Working Paper No. HF-006 

CHARACTERISTICS OF MORTGAGES PURCHASED BY 


FANNIE MAE AND FREDDIE MAC: 1996-97 UPDATE 


Paul B. Manchester 


August 1998 


Office of Policy 

Development 

and Research 

Comments Welcome 

e-mail address: 

Paul_B._Manchester@hud.gov 

Housing Finance 


WORKING PAPER SERIES 


~ 

1r 


U.S. Department of Housing and UJban Development 

Characteristics of Mortgages Purchased by Fannie Mae 

and Freddie Mac: 1996-97 Update 

ABSTRACT 

This paper examines the mortgages purchased by Fannie Mae and Freddie Mac, the two 

major Government-Sponsored Enterprises (GSEs) in the conventional secondary mortgage market. 

The analyses focus on detailed borrower, locational, and loan characteristics of such mortgages in 

the 1996-97 period. In general, the report is based on the loan-level data that the GSEs submit 

annually to the Department. The paper finds that the GSEs generally increased their performance 

on the goals established by HUD in 1995 and that they surpassed all oftheir 1996-97 goals, with 

Fannie Mae's performance exceeding Freddie Mac's performance on each ofthe goals in both years. 

Characteristics of Mortgages Purchased 


by Fannie Mae and Freddie Mac: 1996 ..97 Update1 


I. Introduction 

In 1992 Congress expressed concern about an "information vacuum" which impeded 

efforts to oversee the activities ofFannie Mae and Freddie Mac.2 To provide a basis for 

enhanced oversight and regulation ofthese two government-sponsored enterprises (GSEs) and to 

increase information about the GSEs' operations, Congress enacted the Federal Housing 

Enterprises Financial Safety and Soundness Act of 1992 ("the 1992 GSE Act"). This act: 

• 	 Provided for financial safety-and-soundness oversight ofthe GSEs by the Office of 

Federal Housing Enterprise Oversight (OFHEO), an independent office within the 

Department of Housing and Urban Development (HUD); 

• 	 Maintained programmatic oversight ofthe GSEs by the Secretary ofHUD (the Secretary) 

in all areas other than financial safety-and-soundness, under the Secretary's general 

regulatory power; 

• 	 Provided for the review of the GSEs' new program requests by the Secretary; 

• 	 Required the Secretary to issue regulations pertaining to the prohibition of discrimination 

by the GSEs and required the GSEs to provide assistance to the Secretary pertinent to 

investigations of primary market lenders under the Fair Housing Act and the Equal Credit 

Opportunity Act; 

• 	 Called for the Secretary to periodically review and comment on the GSEs' underwriting 

and appraisal guidelines; 

• 	 Required the Secretary to establish annual affordable and geographic goals for the GSEs' 

purchases of mortgages--initially for 1993-95 (referred to as "the transition period") and 

I The author gratefully acknowledges the computer and data assistance ofNan a Farshad and Ian 

Keith. Helpful comments on an earlier draft were received from Harold Bunce, Tuyet Cosslett, 

John Gardner, Ian Keith, David Ni and William Segal. The author assumes responsibility for any 

errors. 

2 The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, 

respectively. See the Federal Housina Enterprises Re~ulatoO' Reform Act of 1992, Senate 

Report 102-282, 102nd Congress, 2nd. Session at 39 (1992) for Congressional concerns about 

the lack of information available on the activities of Fannie Mae and Freddie Mac. 

1 
subsequently for 1996-993

; and 

• 	 Required the GSEs to submit loan-level data to the Secretary about the mortgages they 

buy, including detailed borrower and mortgage characteristics. 

The 1992 GSE Act also required HUD, after taking proprietary considerations into 

account, to make the loan-level data submitted by the GSEs available in a public-use data base.4 

The Act also called for the Department to analyze data on the GSEs' operations, in order to 

report to Congress and the public on the extent to which the GSEs are achieving their statutory 

purposes. 

This paper is the sixth in a series ofreports intended to help remedy the "information 

vacuum" that Congress found in 1992.S It analyzes the GSEs' performance in funding affordable 

loans for lower-income families and other disadvantaged borrowers and their neighborhoods in 

1996-97, updating an earlier paper which focused on the 1993-95 transition period6

• The paper 

reports the results of several detailed analyses concerning the characteristics ofthe single-family 

mortgages purchased by the GSEs in the two most recent years. The data reveal changes in the 

GSEs' performance during this period and allow comparisons between the performance of 

Fannie Mae and Freddie Mac. 

A. Organization of Paper 

The next subsection briefly defines the housing goals and reports the GSEs' performance 

relative to the 1996-97 goals, with a brief discussion ofthe 1993-95 goals in Appendix A. 

Section II reviews Fannie Mae's and Freddie Mac's mortgage purchases by major property type. 

Section III presents basic characteristics (borrower income and race, type of neighborhood, loan 

characteristics) ofthe GSEs' purchases of loans on one-family owner properties. Each major 

'358 FR 53048 and 53072 (October 31, 1993),59 FR 61504 (November 30, 1994) and 24 CFR 

Part 81. 

461 FR 54322-54329 (October 17,1996). 

5 Earlier papers include Bunce and Scheessele (1996 and 1998); Segal and Szymanoski (1997); 

Manchester, Neal, and Bunce (1998); and DiVenti (1998). 

