The COVID-19 pandemic’s disproportionate impact on minorities in the United States extends beyond the public health realm and the labor market to home ownership and the mortgage market.

Previous studies show that compared with the white population, minority populations have been at higher risk of hospitalization and death from COVID-19. Relative to white workers, minority workers also experienced greater rates of job loss during the pandemic and have been slower to regain employment.

In a new report, economists from the Federal Reserve Banks of Boston, Atlanta, and Philadelphia find that minority homeowners, particularly Black homeowners, also have fared worse than their white counterparts during the pandemic. The authors find that Black homeowners were much more likely to miss mortgage payments and much less likely to refinance to take advantage of very low interest rates.

The report, “Racial Differences in Mortgage Refinancing, Distress, and Housing Wealth Accumulation during COVID-19,” was written by Kristopher Gerardi of the Atlanta Fed, Lauren Lambie-Hanson of the Philadelphia Fed, and Paul Willen of the Boston Fed.

Using data on 5.6 million mortgages that include anonymized socio-demographic information about the borrowers, the authors find that 12.3% of Black homeowners who had active mortgages in January 2020 – before the start of the pandemic – were past due on payments in October 2020, while only 4.3%  of white homeowners were past due.

The report also notes that 44% of Black homeowners who began missing payments after January 2020 – at the onset of the pandemic – were still past due in October 2020. Meanwhile, only 35% of white homeowners with past-due payments had failed to “cure” their loans by resuming payments or paying off the loans.

“To date, cures of nonpayments have been particularly low for Black borrowers, indicating that they have experienced the pandemic’s most persistent mortgage distress,” the authors write.

White homeowners refinanced at twice the rate of Black homeowners

Nonpayments during the pandemic likely will not result in foreclosures or even damage to credit scores to the extent that they did during the Great Recession. As the authors point out, this is because a large majority of borrowers who missed payments entered forbearance, which occurs when a lender promises to take no action against a past-due borrower. The 2020 Coronavirus Aid, Relief, and Economic Security Act allowed borrowers to enroll in forbearance just by attesting to –not documenting – pandemic-related financial hardship.

However, mortgages that are in forbearance or several months past due do not qualify for refinancing. This likely caused many homeowners to miss their chance to take advantage of the steep decline in interest rates during the pandemic. The authors estimate that from the start of the pandemic through October 2020, only 6% of Black homeowners refinanced, versus nearly 12% of white homeowners.

The authors estimate that the typical refinance reduced the borrower’s monthly payment by $279, leading to a payment reduction of $5.3 billion per year for all households that refinanced. They estimate that of those savings, only $198 million, or 3.7 %, went to Black households. The authors put these numbers in perspective by noting that Black households account for 13.3% of the population and 9.1% of all homeowners.

Compared with white borrowers, Black borrowers on average have lower credit scores and higher loan-to-value ratios, both of which are risk factors that can prevent someone from refinancing and reducing their monthly mortgage payments. However, when the authors control for these factors, they find that before the pandemic, Black and white borrowers were roughly equally likely to refinance. After the pandemic began and mortgage interest rates plummeted, Black homeowners were 40% less likely than white homeowners to refinance, holding equal the risk factors for both groups.

“In effect,” the authors write, “borrowers who could use the payment reductions the most moving forward may be the least likely to obtain them.”

Less home equity for Black borrowers means higher foreclosure risk

Most borrowers, including those in forbearance, accumulated substantial equity in their home as house prices soared over the last year. This further reduced the likelihood of a foreclosure crisis, because, the authors write, “ most borrowers in financial distress should be able to avoid foreclosure by either selling or extracting equity to alleviate temporary cash-flow disruptions.”

However, the authors add, minority borrowers on average have less home equity than white borrowers. In the report’s sample, the median equity for all homeowners is just over 45%. But the median equity for Black homeowners  is significantly less, at 39%. This indicates that Black homeowners may be at higher risk of foreclosure when forbearance plans expire.

The report finds that about 81% of all homeowners with past-due payments entered forbearance. Most entered during the April–June 2020 period. The grace periods for those loans that haven’t been cured will begin to expire in September 2021.

“Sustainability of home ownership for these long-term-past-due borrowers is a concern unless labor market conditions improve before forbearance expires,” the authors write.

Read the full report.

Kristopher Gerardi is a financial economist and senior adviser in the Federal Reserve Bank of Atlanta Research Department.

Lauren Lambie-Hanson is an advisor and research fellow in the Consumer Finance Institute at the Federal Reserve Bank of Philadelphia.

Paul Willen is a senior economist and policy advisor in the Federal Reserve Bank of Boston Research Department.