 1.5 percentage points, respectively, more likely to be denied. Lone applicants of color face greater disparities than co-applicants of color, particularly for Black and Latinx applicants. We find that disparities exist for the majority of lenders even after estimating separate models by lender, although the estimated disparities across lenders are quite varied. We find evidence that lender characteristics are associated with the size of disparities: independent mortgage companies and lenders that sell a high proportion of their loans have the lowest denial rates and smallest racial disparities in denial rates. Our results suggest the persistence of racial disparities in mortgage access and can inform policymakers interested in addressing the broader racial wealth and homeownership gap. Revised May 1, 2022