A new report from the Federal Reserve Bank of New York sheds light on the financial struggles faced by low-income borrowers amidst the post-pandemic era. The report, which is the third in a series highlighting the financial dynamics of low-income households, draws upon anonymized credit report data from Equifax and income data from the 2016 Census Bureau American Community Survey.
According to the report, low- and moderate-income debt holders are grappling with increasing difficulties. Rising early delinquencies in auto and credit card debt exemplify these challenges. In fact, low-income borrowers began missing payments on their auto and credit card debt as early as 2022, surpassing pre-pandemic levels of delinquency.
It is evident that these findings uncover critical concerns surrounding the financial well-being of low-income borrowers. As the economy continues to recover from the impact of the pandemic, addressing and alleviating these challenges will be crucial to ensure a more stable and inclusive financial landscape.
Mortgage Refinancing Disparity in Low-Income Areas
During the pandemic, while many homeowners in high-income areas were quick to seize the opportunity to switch to historically low mortgage rates, those in low-income households missed out on the refinancing boom, as highlighted by the New York Fed.
Government data analyzed by Redfin reveals that approximately 23% of homeowners in the U.S. currently enjoy a mortgage rate below 3%, most likely obtained either during or prior to the pandemic. However, current mortgage rates are now significantly higher, averaging at 6.6% according to Freddie Mac.
Notably, lower-income areas exhibit lower levels of homeownership, as affirmed by the NY Fed. The proportion of individuals with mortgages is also comparatively lower.
Furthermore, the report highlights the significant burden faced by households in low-income areas, with 57% classified as rent-burdened. This contrasted with a lower percentage of 44% in high-income areas. The term “rent-burdened” is used when households spend more than 30% of their monthly income on rent.
It is evident that there exists a substantial disparity in mortgage refinancing accessibility and rates between low and high-income areas, contributing to overall financial inequality.
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