Same-Sex Couples and Mortgage Lending

Introduction

The National Community Reinvestment Coalition has analyzed new data available to researchers for the first time to determine borrower patterns among same-sex couples, in comparison to different-sex couples. Our research question was, will same-sex couples pay higher closing costs and more interest on mortgage loans than different-sex couples?

From our analysis of 2018 Home Mortgage Disclosure Act data (HMDA), we found a consistent pattern of higher costs both in closing fees and interest rates for same-sex borrowers.

We also found:

Same-sex couples were more likely to be minority, lower-income and younger than their different-sex counterparts.
Same-sex couples were also more likely to seek loans from mortgage companies than banks or credit unions.
Same-sex couples generally could expect to pay higher closing costs and were charged interest rates that exceeded those charged to different-sex couples.
Same-sex couples were more likely to have their home loans denied and were less likely to see their application for a home purchase loan result in an origination.

According to the Williams Institute of UCLA, a leading researcher of LBGTQ+ issues, there are currently 700,000 co-habitating same-sex couples in the United States. About 4.5% of Americans identify as a part of the LGBTQ+ community (lesbian, gay, bisexual, transgender, queer/questioning and other members of the community), up from 4.1% in 2016, according to a 2017 Gallup study. That percentage also represents an increase in self-identification from 2012, likely pointing to the implications of recent civil liberties gains. On the heels of state-based marriage equality, analysis by the U.S. Department of Housing and Urban Development (HUD) points to increases in the number of same-sex mortgage applications. With national marriage equality confirmed in 2015 via Obergefell v. Hodges, 574 U.S. 1118, same-sex mortgage applications continue to grow given the expanded options and protections newly afforded to same-sex couples.

The LGBTQ+ community, by and large, aspires to homeownership with relatively equal percentages of people who identify as lesbians (74%) and gay men (73%) preferring home ownership over renting. Bisexuals and Gender Expansive self-identified respondents reported that preference at 68% and 66%, respectively, according to the National Association of Gay & Lesbian Real Estate Professionals.

There is very little published research on same-sex lending, but among the literature that is published data analysis suggest that same-sex couples are more likely to be denied a mortgage or pay more for the loan they do get. In this report we reviewed the recently released HMDA data using new variables on closing fees and loan price to delve a bit deeper on same-sex lending and contribute to the lending research of the LGBTQ+ population. In addition, we reviewed this data for other factors that might account for differences in origination rates and loan costs.

Data and Methods

In 2018, the Consumer Financial Protection Bureau (CFPB) reported that HMDA data included a little over 6.75 million home purchase loans originated by lenders to owner occupants. In the vast majority of cases, the data includes both the gender of the applicant and co-applicant.

We have identified loan records where applicants identified a gender and grouped them based on the presence and gender of the co-applicant, excluding records where no gender was identified leaving just over 6.3 million loans. Excluding loans with no co-applicant, we were left with a total dataset of a little less than 3 million loans across all loan purposes. While there is still no perfect way to identify same-sex couples that are in a spousal or committed relationship using this dataset, our analysis replicated the methodology most often utilized in similar studies of same-sex mortgage co-applicants. This data does not allow us to identify the sexual orientation of loan applicants, but simply the gender that is identified by the applicants.

However, the 5% of loans to couples that were made to same-sex applicants is roughly analogous to the percent of the population that identifies as LGBT. This suggests that most of the loans identified this way are to same-sex couples in spousal relationships.

Closing Costs and Rate Spread

Use the interactive chart below to explore the costs different couples paid for their Home Purchase loans in 2018

While same-sex couples represented a fraction of total mortgages in the United States in 2018, marriage legalization in 2015 and changing societal norms has contributed to a steady increase of LGBTQ+ households. Presumably that number will continue to grow with greater societal acceptance and increased self-identification. Of those in Generation X, 65% identify as hetrosexual, compared to 48% of Millennials and 48% of those in Generation Z.

Results
Home Purchase Lending

Home purchase lending was more common among same-sex couples than refinance or home equity lending. 65%-67% of all loans to a same-sex couple were for home purchase loans, compared with just 52% of different-sex couples.

In general, same-sex couples were more likely to buy homes in low- and moderate-income (LMI) and majority minority ^[1] neighborhoods. They were also more likely to be people of color themselves and female same-sex couples were more likely to be LMI. There are suggestions in some sources that same-sex couples are more likely to be more diverse in both race and age than different-sex relationships. In the following sections of this report we focus on home purchase lending to better understand the differences between different-sex couples as well as male and female same-sex couples.

