We document large racial disparities in the ability of homeowners to access their accumulated housing wealth. Minority homeowners are significantly more likely to have their mortgage equity withdrawal (MEW) product applications rejected than White homeowners, and the unconditional disparities are significantly larger than those found in prior studies that focused on purchase and rate/term refinance loans. Had Black homeowners faced the same MEW denial rate as White homeowners in our sample period we show they would have extracted an additional $11.2 billion in housing equity, or almost 25% of the total amount of actual equity extracted. Controlling for key underwriting variables significantly narrows the racial disparities, with the Black–White gap falling by nearly 85%, and the Hispanic-White gap falling by more than 75%. Credit scores and debt-to-income ratios are the most important factors explaining the gaps, while differences in loan-to-value ratios contribute only modestly. “Residual” disparities after conditioning on observable underwriting factors are large and vary significantly across lenders. A battery of tests suggests that differences in unobserved underwriting factors are unlikely to fully explain the residual disparities, which tend to be larger in geographic areas characterized by more racial animus.

An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002-2006 U.S. house price boom. By contrast, this paper documents a robust, negative correlation between the growth in the share of purchase mortgages to subprime borrowers and house price appreciation at the county-level during this time. Using two different instrumental variables approaches, we also establish causal evidence that house price appreciation lowered the share of purchase loans to subprime borrowers. Further analysis using micro-level credit bureau data shows that higher house price appreciation reduced the transition rate into first-time homeownership for subprime individuals. Finally, the paper documents that subprime borrowers did not play a significant role in the increased speculative activity and underwriting fraud that the literature has linked directly to the housing boom. Taken together, these results are more consistent with subprime borrowers being priced out of housing boom markets rather than inflating prices in those markets.

Abstract We test for pricing disparities in mortgage contracts using a novel data set that allows us to observe the race and ethnicity of both parties to the loan. We find that minorities pay between 3% and 5% more in fees than similarly qualified whites when obtaining a loan through the same white broker. Critically, we find that the premium paid by minorities depends on the race of the broker. We also examine recent policy changes around broker compensation rules that may not only reduce these price disparities but may also limit access to credit for minorities.

Abstract We explore an overlooked phenomenon in mortgage markets: repayment of underwater mortgages. Using a sample of mortgages terminated between 2007 and 2016, we show that such repayment indeed occurs, and that it is affected by the same factors commonly used in studies of default: the magnitude of home equity and the borrower’s credit score, which captures default cost as well as liquidity. A novel insight is that underwater repayers, unlike most defaulters, are not liquidity constrained, providing a much cleaner environment to study default costs. We estimate lower bounds on these costs. Our results indicate that default costs are substantial.