Executive Summary

In the United States, homeownership is one of the most significant drivers of wealth accumulation. Yet, racial and ethnic disparities in homeownership limit wealth-building opportunities for many families of color. Without this asset, these families face greater obstacles to intergenerational wealth transfer, perpetuating economic inequality across generations.

However, even for those who achieve homeownership, the financial benefits of owning a home vary significantly. Homeowners have disparate access to leveraging their home equity, which is the difference between the home’s value and what is still owed on the mortgage. Unlike the homeownership market, where potential home buyers seek to purchase a home to live in and build wealth with, the refinance mortgage market allows existing homeowners to maintain their ownership status while gaining access to a portion of their home’s equity or lowering their housing costs.

Access to mortgage refinancing is crucial in determining whether homeownership translates into long-term financial stability. Homeowners may refinance to lower their interest rates; adjust loan terms (e.g., switching from a 30-year to a 15-year mortgage); reduce monthly payments; or access their home equity for home improvements, personal consumption, or investment. Yet, structural barriers and lending practices can limit refinancing opportunities for homeowners of color, reinforcing broader racial wealth gaps.

To explore the implications of mortgage refinancing disparities, this brief examines how access to refinance mortgage credit varies by a homeowner’s race and ethnicity in Los Angeles County. Our analysis of 2018 and 2019 Home Mortgage Disclosure Act (HMDA) data found that Black and Latino homeowners in Los Angeles County faced significant barriers to refinancing, particularly for home improvements and cash-out equity. These barriers restricted the ability of Black and Latino communities to leverage homeownership as a financial asset and exacerbated long-standing ethnic and racial wealth disparities. Our analysis underscores the need for interventions that address inequities in refinancing approval, home renovation assistance, and mortgage data transparency

Key Findings:

• Latino and Black homeowners were less likely to be approved for a conventional refinance loan and were more likely to be denied a loan or offered a high-cost loan than white or Asian homeowners.
  • From 2018 to 2019, 34% of Black and 32% of Latino applicants were denied a refinance mortgage, compared to 24% of white applicants and 28% of Asian applicants.
  • Nearly 40% of Latino applicants were denied or received a high-cost refinance loan compared to just 30% of whites in Los Angeles County.
• Latino and Black homeowners were more likely to receive high-cost refinance loans—especially for home improvements.
  • Among 2018 to 2019 applicants for home improvement refinancing, Latino homeowners had a 12.4% chance of getting a high-cost loan, and Black homeowners had a 12.3% chance. White applicants and Asian applicants had lower chances (10% and 8.6% respectively).
• Latino and Black homeowners were more likely than white or Asian homeowners to be denied when trying to refinance their mortgage.
  • Between 2018 and 2019, Black and Latino homeowners had a 26% refinance denial rate, compared to 20% for white and 24% for Asian homeowners.

Policy Recommendations:

1. Revise underwriting criteria to account for homeowner tenure and utility payments. Lenders should improve their process for determining loan eligibility by factoring in how long a borrower has owned their home and whether they’ve consistently paid their utility bills. This would provide a more accurate assessment of a borrower’s financial stability. Loan underwriting varies by lender, as each lender applies its own unique criteria and risk tolerance when determining loan approval. Despite potential differences, the process generally relies on common financial indicators such as credit scores, income, assets, and debt-to-income ratios to assess an applicant’s ability to repay. While underwriting criteria may not be explicitly discriminatory, the financial indicators used to assess risk can reinforce ethnic and racial inequities in lending. Currently, an applicant’s mortgage and utility payment history are not directly reflected in credit scores or standard underwriting processes. However, studies show that past mortgage payment history is a stronger predictor of future mortgage performance than homeowner credit scores.
2. Expand local home renovation and repair assistance programs. Specifically, the City and County of Los Angeles should expand and strengthen their focus to better assist homeowners of color in accessing home renovation and repair assistance. Based on our analysis, racial and ethnic minorities need additional assistance to overcome the barriers they face in accessing capital for renovations and home improvements, which help secure home values.
3. Expand State Support for Home Improvement Financing. The state should increase support for the California CalHome Program, which provides grants to local public agencies and nonprofits to help with housing repairs and improvements. Part of the program offers funding for refinance mortgage counseling and loan distribution for building ADUs (Accessory Dwelling Units), repairs, reconstructing, and making accessibility upgrades.
4. Improve transparency and enforcement in mortgage lending. The Consumer Financial Protection Bureau (CFPB) should expand its data collection rules under the Home Mortgage Disclosure Act (HMDA) to better understand and address ethnic and racial disparities in mortgage refinancing. Currently, HMDA does not include requirements to collect key financial details like credit scores, savings, or employment history—factors that banks often use to make loan decisions. Without this data, it’s hard to assess the mechanisms that may be contributing to unfair outcomes for Black and Latino homeowners.