Millions of homeowners are trying to refinance their mortgages due to record-low mortgage interest rates. Federal Reserve economists have released a surprise report that shows a gap in the number of minority and white borrowers taking advantage of these savings.According to the report, only 6% of Black homeowners refinanced between January 2020 and October 2020. This compares to nearly 12% for white homeowners.A Freddie Mac survey also found that nearly half of Black and Hispanic borrowers could make $1,200 per year by refinancing. However, they do so at a significantly lower level than white borrowers.Benjamin Keys, a Wharton professor of real estate, wants to close that gap.He said that mortgage refinancing is the financial decision that most households don't take advantage of. You can take all the financial advice out there, but those are only a small part of the overall picture when you consider locking in a low-interest long-term mortgage rate for your home.I urge people to shop around for reliable sources and to return to their bank to talk to them. Benjamin KeysKeys stated that the reasons for the racial disparity when refinancing are consistent with evidence of other housing inequities during a SiriusXM interview with Wharton Business Daily. Listen to the podcast. Both public policy and private sector have long-standing structural racism that has resulted in income and credit scores as well as loan-to-value ratios, and other risk factors that hinder minorities from refinancing.Keys stated that the coronavirus pandemic has been a major factor in the current problem. This is because black and Hispanic households are more susceptible to job loss than white ones. In May, the U.S. unemployment rate was 5.8%. However, it was 7.3% for Hispanics while it was 9.1% for Blacks.While some of this could be due to income and job disruptions, Keys said that there is another factor. Keys suggested that it is directly related to how tight mortgage credit is currently. The availability of mortgage credit is very limited. Refinancing can be difficult and it can be hard to obtain a loan.Refinance can cost thousands upfront for title search, property reappraisal, application fees, and other fees. These costs can deter minority homeowners who may be strapped for cash, or are hesitant about the process.Keys stated that they might feel that it was too much work to go through all the hoops again. They may also be concerned about being rejected if they apply again.He said trust is another problem. Some minority homeowners may not be able to research their refinance options due to poor treatment or fear of being scammed. Keys advised them to not miss the opportunity for savings.He advised people to research reliable sources and to talk to their bank. Refinance has seen its biggest boom, but I feel that lenders and mortgage brokers have more resources at the moment and are able to take calls and answer questions.Why can't refinancing be done automatically?The 30-year fixed-rate mortgage is America's most popular mortgage. Keys stated that it is safe and steady, even though it may not always be the best option for consumers. Young borrowers, for example, are less likely to remain in the same house long enough to enjoy the benefits. There isn't much innovation in loan instruments.Refinancing can be difficult and it can be hard to obtain a loan. Benjamin KeysHe said that automatic refinancing would be a benefit to all households. It would occur when rates fall by a certain number of basis points. This would help even out some racial inequalities. It is technically and legally possible to automate your refinance; adjustable-rate mortgages do it already. However, it would be difficult to convince investors in mortgage-backed securities that they are open to the idea.Do investors have the ability to understand and price the risks they face if they are to invest in a pool of these mortgages. Keys stated that it is something worth trying out. There is a shortage of innovation. Given the resignation of the Federal Housing Authority head, Keys believes that someone could step in and revitalize Fannie Mae/Freddie Mac as the engines of innovation and mortgage financing.The mortgage interest rates hover just above 3% on a 30-year loan, and lower for an ARM and a 15 year loan. Record low rates are due to the Fed's monetary policy and market factors. They are expected to increase slowly over the next year. Keys stated that now is the best time to refinance and/or buy a house.He said that although I don't have a crystal ball, it appears like interest rates will remain low on the mortgage side. They won't plummet to 2.75% or lower so locking in a rate of around 3% seems like an excellent option.