6 The earlier paper was Manchester, Neal, and Bunce, Characteristics ofMortgages Purchased 

by Fannie Mae and Freddie Mac, 1993-95, Working Paper No. HF-003 (March 1998), 

hereinafter referred to as "the 1993-95 Paper." In order to provide a perspective on key trends, in 

some cases data for 1993-95 is also presented herein. Two sections ofthe 1993-95 Paper have 

not been updated in this paper--"GSEs' Purchases Compared with Originations in the Primary 

Market" and "Analyses of Special Topics," though the former are presented for 1996 in Bunce 

and Scheessele (1998). 

2 
section contains a conclusion that summarizes the main findings. 

The analysis in this paper is based on the loan-level data that the GSEs submit annually to 

HUD about the mortgages that they purchase. In some cases certain data elements are missing 

from the loan-level data. A discussion ofthe nature, extent, and trends in this "missing data 

problem" for the 1993-97 period is contained in Appendix B. 

B. 	 Housing Goals and Performance for 1996-97 . 

In December 1995 HUD issued housing goals for the GSEs for 1996-99, revising and 

restructuring the goals which were in effect for 1993-95. The 1996-99 goals are: 

o 	 A low- and moderate-income goal, which targets mortgages on housing for families 

with less than median income, set at 40 percent oftotal units financed by each ofthe 

GSEs in 1996 and at 42 percent for each year from 1997 through 1999; 

o 	 A geographically-targeted goal, which targets mortgages on properties located in 

"undeserved areas," defined as low-income and high-minority census tracts (excluding 

high-income high-minority tracts), set at 21 percent oftotal units fmanced by each ofthe 

GSEs in 1996 and at 24 percent for each year from 1997 through 1999; 

o 	 A special affordable goal, which targets mortgages on housing for very low-income 

families and low-income families living in low-income neighborhoods, set at 12 percent 

oftotal units financed by each ofthe GSEs in 1996 and at 14 percent for each year from 

1997 through 1999; and 

o 	 A special affordable multifamily subgoal, for very low-income renters and low-income 

renters living in low-income neighborhoods, in multifamily properties (defined as 

properties with five or more units), set at $1.29 billion per year for Fannie Mae and $988 

million per year for Freddie Mac, for each year from 1996 through 1999. 

The performance ofthe GSEs for all years from 1993 through 1997 and the levels ofthe 

goals for 1996 and 1997-99 are presented in Table 1 and shown in Figures 1-4. Data for 1993-95 

is based on HUD's analysis ofthe GSEs' data, while performance in 1996-97 is based on the 

GSEs' submissions to the Department, and thus is subject to revision by the Department. 

Both GSEs reported that they exceeded all oftheir goals in the last two years, although 

not in the transition period. For example, 45.5 percent of Fannie Mae's purchases and 42.9 

percent ofFreddie Mac's purchases were reported as qualifying for the low- and moderateincome goal in 1997, surpassing HUD's target of42 percent. The GSEs stated that in 1996-97 

their geographically-targeted goals were exceeded by at least two percentage points, and that 

their special affordable goals were exceeded by at least one percentage point. 

3 
Table t 


Ovenriew of the GSEs' Housing Goal Performance, 1993-97, and Goals for 1996-991 


1996 1997-99 

Goal 2 1993 1994 1995 1996 1997 Goals Goals 

Low- and Moderate-Income: 

Fannie Mae 34.1% 45.1% 42.8% 45.4% 45.5% 4ooA» 42% 

Freddie Mac 30.0% 38.0% 39.6% 41.3% 42.9% 

Geographically Targeted: 

Fannie Mae 22.9OA» 29.0% 31.2% 28.2% 29.0% 21% 24% 

Freddie Mac 21.3% 24.2% 25.2% 25.0% 26.3% 

Special Affordable: 

Fannie Mae 10.0% 16.7% 15.8% 17.4% 19.1% 12% 14% 

~ Freddie Mac 7.2% 11.4% 13.2% 14.2% 15.3% 

Special Affordable Multifamily): 

Fannie Mae $2.06 $2.59 $2.20 $2.37 $3.19 $1.29 $1.29 

Freddie Mac $0.02 $0.48 $1.09 $1.06 $1.21 $0.99 $0.99 

Source: 	HUD analysis of data submitted by the GSEs for 1993-95; as reported to HUD by the GSEs in their Annual Housing Activities Reports 

for 1996 and 1997. 

I Percentages of dwelling units in properties whose mortgages were purchased by the GSEs that would have qualified for each goal in 

1993-97, and goals for 1996-99. 

2 Abbreviated definitions of goals: 

Low- and Moderate-Income: Households with income less than or equal to area median income (AMI) as defined in Table 3. 

Geographically Targeted: Dwelling units in metropolitan census tracts with (I) median family income less than or equal to 90 percent of 

AMI or (2) minority concentration of at least 30 percent and tract median income less than or equal to 120 percent of AMI; dwelling units 

in nonmetropolitan counties with (I) median family income less than or equal to 95 percent ofthe greater of state or national 

nonmetropolitan median income or (2) minority concentration of at least 30 percent and county income median income less than or equal to 

120 percent of state nonmetropolitan median income. 

Special Affordable: Households with income (1 ) less than or equal to 60 percent ofAMI or (2) less than or equal to 80 percent of AMI and 


located in low-income areas. 


3 Goals and performance in billions of dollars. 
50 

1997-99 Goal: 3~ 40 

D 1993 35 

.1994 30 

25 111995 

20 01996 

15 .1997 

10 

Fannie Mae 	 Freddie Mac 

Figure 1 

Low- and Moderate-Income Mortgage Purchases 

Low- and Moderate-Income Goal is 420/(' of units financed for 1997-99 (40~ for 1996). 

