Overall, the differences in mortgage interest payments amount to $743 a year, mortgage insurance premiums come to $550 a year and property taxes are about $390 per year. Together, this results in $67,320 in lost retirement savings for Black homeowners when invested over 30 years, according to the paper.
These inequities make it impossible for Black homeowners to build wealth through home ownership at the same rate as White households, said Golding, who was head of the Federal Housing Administration from 2015 to 2017.
“The small differences compounding over the life of the mortgage and during home ownership can add up,” Golding said. “Even if it is a few hundred dollars a year here and there, it can amount to another year’s salary families would otherwise have.”
The burden of risk
Mortgage lenders use a system of risk-based lending, which charges borrowers who have less money for a down payment or a lower credit score more for their loan. This has disproportionately hurt Black homeowners, the researchers found.
Due to past discriminatory policies and practices, Black homeowners on average have lower credit scores and less savings available for down payments, the research shows.
Mortgage rates are now at historic lows, but many Black families are missing out on those super low rates because they are reserved for those with the highest credit scores and who can provide 20% down payments.
“While mortgage costs are determined by markets to some extent,” said Golding, “there is a great deal of public policy that influences these rates, especially as it impacts people of color. We can and should address these issues at a policy level and start now to eliminate the large wealth gap between Black and White homeowners that we created in part through our current mortgage system.”
In addition to risk-based pricing for mortgages, the researchers found that limited availability for family assistance with down payments and the way property taxes are assessed are “significant, calculable factors driving the higher cost of homeownership for African Americans.”
The researchers suggest that there are ways to change some disparities.
For example, risk could be pooled and priced uniformly into all mortgages. Separately, tax credits for first-time homeowners could be used as a down payment to reduce the effect of risk-based pricing. Another option is a government-supported insurance program that would cover an individual’s mortgage payments in the event of unemployment or disability.
Refinancing opportunities missed
Black households are also missing out on opportunities to refinance their mortgages to lower rates, the report found.
The paper estimates that the lack of refinancing opportunities results in Black homeowners paying another $475 per year more than White homeowners, resulting in a loss of cumulative retirement savings of nearly $20,000.
There are certain impediments to refinancing that disproportionately impact Black homeowners, including a high loan amount compared to the value of the home, low credit scores and employment issues, Golding said. And some lenders are not interested in refinancing lower balance loans because of the fixed costs of refinancing, he added.
Black households are stuck with higher rates as a result, said Golding. “Yet these are the homeowners who we should care about the most and you reduce the risk in the system when you have lower payments.”
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