Are Older Mortgage Applicants More Likely to Be Rejected?

As the U.S. population ages and lifespans increase, it is important to understand how aging affects an individual’s ability to access credit. Older homeowners tend to have more financial resources and better credit scores than their younger counterparts, so one would expect that they could borrow more easily. But is that true? This brief, which is based on a recent paper, is the first of a two-part series that looks at the relationship between age and mortgage outcomes. This initial brief uses confidential Home Mortgage Disclosure Act (HMDA) data to study the relationship between age and the probability of being denied a mortgage application. The second brief will examine the relationship between age and the interest rate charged on mortgages. The discussion proceeds as follows. The first section briefly outlines the extent to which a borrower’s age can legally be considered in credit decisions. The second section describes the data, which focus on rate-and-term refinance mortgages for single applicants, and the methodology, which relates the probability of rejection to age and a host of control variables. The third section presents the results, which show that rejection rates rise consistently with age. And the magnitude is large; applications for the three oldest age groups are 1-3 percentage points more likely to be rejected than those of younger applicants. These numbers equal or exceed the marginal rejection rates for Black and Hispanic applicants. The fourth section offers some possible reasons for this relationship: the underwriters frequently cite “insufficient collateral,†but the underlying issue may be mortality risk, which is tightly associated with prepayment, default, and recovery risks. The final section concludes that while the relationship between age and rejection is large and robust, it does not necessarily indicate that lenders are violating fair lending legislation. First, the regulations allow lenders to consider borrower’s age under some circumstances. Second, although the equation controls for many observable characteristics, the results should be viewed as an association between age and rejection – not a causal relationship. Third, mortality risk has real economic implications for lenders for which they might require additional collateral. Regardless of the reason, however, it is important for older individuals to know that they are more likely to be denied credit.