Figure 2 

Geographically Targeted Mortgage Purchases 

35 

30 

10 

Fannie Mae 	 Freddie Mac 

Geographically Targeted Goal is 24% of units financed for 1997-99 (21 % for 19Yb). 

Source: 	 1993-1995: HUD analysis of GSEs' loan-level data. 

1996-1997: GSEs' Annual Housing Activities Repons. 

5 

01993 

.1994 

i.m1995 

01996 

.1997 
16 

01993 

1997-99 Goal: 14 

12 .1994 

10 II 1995 

01996 

.1997 

Fannie Mae Freddie Mac 

$3.5 


$3.0 


01993 

$2.5 


.1994 

$2.0 
 Ell995 

$1.5 
 01996 

1997-99 Goal:$1.3 $1.0 .1997 

$0.5 

$0.0 Fannie Mae 	 Freddie Mac 

Figure 3 

Special Affordable Mortgage Purchases 

Special Affordable Goal is 14~ of units financed for 1997-99 (12~ for 1990). 

Figure 4 

Multifamily Special Affordable Mortgage Purchases 

(Billions of Dollars Per Year) 

Multifamily Special Affordable Goals for 1996-99 are $1.3 billion per year for 

Fannie Mae and $1.0 billion for Freddie Mac. 

Source: 	 1993-1995: HUD analysis of GSEs' loan-level data. 


1996-1997: GSEs' Annual Housing Activities Reports. 


6 
The special affordable multifamily dollar-based subgoals were set at a time when Freddie 

Mac was just reentering the multifamily business, thus they have readily been surpassed by 

Fannie Mae, but have been a challenge for Freddie Mac, especially in 1996, when a lateDecember $535 million multifamily swap involving 80 seasoned mortgages was necessary to 

achieve the goal? 

For the period as a whole, significant gains have been made relative to the incometargeted goals, with cOlflbined special affordable performance doubling between 1993 and 1997 

and combined low- and moderate-income purchases increasing from 32 percent in 1993 to 44 

percent in 1997. Fannie Mae has consistently surpassed Freddie Mac in goal performance, but 

Freddie Mac's relative performance has increased, from 72 percent of Fannie Mae's special 

affordable record in 1993 to 80 percent in 1997, and from 88 percent of Fannie Mae's low- and 

moderate-income performance in 1993 to 94 percent in 1997. 

Gains have also been made relative to the geographically-targeted goal, with combined 

performance rising by 25 percent between 1993 and 1997. In 1994 Fannie Mae may have 

modified its business strategy to focus on performance under this goal, thus its performance 

jumped by 6.1 percentage points in that year alone, and has since remained at the 1994 level. 

Freddie Mac has shown more gradual, but relatively steady, gains in this area, though its 

performance, relative to Fannie Mae's, was lower in 1997 than in 1993. 

The 1996-99 goals replaced those that were in effect for the 1993-95 "transition period." 

The major change was that the geographically-targeted goal shifted from central cities, as defined 

by the Office ofManagement and Budget, to "undeserved areas" in cities, suburbs, and rural 

areas, as defined by HUD after considerable research on mortgage origination and loan denial 

rates. The special affordable goal was also reformulated as a percentage-of-business goal from 

the dollar-based goals ofthe transition period, and its structure was simplified. A focus on 

multifamily mortgages was retained through the special affordable multifamily subgoal. The 

1993-95 goals and the GSEs' performances on these goals are summarized in Appendix A.8 

7See "Freddie Mac Closes Largest Multifamily Swap; $535 Million Transaction Helps Nearly 

20,000 Families," Freddie Mac press release, December 23, 1996. 

8 For a full discussion ofthe transition period housing goals, see Chapter 3 ofHUD's 

privatization study, Privatization ofFannie Mae and Freddie Mac: Desirability and Feasibility, A 

HUD Report, Office of Policy Development and Research, HUD, July 1996. 

7 
II. Overview of the GSEs' Mortgage Purchases in 1996-97 

Fannie Mae and Freddie Mac are very large business operations, both in terms of 

mortgages purchased and total dwelling units financed (see Table 2). In 1997, Fannie Mae's 

mortgage purchases of $165 billion financed almost 1.9 million dwelling units, while Freddie 

Mac's mortgage purchases of$118 billion fmanced more than 1.2 million units. I Reflecting 

market trends, both GSEs' purchases were slightly lower in 1997 than in 1996, and purchases 

were substantially lower than their purchases during the refinancing wave of 1993, when Fannie 

Mae purchased $294 billion in mortgages and Freddie Mac purchased $229 billion, fmancing 3.2 

million and 2.4 million dwelling units respectively (see Figure'5.) 

A. GSEs' Business by Major Property Type 

Mortgages on One-Family Owner Properties. Mortgages purchased by the GSEs are 

primarily secured by one-family owner properties. Of all the housing units financed by the GSEs 

in 1997, 80 percent ofFannie Mae's units and 86 percent ofFreddie Mac's units were in onefamily owner properties (see Figure 6.) HUD estimates that such properties accounted for 67 

percent of all dwelling units financed in the conventional conforming market in 1997.2

.3 Thus the 

GSEs, particularly Freddie Mac, focus their business substantially more on one-family owner 

properties than does the overall market. 

Mortgages on Single-Family Rental Properties. The GSEs also purchase mortgages on 

single-family rental properties, which include 1- to 4-unit investor properties with no owneroccupied units and 2- to 4-unit properties that contain one owner-occupied unit and one or more 

rental unitS.4 In terms of dwelling units, single-family rental mortgage purchases accounted for 

approximately 6.5 percent of each GSE's 1997 total purchases. HUD estimates that these 

1 Data on the distribution ofunits by property type for the GSEs' mortgage purchases and the 

primary market in 1993-95 is shown in Tables 2.A, 2.B and Figure 2 ofthe 1993-95 Working 

Paper. 

