Missing From the Refinancing Boom: Black Homeowners
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Here's your Money Briefing for Thursday, June 24th. I'm Charlie Turner for The Wall Street Journal, filling in for J.R. Whelan. Last year, millions of American homeowners took advantage of low interest rates to refinance their mortgages. But black households were largely left out of the refinancing boom.
Of an estimated $5.3 billion in savings for all households that refinanced during this 10-month period, only $198 million or less 3.7% went to black households, and that is a very, very, very small piece of the pie.
Coming up, our reporter J.J. McCorvey will discuss why so few black homeowners renegotiated their mortgages. That's after the break.
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2020 was the year of the pandemic, but it was also the year that millions of Americans chose to refinance their mortgages. Eight million people refinanced last year, according to Freddie Mac. However, not everyone caught the refinancing wave. From January to October of last year, only 6% of Black homeowners refinanced their mortgages versus 12% of white borrowers, according to a new Federal Reserve report. Let's explore some of the reasons for these disparities with our reporter, J.J.
What is the refinancing gap for Black homeowners during last year's mortgage boom?
McCorvey. JJ, thanks for coming on the show. Hey, Charlie. Thanks for having me. JJ, before we get into this racial gap, let's take a step back. Why did so many people refinance their mortgages last year? What are the benefits of refinancing?
Yeah, so interest rates reached historically low levels during the pandemic. And that, combined with people spending more time at home, led millions to renegotiate the terms of their mortgages to try to get locked into lower rates.
Right. And the savings from refinancing can be significant. Freddie Mac estimates doing so could save nearly half of Black and Latino households about $1,200 a year. And yet we saw fewer Black households refinance last year. What kind of impact does the Fed say that'll have?
So of an estimated $5.3 billion in savings for all households that refinance during this 10-month period that they examined in the report, only 198 million or 3.7% went to black households, and that is a very, very, very small piece of the pie.
Okay, let's talk about what's behind this racial gap in refis, JJ. Is there something about the refinancing process that's contributing to this?
Yeah, there's a barrier to entry to refinancing, which is that closing costs and things like that lead to people not wanting to refinance. America's most common home loan is the third year fixed mortgage, which requires going through the refinancing process to take advantage of lower rates. And the closing costs associated with refinancing average are about $5,000, according to Freddie Mac. But that's also kind of digging into that a bit more. There's also title insurance and origination fees, and that can also get rolled into the new mortgage terms. And experts I spoke to talked about how the larger that gets, the more likely it is for it to start eroding the benefit of refinancing in the first place.
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