Real Denial Rates: A New Tool to Look at Who Is Receiving Mortgage Credit

The observed mortgage denial rate (ODR), calculated from Home Mortgage Disclosure Act (HMDA) data, is often used to measure mortgage credit availability, but it does not account for shifts in applicants’ credit profiles. In this article, we develop an additional tool, which we call the real denial rate (RDR), as a way to account for credit differences and hence more consistently measure denial rates and mortgage credit accessibility. We match HMDA data with CoreLogic proprietary data to obtain both borrower demographic information (e.g., income and race and ethnicity) and mortgage credit characteristics (e.g., loan-to-value ratios, debt-to-income ratios, and credit scores). We account for shifts in applicants’ credit profiles by considering only the denial rate of low-credit-profile applicants. Our RDR results show that conventional mortgages have higher denial rates than government mortgages do, racial and ethnic differences are smaller than the ODR indicates but are not eliminated, and small-dollar mortgages have higher RDRs, particularly in the government loan channel.