2 The term "conventional" refers to mortgages that are not insured or guaranteed by a government 

agency such as the Federal Housing Administration (FHA), the Department ofVeterans Affairs 

(VA), or the Rural Development Agency (RDA). The GSEs are restricted to purchasing loans 

with principal balances within the conforming loan limit, which was $207,000 in 1996 and 

$214,600 in 1997. 

3 See Appendix D ofHUD (1995) for the methodology for determining the shares ofmortgage 

originations accounted for by the different property types. 

4 Data on the volume ofthe GSEs' single-family rental purchases backed by 2- to 4-unit owneroccupied properties include the owner-occupied units. 

8 
Table 2 

GSEs' Mortgage Purchases by Property Type 

In 1996 and 1997 

Property Type 

UPB' 

(SMilIions) 

1996 Purchases 

Fannie Mae 

Percentage of Dwelling Percentage of 

Total Dollars Units Total Units 

UPB' 

(SMiIlions) 

Freddie Mac 

Percentage of Dwelling 

Total Dollan Units 

Percentage of 

Total Units 

One-Family Owner S155,235 91.6% 1,566,301 79.3% S118,582 94.7·,4 1,181,878 86.9-10 

Single-Family Rental: 

2-4 Unit Owner-Occupied 2 

1-4 Unit Investor-Owned 

3,647 

3,634 

2,2% 

2.1% 

68,045 

67,378 

3.4% 

3.4% 

2,122 

2,165 

1.7% 

1.7% 

39,804 

40,340 

2.9-10 

3.00,4 

Total Single-Family 162,516 95,8% 1,701,730 86.2% 122,869 98.1% 1,262,022 92.8% 

Multifamily 7,037 4,2% 272,931 13,8% 2,350 1.9% 98,574 7.2% 

\0 Total Business S169,553 1000% 1,974,661 100,0% S125,219 100.0% 1,360,596 100.0010 

1997 Purchases 

Fannie Mae Freddie Mac 

UPBI Percentage of Dwelling Percentage of UPB' Percentage of Dwelling Percentage of 

Property Type (SMillions) Total Dollars Units Total Units (SMillions) Total Dollars Units Total Units 

One-Family Owner S151,336 91.6% 1,512,477 80.1% S110,306 93.7% 1,035,954 85.4% 

Single-Family Rental: 

2-4 Unit Owner-Occupied 2 3,234 2,0% 58,773 3,1% 1,989 1.7% 34,761 2.9% 

1-4 Unit Investor-Owned 3,795 2,3% 64,232 3.4% 2,682 2.3% 42,941 3.5% 

Total Single-Family 158,365 95,8% 1,635,482 86.6% 114,977 97.7% 1,113,656 91.8% 

Multifamily 6,896 4,2% 253,065 13.4% 2,716 2.3% 99,470 8.2% 

Total Business S165,261 100.0% 1,888,547 100.0% S117,693 100.0010 1,213,126 100.0% 

Source: GSEs' Annual Housing Activities Reports to the Department of Housing and Urban Development. 


, Unpaid principal balance of mortgages purchased 


2 Unit counts include the owner-occupied unit. 

4 

3.24 


3 

-o 

2 

1 

o 

2.38 

1.97 

1.89 

1.58 

1.21 

Fannie Mae Freddie Mac Fannie Mae Freddie Mac Fannie Mae Freddie Mac Fannie Mae Freddie Mac Fannie Mae Freddie Mac 

1993 1994 1995 1996 1997 

Source: Table I of the GSEs' Annual Housing Activities Reports. 

Figure 5 


GSEs' Total Mortgage Purchases, 


1993-1997 


Millions of Dwelling Units Financed 
Figure 6 


Distribution of Mortgage Business 


by Major Property Type, 1997 


Percent ofDwelling Units Financed 

100 

80 

60 

40 

20 

o 

One-Family 


Owner 


.Freddie Mac 

Source: Table 2, HUn analysis of confonning market. 

86 

Single-Family Multifamily 

Rental 

DFannie Mae • Conforming Market(Estimated) 

--
properties accounted for 12 percent ofthe conventional conforming mortgage market in 1997. 

Mortgages on Multifamily Properties. The GSEs also purchase mortgages on 

multifamily properties, defined as rental properties containing 5 or more units. Freddie Mac 

reentered the multifamily mortgage market near the end of 1993, thus it had negligible 

multifamily purchase volume for that year (only $191 million). In 1994, Freddie Mac was in the 

market for the entire year, as its multifamily mortgage purchases rose to $913 million. Freddie 

Mac's multifamily volume has continued to rise, to $1.58 billion in 1995, $2.3 5 billion in 1996, 

and $2.72 billion in 1997. Despite the increases, Freddie Mac's multifamily purchases 

represented only 8 percent ofthe units it financed.s In comparison, HUD estimates that 

multifamily mortgages account for 21 percent ofthe total number of dwelling units financed in 

the conventional conforming market in 1997. 

