Ethno-Racial and Credit Worthiness Disparities in Access to Mortgage Credit

Abstract

Abstract The mortgage industry is central to ethno-racial stratification in homeownership access. Ample research demonstrates that unequal treatment of minorities has created major differences in the access and exclusion of low-cost loan products in the housing market. While numerous studies have documented the disadvantages Black and Latino homebuyers face, these studies have been limited in their assessment of credit worthiness in accessing a mortgage. This study draws on the annual dataset from the Home Mortgage Disclosure Act from 2018 and 2019 to assess ethno-racial disparities in mortgage outcomes by debt-to-income (DTI) levels. I demonstrate that DTI levels vary tremendously by ethno-racial groups. In addition, I show that loan rejections and high-cost loan originations are highest among Blacks and Latinos across DTI levels compared to White applicants. Depending on the adverse loan outcome, Asians perform similarly or slightly underperform compared to Whites. These trends are particularly true when examining high-cost loan originations as Blacks and Latinos with excellent credit worthiness perform similarly as Whites and Asians with below-average credit worthiness. Implications for ethno-racial stratification are discussed.