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Challenging the Model Minority Myth: A closer look at Asian American and Pacific Islanders in the mortgage market

Asian American and Pacific Islanders (AAPIs) are often seen as a homogeneous group. Even though this expansive demographic group ranges from Asian Indians, Chinese, and Japanese to Hawaiians, Samoans, and other Pacific Islanders, the Model Minority myth characterizes them as a monolithic group, with uniform high achievement and high income, relatively untouched by racial and ethnic discrimination. This myth minimizes both the extensive diversity among AAPI subgroups, who have different histories, cultures, and socioeconomic statuses, and the extent of racial and ethnic discrimination experienced by AAPI communities.

Using the 2020 Home Mortgage Disclosure Act (HMDA) mortgage loan data, the CFPB examined the differences in mortgage characteristics within the AAPI population. In general, borrowers who identified their AAPI subgroup as Asian Indian or Chinese paid lower interest rates than non-Hispanic White borrowers. Hawaiian or Pacific Islanders (HoPIs), as a group, paid higher interest rates and loan costs than Asian borrowers, with considerable variation within subgroups of HoPIs.

Loan costs and interest rates are only part of the story. Denial rates also vary across AAPI subgroups, with some Asian subgroups and HoPIs being denied at rates similar to denial rates for Black and Hispanic White borrowers. Even though AAPIs, on average, had lower interest rates, homeownership rates generally lag those of non-Hispanic Whites . This lag in homeownership, as well as the variability in denial rates and loan costs, could have implications for the ability of AAPI communities to build wealth and stability.

How the cost of borrowing differs among AAPI subgroups

The table below shows that the average interest rate for AAPI borrowers seeking home purchase loans was lower than all other racial groups at 3.11 percent – in comparison to 3.23 percent for non-Hispanic White and 3.33 percent for both Black and Hispanic White borrowers. The analysis, however, found that both Asians and HoPIs had a gap of at least 10 basis points within their respective categories.

Among Asian borrowers, Chinese borrowers paid an average interest rate of 3.13 percent and Asian Indian borrowers paid just under 3 percent. Filipino borrowers paid the highest average interest rate among Asians at 3.16 percent. The average interest rate paid by HoPI borrowers was generally higher than those paid by Asian borrowers. For example, the interest rate of Guamanian borrowers, who paid the lowest average interest rate among HoPI borrowers, was slightly higher than that of Filipino borrowers at 3.17 percent. Additionally, Samoans' average interest rate was 3.25 percent and Native Hawaiians’ was 3.21 percent.

The study also found that HoPI paid higher total loan costs than Asian borrowers. The total loan cost is the sum of origination charges that lenders charge. It includes charges for the services that borrowers cannot shop for (e.g., appraisal or credit report fees) and services that borrowers can shop for (e.g., settlement agent or title insurance fees). Chinese and Asian Indian borrowers' loan costs averaged around $5,400 per loan, while the average loan cost for Native Hawaiian and Samoan borrowers was nearly 50 percent higher, at around $8,100 per loan.

How denial rates differ among AAPI subgroups

In addition to disparities in costs of financing a home, AAPI subgroups experienced different outcomes when applying for a mortgage. For example, on average, 10 percent of AAPI applications resulted in denial, compared to 7 percent of non-Hispanic White applications, 18 percent of Black applications, and 12 percent of Hispanic White applications. There was, however, considerable variations across AAPI subgroups. The denial rates of some AAPI subgroups, such as Japanese (6 percent) or Korean (8 percent) looked similar to that of non-Hispanic White borrowers while the denial rates of HoPI and some Asian subgroups were closer to those of Black and Hispanic White borrowers. For example, Vietnamese, Native Hawaiian, Guamanian, and Samoan applicants had denial rates ranging from 13 to 15 percent.

The disparities in interest rates, total loan costs, and denial rates outlined above have real-world implications on the costs and accessibility of financing a home. They can result in barriers to accessing affordable credit, making it harder to accumulate wealth through real estate, which is one of the largest contributors to household wealth. A better understanding of the differences in mortgage characteristics can potentially shed light on why a wealth gap exists across the AAPI subgroups. We leave it to future research for an investigation of why such differences exist.

For additional findings, view the Data Point report, “Asian American and Pacific Islanders in the Mortgage Market.”


Table 1: Home purchase mortgage characteristics by race, ethnicity, and AAPI subgroups


 

Originations  

Average Loan Amount  

Average Property Value  

Average Loan Costs  

Average Interest Rate 

Race and ethnicity 

         

Non-Hispanic White  

2,355,666 

$295,757 

$359,529 

$5,256 

3.23% 

Black

297,947 

$263,066 

$281,125 

$6,575 

3.33% 

AAPI

232,121 

$435,056 

$555,681  

$5,874 

3.11% 

Hispanic White

370,136 

$270,902 

$300,718 

$7,055  

3.33% 

Joint

157,388  

$377,604 

$448,986 

$6,434 

3.19% 

Other

28,670  

$278,355 

$311,531 

$6,283 

3.22% 

Missing

572,062 

$343,229 

$415,818 

$6,092 

3.19% 

AAPI Subgroups  

         

Asian (No subgroup)  

59,993 

$414,843 

$534,543  

$6,057  

3.15% 

Asian Indian

55,550  

$498,767 

$622,793 

$5,274 

2.98% 

Chinese

32,047 

$522,271 

$740,583 

$5,577  

3.13%  

Filipino  

21,267 

$381,878 

$430,620 

$7,189 

3.16% 

Japanese

4,700 

$409,402 

$529,166 

$6,287 

3.11% 

Korean

13,767 

$441,411 

$581,531 

$5,743 

3.09% 

Vietnamese  

14,809 

$349,342 

$446,243 

$5,417 

3.14%

Other Asian

21,543 

$352,846  

$427,684 

$5,822 

3.14%

HoPI (No subgroup)  

3,545 

$323,907 

$363,856 

$7,187 

3.26%

Native Hawaiian  

1,104

$366,305 

$408,060 

$8,205 

3.21%

Guamanian 

722

$322,513 

$345,008 

$7,491 

3.17%

Samoan  

631

$352,262 

$376,136 

$8,072 

3.25%

Other Pacific Islander  

2,443 

$306,671 

$351,503 

$6,761 

3.27%

Notes: Applications are placed in one category for race and ethnicity. The application is designated as “joint” if one applicant was reported as White and the other was reported as one or more minority races or if the application is designated as White with one Hispanic applicant and one non-Hispanic applicant. If there are two applicants and each reports a different minority race, the application is designated as two or more minority races. If an applicant reports two races and one is White, that applicant is categorized under the minority race. Otherwise, the applicant is categorized under the first race reported. “Other” consists of applications by American Indians or Alaska Natives and borrowers reporting two or more minority races. "Missing" refers to applications in which the race of the applicant(s) has not been reported or is not applicable or the application is categorized as White but ethnicity has not been reported. The sample is restricted to first lien closed-end home purchase originations secured by site-built, single family, owner-occupied properties.

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