Fannie Mae has been much more active than Freddie Mac in the multifamily mortgage 

market. Fannie Mae's multifamily purchases rose from $4.6 billion in 1993 to $6.1 billion in 

1995 and $7.0 billion in 1996, before declining slightly to $6.9 billion in 1997. Fannie Mae's 

1997 multifamily purchases represented 13 percent ofthe enterprise's overall business in terms 

oftotal units financed, down from 15 percent in 1995, but still well above Freddie Mac's 

multifamil y activity. 6 

B. GSEs' Share ofthe Market 

The GSEs' purchases accounted for a rising share ofthe single-family conventional 

conforming market between 1980 and 1993 (see Figure 7.) In the early 1980s, the GSEs' share 

ranged from 12 to 34 percent ofthe dollar volume of originations in the single-family 

conforming conventional market. In the high volume origination years of 1986 and 1987, the 

GSEs' share rose to about 45 percent, and then rose dramatically in the early 1990s, reaching a 

peak of 71 percent during the high refinancing year of 1993. In 1994, the GSEs' share ofthe 

conforming conventional market dropped to 55 percent, due primarily to a greater volume of 

conventional adjustable-rate mortgages (ARMs), as interest rates rose after the first quarter.7 The 

GSEs' market share fell further to 43 percent in 1995, and remained between 40 and 50 percent 

in 1996 and 1997. 

S Multifamily purchases consistently represent a greater percentage oftotal units than ofthe 

dollar amount of mortgages purchased. This reflects the fact that multifamily mortgages 

generally have a lower mortgage amount per unit than mortgages on one-family owner properties 

(e.g., $27,000 versus $99,000 for the GSEs' combined 1997 purchases). 

6A greater presence in the multifamily market is a major reason why Fannie Mae's performance 

on the housing goals has consistently exceeded Freddie Mac's record. 

7Banks and thrifts are less likely to sell ARMs, which involve little interest rate risk, than fixedrate mortgages to the GSEs. They generally hold ARMs in their portfolios. 

12 
Percent 100 


75 


50 


25 
 0­

o t- I 

1980 1982 1984 1986 1988 1990 1992 1994 1996 


Figure 7 


GSEs' Purchases as Share of 


Conventional Conforming Market, 1980-1997 


-

w 

Source: Fannie Mae Economics Department; preliminary estimate for 1997. 
The GSEs' purchases represent a much smaller share ofthe multifamily market than of 

the single-family market. Based on RUD's Survey ofMortgage Lending Activity, conventional 

multifamily mortgages amounted to $43.7 billion in 1996.8 Thus, the GSEs' combined purchases 

of $9.4 billion represented 22 percent ofthe multifamily market in 1996. The GSEs' share of 

this market seems to have stabilized in this range. 

C. Conclusions 

The section has provided a brief overview ofthe GSEs' mortgage purchases between 

1993 and 1997. Following broad market patterns, the GSEs' mortgage purchases reached record 

highs during the refinancing wave of 1993, before declining in 1994 and falling further in 1995 

due to higher interest rates. The GSEs' activity rebounded to the 1994 level in 1996-97. 

However, in each year, the distribution ofthe GSEs' purchases by major property type differed 

from the corresponding distribution ofmarket originations--the GSEs' focus their business much 

more on one-family-owner mortgage originations than the overall market. Their business, 

particularly that ofFreddie Mac, is less focused on single-family rental and multifamily 

mortgages than the overall market. 

Since 1990, the GSEs have generally purchased about 50 percent ofsingle-family 

mortgages originated in the conforming conventional mortgage market, peaking at 71 percent in 

1993, before declining to 43 percent in 1995, but rebounding somewhat since 1995. In 1997, 

they accounted for only about 22 percent ofthe dollar volume of originations in the multifamily 

conforming conventional market. 

8Data from the Survey ofMortgage Lending Activity on mortgage originations in 1997 has not 

been released to date. For single-family mortgages, the Federal Housing Finance Board has 

estimated that in 1997 conforming conventional originations amounted to xx percent oftotal 

conventional originations. Conforming loan limits also exist for multifamily mortgages, but they 

are sufficiently high that virtually all conventional multifamily mortgages are conforming. 

14 

Ill. Loan, Borrower, and Neighborhood Characteristics ofMortgages on 


One-Family Owner-Occupied Properties Purchased by the GSEs, 1993-97 


This section presents basic characteristics ofthe mortgages on one-family owneroccupied properties purchased by Fannie Mae and Freddie Mac. As reported in Section II, such 

mortgages accounted for 86 percent and 80 percent ofthe total units in properties whose 

mortgages were purchased by Freddie Mac and Fannie Mae respectively in 1997. Because they 

play such an important role in the GSEs' activities, and because much more data are available on 

these loans than on mortgages for rental properties, the remainder ofthis paper analyzes these 

purchases in detail. I 

Specifically, this section describes the characteristics ofthe mortgages purchased, the 

borrowers who took out these loans, and the neighborhoods in which the mortgaged properties 

were located in 1996-97. Because significant differences sometimes occur between borrowers 

who are purchasing homes and those who are refinancing existing loans, this section presents 

available data for these two types ofborrowers separately.2 In analyzing 1993-97 trends, the 

analysis focuses on the GSEs' acquisitions ofhome purchase loans only, because ofthe 

importance ofhomeownership to American families. 

A standard set of definitions is used to describe borrowers and the metropolitan area 

census tracts (or non-metro counties) where mortgaged properties are located. These definitions 

are provided in Table 3.3 

I See Segal and Szymanoski (1996, 1998) for analyses ofthe GSEs' multifamily mortgage 

purchases and DiVenti (1998) for an analysis ofthe GSEs' single-family rental mortgage 

purchases. 

2In some cases (such as the distribution ofloan-to-value ratios in Table 5) the GSEs have 

declared the breakdown between home purchase and refinance loans to be proprietary. 

