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The Determinants of Mortgage Denial

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Abstract

We analyze over 30 million home purchase mortgage applications from 2018–2024 using publicly available Home Mortgage Disclosure Act (HMDA) data to study the determinants of mortgage denial. We establish three primary findings. First, credit access is highly sensitive to monetary policy; the 2022–2023 tightening drove aggregate denial rates from 12.2% to 15.7% via the debt-to-income (DTI) channel. Second, we identify a critical nonlinearity in underwriting: While the 43% qualified mortgage (QM) threshold—below which lenders receive legal safe harbor from ability-to-repay claims—is non-binding in practice, denial rates jump by 15–17 percentage points at the 50% DTI mark, marking the functional market boundary. Third, substantial racial disparities persist; controlling for lender fixed effects and financials, Black applicants are 7.8 percentage points more likely to be denied than White applicants. Observable characteristics explain at most 41% of this gap. These results demonstrate how monetary tightening interacts with structural inequalities to disproportionately restrict credit access for vulnerable populations at the extensive margin.

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  • Manu García & Carlos Garriga, 2026. "The Determinants of Mortgage Denial," Review, Federal Reserve Bank of St. Louis, vol. 108(5), pages 1-36, May.
    • Handle: RePEc:fip:fedlrv:103291
    DOI: 10.20955/r.2026.05
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    1. Stephen L. Ross & John Yinger, 2002. "The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182289, December.
    2. Andreas Fuster & Matthew Plosser & Philipp Schnabl & James Vickery, 2019. "The Role of Technology in Mortgage Lending," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1854-1899.
    3. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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