Wells Fargo narrows its racial gap in mortgage refinancing

Dive Brief:

Wells Fargo accepted 58% of mortgage refinancing applications from Black homeowners in 2021, an 11-percentage-point jump over the previous year, according to an analysis published Friday by Bloomberg.
However, the bank also accepted a greater percentage of mortgage refinancing applications from white borrowers — 79% in 2021, compared with 72% in 2020 — meaning that while the lender narrowed the gap by 4 percentage points, a 21-percentage-point difference persists.
Monday marks the deadline by which Sens. Elizabeth Warren, D-MA, and Ron Wyden, D-OR, asked Wells Fargo to provide them with the data and algorithms it used in 2020 and 2021 to evaluate the applications.

Dive Insight:

Wells Fargo trails, by 15 percentage points, the industrywide average acceptance rate for Black borrowers looking to refinance their mortgages, according to the Bloomberg analysis. Lenders overall approved 73% of applications from Black homeowners, compared with 78% from Hispanic borrowers and 86% from white borrowers, the wire service reported.

Other individual lenders accepted refinancing applications from Black homeowners at a higher rate, according to Home Mortgage Disclosure Act (HMDA) data published Thursday. JPMorgan Chase, for example, approved 87% of Black applicants in 2021, and 93% of white ones, for a 6-percentage-point difference, Bloomberg reported. Rocket Mortgage approved 81% of Black borrowers and 88% of white ones, for a 7-percentage-point gap. Bank of America, meanwhile, approved 75% of Black applicants and 86% of white borrowers.

At the same time, lenders overall saw a 53% jump in refinance applications from Black borrowers in 2021 — roughly 94,000 more than in 2020. Wells Fargo, in particular, saw nearly twice as many refinancing applications from Black homeowners, year over year, according to the HMDA data.

“Normally, when [interest] rates drop, borrowers refinance very quickly and the opportunity for refinance diminishes,” Len Kiefer, deputy chief economist at Freddie Mac, told Bloomberg.

The COVID-19 pandemic, however, likely exacerbated an interest rate lull, prolonging the period during which homeowners could lock in lower monthly payments. The Federal Reserve this month raised interest rates for the first time since 2018.

Wells Fargo “is fully committed to helping close the minority homeownership gap in the U.S., which is the result of systemic inequities in housing that go back decades and a financial system which has not been sufficiently inclusive of diverse communities,” Mike Weinbach, the bank’s head of consumer lending, said in a statement to Bloomberg, adding the bank would work with legislators, regulators nonprofits and other companies “to push our industry forward and develop solutions that make the dream of homeownership a reality for more minority customers.”

A group of 11 senators — including Warren and Wyden, sent a separate letter this month to the Consumer Financial Protection Bureau (CFPB) and the Department of Housing and Urban Development, asking for a review of Wells Fargo’s mortgage refinance lending to ensure it complies with the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act.

One of the authors, Senate Banking Committee Chair Sherrod Brown, D-OH, doubled down on his concern Thursday in a broadcast interview with Bloomberg, saying, “there is clearly disparate impact.”

A spokesperson for the CFPB told the wire service the agency is planning a formal response.

“The significant disparity in refinancing rates over the pandemic as between Black and White homeowners is a source of particular concern, given the impact on individual families’ household budgets and the ways in which such disparities can magnify the existing racial wealth divide,” the spokesperson told Bloomberg.