Age, Race, Income, and Lender Type in Same-Sex Lending

Mortgage borrowers from LMI or minority communities face immense structural hurdles to the home loan process. Buying a home requires a substantial amount of wealth to begin with, even when using loan products insured by the government intended to support first-time home buyers. For borrowers from communities historically excluded from home ownership this burden is particularly difficult. Often the official segregation of federal, state and local policies enshrined segregation at the local level, limiting the possibility of home ownership for marginalized communities.

In the sections below we look at the likelihood that borrowers from both male and female same-sex couples faced greater challenges than different-sex couples in the mortgage market. We focused on the cost of home purchase lending for these couples as well as the origination and denial rates for their applications. We looked at both of these measures compared with the borrower age, race, and income as well as the type of lender they used to fund their home purchase.

Borrower Age

Borrower age is a structural barrier common to first time buyers, as younger applicants frequently are less financially stable than older applicants. Younger borrowers often lack existing home equity that they can roll into a new purchase.

This is important for this discussion because same-sex borrowers have a clear tendency to be younger than their different-sex counterparts. This is particularly visible in same-sex male applicants, where 49% of them in 2018 were under the age of 35 compared with just 37% of different-sex couples.

Borrower Race

Same-sex couples are much less likely to have a White applicant than different-sex couples. 73% of different-sex couples had a White applicant in 2018, compared with 59% of same-sex couples. Given the structural barriers that race imparts for home buyers and mortgage applicants in the U.S. this difference in the race of the same-sex home buying population will likely have an impact on the cost and origination rate of loans to same-sex borrowers.

Borrower Income

Borrower income often limits the price a homebuyer can afford, which can result in a series of other consequences as lower-income borrowers often incur additional fees, higher interest rates and more chances that their loans will be denied.

While same-sex male couples tend to report a similar share of LMI lending as different-sex couples we found that 21% of same-sex female couples were LMI compared to same-sex male couples (15%) and different-sex couples (13%). The gender gap in incomes can limit the purchasing power for same-sex female couples.

Lender Type

Mortgage companies, banks and credit unions all offer mortgages for home buyers but they are not all the same nor do they necessarily offer the same products. Mortgage loans are broadly limited main products. Conventional loans are mortgages made by banks without any additional insurance in case of default. They tend to offer lower rates and closing fees in exchange for requiring more money for down payment and better credit. The FHA loan program administered by HUD offers loans insured by the Federal government, in case of default the principle of the loan is paid to the lender. Lowering the risk in this way allows these loans to offer smaller down payments but the closing fees and interest rates associated with them are often larger than conventional loans. The Veteran’s Administration and the US Department of Agriculture also offer loans programs for Veterans and rural communities that are relatively low cost and allow borrowers to purchase a home with no down payment.

These distinctions are important. Since the Great Recession from 2007-2009, banks have largely withdrawn from the FHA/VA/RHS market. Although there are conventional loan products such as the Fannie Mae Home Ready program that mimic the low down payment requirements of the FHA program they have not proven to be as popular as FHA loans with borrowers and loan originators. Therefore, borrowers that are more likely to need an FHA loan, who are disproportionately younger/first-time borrowers and LMI or minority, are often unable to secure home mortgage financing through a bank or credit union.

Mortgage companies consistently report both higher interest rates and closing costs on the loans that they make. In 2018 when looking at all home buyers who used a mortgage company to fund their purchase we found that they paid an average of $2,100 more than those borrowers who used a bank and $2,800 more than credit union borrowers. Since mortgage companies are the primary source for loans needed by younger borrowers they are often over-represented in the loan applications to those borrowers. Not surprisingly, we found that same-sex couples are more likely to use mortgage companies to fund their purchases, with 64% of same-sex female and 60% of same-sex male couples using a mortgage company compared with just 52% of different-sex couples. This makes it more likely that those same-sex couples will incur higher fees and rates for their loans as well.

Loan Costs and Interest Rates

The two primary components that reflect the cost of a loan are the closing fees and the interest rate. The closing fees are the sum total of all fees and credits that are paid by the borrowers when they close on their loan. The interest rate is the percent they are charged for borrowing the money. These two costs are highly correlated. A borrower may choose to pay a higher origination fee to secure a lower interest rate. A variety of other factors can influence both of these, including the down payment, income, credit score, race, and gender of the applicant.

Higher closing fees can be due to a number of factors, including paying higher origination fees to lower the interest rate of the loan. Interest rates vary throughout the year based on a variety of factors. To normalize this data HMDA reports the ‘rate spread,’the percent that the rate at closing varies from an average rate for that day nationally. These rate spreads also suggest that same-sex couple paid higher interest rates despite the higher closing costs. This suggests that the closing costs were not due to borrowers buying down their rates, but were the result of other market forces. These forces could include lower down payment amounts, lower credit scores, or discrimination in the loan origination process based on race or other factors.