3 Several figures in the definition of "Under served Areas" in Table 3 ofthe 1993-95 Paper were 

transposed--the correct definitions for properties in/outside metropolitan areas are "census 

tracts/counties with median income at or below 120 percent ofAMI and minority population at 

or above 30 percent, or median income at or below 90/95 percent ofAMI." 

15 
Table 3 


Characteristics of Borrowers and Geographic Areas 


Borrower and Tract Income Ranges: 

Very low-income 


Low-income 


Low- or moderate-income 


High-income 


Geographic Area Minority Population: 

Low-minority tract or county 

High-minority tract or county 

U nderserved Areas: 

In metropolitan areas 

Outside metropolitan areas 

Family (or tract median) income 

No greater than: 

60 percent ofArea Median Income (AMII) 

80 percent ofAMI 

100 percent ofAMI 

In excess of 120 percent ofAMI 

Census tract or county where minorities account for -­

No more than 10 percent ofthe population 

At least 30 percent ofthe population 

Census tract with median income at or below 90 

percent ofAMI2 Q[ high-minority tract with 

median income at or below 120 percent of AMI 

Counties3 with median income at or below 95 percent 

ofAMI2 Q[ high-minority county with median income 

at or below 120 percent ofAMI 

IFor purposes ofthe family and census tract income range definitions, area median income (AMI) 

means the median income ofthe metropolitan area, or, for properties located outside of 

metropolitan areas, the greater ofthe median income ofthe county or the nonmetropolitan portion 

of the State. 

2For purposes ofthe underserved areas definitions, area median income (AMI) means the median 

income ofthe metropolitan area, or, for properties located outside of metropolitan areas, the 

greater of the median income ofthe nonmetropolitan portion of the State or the nonmetropolitan 

portion ofthe Nation. 

3For counties partially contained in a metropolitan area in New England, nonmetropolitan portions 

of counties. 

16 

A. Single-Family Loans: 1993-97 Trends 

Information on several loan characteristics of single-family mortgages purchased by the 

OSEs between 1993 and 1997 is presented in Table 4. 

Reason for Loan. Almost all ofthe mortgages acquired by the OSEs are for the 

purchase of a home or the refmancing ofan existing mortgage; second mortgages comprise a 

small percentage oftheir acquisitions, although the OSEs have increased their role in the 

secondary market for second mortgages since 19944

• Both OSEs' home purchase mortgage 

acquisitions fell in 1994 and then rose in 1995 and 1996, as shown in Table 4. A divergence 

arose in 1997, when Fannie Mae's purchases ofhome purchase mortgages continued to rise, 

while Freddie Mac's purchases ofsuch loans fell by 10 percent. 

Each OSE's volume ofrefmance mortgages declined by more than one-half between 

1993 and 1994, and by an additional 50 percent between 1994 and 1995, but jumped in 1996 

before retreating in 1997. As a result ofthese developments, the share ofthe OSEs' purchases 

accounted for by refinance mortgages fell from almost 70 percent in 1993 to 33 percent in 1995 

and averaged approximately 40 percent in 1996-97.5 

Seasoning. The OSEs have directed more oftheir purchases to seasoned mortgages 

(those originated in a previous year) since 1993.6 In that year 14 percent ofthe mortgages they 

purchased were seasoned, but this share rose to 31 percent in 1994, before declining to 24 

percent in 1995-96. In 1997 Freddie Mac further reduced its seasoned loan share to 19 percent, 

while Fannie Mae's seasoned purchases' share remained at 27 percent--in terms of volume, 

Fannie Mae purchased twice as many seasoned loans as Freddie Mac last year. Between 1996 

and 1997 Fannie Mae's purchases ofprior-year originations increased by 22 percent for 

properties in underserved areas, but decreased by 10 percent for properties in other locations, 

which may indicate targeted purchases ofolder loans in 1997 to enhance its performance on the 

geographically-targeted goal. 

Mortgage Type and Term. The shares of mortgage originations accounted for by fixed4 Second and home improvement mortgages amounted to 0.8 percent of Fannie Mae's purchases 

in 1994, the first year such loans were purchased in any significant quantity, and 2.0 percent of 

total purchases in 1997; Freddie Mac first began such purchases in 1997, when they amounted to 

0.3 percent of loans acquired. 

5 The refinance share of conventional single-family mortgage originations was 55 percent in 

1993, 25 percent in 1995, and approximately 30 percent in 1996-97. Thus, refinance mortgages 

made up a higher percentage ofthe OSEs' purchases than of the overall market in each year. 

6 Another definition of "seasoned mortgage" is one originated more than 365 days prior to 

acquisition by a OSEe The conclusions are essentially the same under either definition. 

17 
Table 4 

Characteristics of Single-Family Mortgages 


Purchased by the GSEs, 1993-1997 


Fannie Mae Freddie Mac 

Loan Characteristics 1993 1994 1995 1996 1997 1993 1994 1995 1996 1997 

Number of Loans 2,815,552 1,541,481 1,206,505 1,566,307 1,512,477 2,227,913 1,192,261 879,668 1,181,878 1,035,954 

Home Purchase 1,011,435 776,430 818,134 910,446 945,181 600,754 517,643 565,646 670,219 602,746 

Refinance 1,803,520 764,859 378,653 637,968 535,771 1,625,669 674,012 313,821 510,262 429,332 

Percent Home Purchase 35.9% 50.4% 68.4% 58.1% 62.5% 27.0% 43.4% 64.3% 56.7% 58.2% 

