• Denial rates for conventional loan applications dropped from 12.4 percent in 2013 to 10.4 percent in 2015. Denial rates for FHA-backed loans dropped from 17.4 percent in 2013 to 13.9 percent in 2015.
• The drop in denial rates was particularly significant for minority groups. The conventional loan denial rate for black applicants fell from 27.6 percent in 2013 to 22.4 percent in 2015; for Hispanic applicants, the conventional loan denial rate fell from 21.9 percent to 17.3 percent. Both groups experienced similar improvements among applications for FHA-backed loans.
• But mortgage applications from blacks and Hispanics are still denied at more than twice the rate of those submitted by white applicants.

Newly released mortgage application, approval and denial data from the Home Mortgage Disclosure Act show that getting a mortgage continued to get somewhat easier in recent years, a boon to buyers otherwise concerned with fast-moving inventory and intense competition. But despite improvement overall, there remain stark differences in mortgage denial rates and the ease of getting a mortgage between whites and minorities.

In 2015, U.S. home buyers submitted 3.66 million mortgage applications to purchase a primary residence with a loan backed by Government Sponsored Entities Fannie Mae and Freddie Mac (a “conventional” loan) or backed by the Federal Housing Administration (FHA). This represents a roughly 14.3 percent increase from 2014, when there were about 3.21 million such applications (figure 1). More than half of this increase can be attributed to a jump in applications for FHA-backed loans, which rose 30.0 percent from 2014. Over the same time, applications for conventional loans backed by Fannie and Freddie rose just 7.8 percent.

And at the same time as the number of loan applications rose, mortgage denial rates fell, for both FHA and conventionally backed loans. After increasing steadily for several years during the housing bust, mortgage denial rates for FHA-backed loans dropped from 17.4 percent in 2013 to 13.9 percent in 2015. Denial rates for conventional loan applications also dropped over the same period, from 12.4 percent in 2013 to 10.4 percent in 2015 (figure 2).

First-Time Buyers, Long-Time Struggles

The recent increase in FHA-backed loan applications is surprising, given a steady decline over the prior four years as credit standards for eligible buyers rose, and particularly given new competition for ultra-low down payment loans. FHA rules allow eligible borrowers to make a down payment as small as 3.5 percent of the purchase price of their home, and for many years FHA-backed loans were essentially the only option for borrowers intending to make a down payment of less than 5 percent. But starting in 2015, Fannie and Freddie officially approved down payments as low as 3 percent for conventional loans. Still, despite the new competition, FHA loan application volume swelled throughout 2015, potentially because of an increase in first-time home buyers in the market attracted to or otherwise pushed into FHA-backed loans.

The drop in mortgage denial rates was particularly significant for minority groups. Complete applications for conventional mortgages submitted by black and Hispanic applicants were denied 22.4 and 17.3 percent of the time in 2015, down from 27.6 percent and 21.9 percent in 2013, respectively. There was similar improvement in the FHA market: FHA applications from black applicants were denied 19.6 percent of the time in 2015, down from 24.3 percent in 2013. For Hispanic FHA applicants, the denial rate fell to 15.5 percent last year, from 20.5 percent in 2013. In both cases, the decline in denial rates for black and Hispanic applicants was larger than the declining denial rate for white applicants.

But despite the marked improvement in credit conditions for these minority groups, applications from black and Hispanic applicants are still denied at more than twice the rate of those submitted by white applicants. Unable to control for standard measures of creditworthiness, we can’t say how large a role (if any) discrimination may play in this disparity. But that should not offer much comfort.

Faced with many disadvantages, including endemic lags in employment, wages and education, the persistent racial gap in mortgage access, and minorities’ reduced ability to achieve the economic stability homeownership offers, should continue driving policy that expands credit to these groups.