Percent Refinance 64.1% 49.6% 31.4% 40.7% 35.4% 73.0% 56.5% 35.7% 43.2% 41.4% 

Year of Origination 

Current Year 85.9% 68.1% 76.4% 73.2% 72.8% 87.3% 70.8% 75.0% 78.7% 81.2% 

Prior Year 14.1% 31.9% 23.6% 26.8% 27.2% 12.7% 29.2% 25.0% 21.3% 18.8% 

-

00 Type ofSellerInstitution 

Mortgage Company 69.6% 70.7% 68.0% 71.4% 66.0% 58.9% 65.6% 58.9% 66.1% 59.8% 

Thrift: 14.1% 14.8% 17.7% 14.1% 13.4% 20.4% 18.5% 24.0% 16.6% 21.3% 

Bank 13.2% 10.7% 11.1% 13.1% 18.5% 19.0% 15.4% 16.3% 15.8% 16.1% 

Other 3.2% 3.8% 3.3% 1.3% 2.1% 1.7% 0.6% 0.7% 1.6% 2.8% 

Location 

Metropolitan Areas 88.9% 89.0% 87.7% 87.0% 86.7% 86.9% 87.1% 85.2% 84.0% 83.7% 

Non-Metropolitan Areas 11.1% 11.0% 12.3% 13.0% 13.3% 13.1% 12.9% 14.8% 16.0% 16.3% 

Source: HUD analysis ofGSE loan-level data on single-family one-unit mortgages. Both home purchase and refinance mortgages are included. 
rate mortgages (FRMs) and by adjustable-rate mortgages (ARMs) depend on the level of interest 

rates (with the ARM share rising at higher interest rates, as borrowers' incentives to lock in low 

fixed rates decrease) and the difference (spread) between rates on FRMs and ARMs (with a 

smaller spread reducing incentives to take out ARMs). The ARM share ofthe market rose from 

20 percent in 1993 to 39 percent in 1994, due to an increase in mortgage rates. The further 

increase in mortgage rates in 1995 was more than offset by a decrease in the FRM-ARM spread, 

resulting in a decline in the ARM share oforiginations to 33 percent. As mortgage rates trended 

lower, the ARM share continued to decline, to 27 percent in 1996 and 22 percent in 1997. The 

ARM share of GSEs' purchases followed these trends, rising from 9 percent in 1993 to 14 

percent in 1994 and 21 percent in 1995 for Freddie Mac, before declining to 7-8 percent in 1996­

97.78 

After 1993 there were significant shifts in the market and in the GSEs' purchases away 

from IS-year fixed-rate mortgages, which had increased substantially during 1993, when 

historically low interest rates made monthly payments on shorter-term mortgages affordable to 

many middle-income homeowners. The IS-year FRM share ofGSEs' purchases declined 

accordingly, from 30 percent in 1993 to 21 percent in 1994 and 14-18 percent in 1995-97 for 

Freddie Mac. 

Type of Seller. As shown in Table 4, mortgage companies accounted for more than 60 

percent ofthe loans sold to the GSEs in 1997. Fannie Mae has relied much more on mortgage 

companies than Freddie Mac (66 percent versus 60 percent in 1997). In that year, Freddie Mac 

purchased 37 percent its mortgages from banks and thrifts, compared to 32 percent for Fannie 

Mae.9 

Location of Mortgaged Properties. Fannie Mae and Freddie Mac also differ somewhat 

in their purchases in urban and rural areas. 10 In 1997, non-metropolitan areas accounted for 16 

percent of Freddie Mac's purchases, compared with 13 percent of Fannie Mae's purchases. 

7 As reported in Freddie Mac's Investor/Analyst Report, First Quarter 1998, p.l8. 

8 Lenders are much more likely to hold ARMs than FRMs in portfolio, as confirmed by the fact 

that the ARM share ofthe GSEs' purchases is well below the ARM share of the primary market 

in every year. 

9 Some mortgage companies are owned by banks and thrifts, though the data provided to HUD 

by the GSEs does not separate such mortgage companies from independent mortgage companies. 

Over a longer time span, the role ofmortgage companies in housing finance (both independent 

and depository-affiliated) has grown significantly. 

10 A more detailed analysis of the characteristics ofthe neighborhoods in which the properties 

whose mortgages were financed by the GSEs were located is given in subsection IIl.e. 

19 
B. Home Purchase and Refinance Loans: 1996-97 Characteristics 

There are systematic differences between home purchasers and borrowers who are 

refinancing existing loans, and these differences may have significant effects on the perfonnance 

ofthe GSEs relative to the housing goals. Therefore, this subsection presents data separately for 

loan and borrower characteristics (Table 5) and census tract characteristics (Table 6) for home 

purchase loans and refmance loans on owner-occupied one-unit properties in 1996-97. JI 

Borrower Income. Over the 1996-97 period, about 65 percent ofthe GSEs' home 

purchase mortgages went to borrowers with incomes above area median income (AMI), with 

approximately half going to borrowers whose incomes exceeded 120 percent ofAMI. This 

pattern was essentially unchanged from 1993-95. 

In 1997, 10 percent of Fannie Mae's home purchase loans went to very low-income (VLI) 

borrowers, up from less than 7 percent in 1993, and Freddie Mac's VLI share was 7.5 percent, in 

comparison with 6.2 percent in 1993. Fannie Mae's VLI share has consistently exceeded Freddie 

Mac's share throughout the 1993-97 period (see Table 7 below). However, both GSEs' 

purchases ofsuch loans were below the VLI share ofthe primary conventional mortgage 

market. 12 

Race/Ethnicity. More than 80 percent of home purchase loans purchased by the GSEs 

in 1996-97 were made to (non-Hispanic) white borrowers. In 1993, only 2-3 percent ofthe 

GSEs' home purchase mortgages went to African American borrowers; this share rose to 3-4 

percent by 1995, but fell slightly by 1997. Similar gains were also made for Hispanics, from 3-4 

percent in 1993 to 4-6 percent in 1995, with some decline also in 1996-97. Both groups' shares 

have consistently been higher for Fannie Mae than for Freddie Mac, possibly due to Fannie. 

Mae's somewhat greater concentration of business in metropolitan areas or to its greater 

emphasis on outreach to traditionally underserved borrowers. 

First-time and Repeat Buyers. As housing has become more affordable, first-time 

home buyers have played a more significant part in the market. These are typically people in the 

25-34 year-old age group who purchase modestly-priced homes. Although the proportion ofthe 

population in this group decreased from 18 percent in 1985 to 15 percent in 1996, first-time 

homebuyers increased from about 40 percent of all buyers in the 1980s to 45 percent or more in 

II The distributions ofloan-to-value ratios for home purchase mortgages and refinance mortgages 

separately have been marked as proprietary by the GSEs, thus these breakdowns are not 

presented in Table 5 or Figure 8. 

12 Comparisons between the primary market and the GSEs are contained in Bunce and Scheessele 

(1996 and 1998). 

20 
TableS 

Loan and Borrower Characteristics of Single-Family 


Mortgages Purchased by the GSEs, 1996-1997 


1996 

Home Purchase Refinance Total 

Loan and Borrower 

Characteristics Fannie Mae Freddie Mac Fannie Mae Freddie Mac Fannie Mae Freddie Mac 

Number ofLoans 910.446 668,118 637,968 510,231 1,548,414 1,178,349 

Loan-to-Value Ratio' 

Over 95% 

91-95% 

81-90% 

61-800.4 

60% or Less 

2.1% 

13.8% 

16.00/0 

48.9% 

19.2% 

0.1% 

14.1% 

15.8% 

51.40/0 

18.7% 

Income ofBorrower(s) 

600.4 ofArea Median or Below 

61-100% of Median 

Below Area Median 

Over 1 ()()o.4 ofMedian 

8.9% 

27.5% 

34.2% 

63.6% 

7.3% 

25.5% 

31.7% 

67.2% 

8.4% 

27.2% 

34.1% 

64.50/0 

7.9% 

26.8% 

33.8% 

65.4% 

8.7% 

27.4% 

34.2% 

64.0% 

7.5% 

26.1% 

32.6% 

66.4% 

First-time Home Buyer' 33.4% 28.6% 0.0% 0.0% 19.2% 16.0% 

RacclNational Origin ofBorrower 

White 

African American 

Hispanic 

Asian or Pacific Islander 

American Indian or Alaskan Nativ 

Other 

Different Races 

82.9% 

3.6% 

5.6% 

4.00.4 

0.3% 

1.2% 

2.5% 

86.6% 

2.9% 

3.9% 

3.1% 

0.3% 

1.0% 

2.3% 

87.4% 

3.1% 

3.9% 

3.1% 

0.3% 

0.1% 

2.1% 

89.5% 

2.6% 

2.9% 

2.2% 

0.3% 

0.8% 

1.8% 

84.4% 

3.4% 

4.8% 

3.6% 

0.3% 

1.2% 

2.3% 

87.9% 

2.7% 

3.40

.4 

2.7% 

0.3% 

0.9% 

2.1% 

Home Purchase 

Loan and Borrower 

Characteristics Fannie Mae Freddie Mac 

N umber ofLoans 945,181 603,383 

Loan-to-Value Ratiol 

Over 95% 

91-95% 

81-90% 

61-80% 

60% or Less 

Income ofBorrower(s) 

600.4 ofArea Median or Below 10.1% 7.5% 

61-100% ofMedian 27.2% 26.1% 

Below Area Median 37.3% 33.6% 

Over 100% ofMedian 62.7% 66.4% 

First-time Home Buye~ 34.5% 28.4% 

RacclNational Origin ofBorrower 

White 83.0% 86.6% 

African American 4.1% 2.7% 

Hispanic 5.0% 3.9% 

Asian or Pacific Islander 4.0% 3.2% 

American Indian or Alaskan Nativ 0.3% 0.2% 

Other 1.1% J.J% 

Different Races 2.5% 2.3% 

1997 

Refinance 

Fannie Mae Freddie Mac 

535,771 429,332 

8.8% 8.9% 

27.2% 27.6% 

36.0% 36.5% 

64.0% 63.5% 

0.0% 0.0% 

87.1% 89.5% 

2.8% 2.5% 

3.7% 3.1% 

3.00.4 2.1% 

0.3% 0.2% 

0.9% 0.90/0 

2.1% 1.7% 

Total 

Fannie Mae 

1,480,952 

2.2% 

13.2% 

15.7% 

49,9% 

19.0% 

9.6% 

27.2% 

36.8% 

63.2% 

22.0% 

84.4% 

3.6% 

4.5% 

3..6% 

0.5% 

1.0% 

2 . .1% 

Freddie Mac 

1,032,715 

0.6% 

14.2% 

15,0% 

52.4% 

17.8% 

8.0% 

26,7% 

34.7% 

65.3% 

16.6% 

87.8% 

2.6% 

3.6% 

2.8% 

0.2% 

1.0% 

2.0% 

Source: MUD analysis of aSEs' loan-level data on mortpges on ownc::r-occl.lpied one-unit properties. 

In computins the pcrcc:nugc:s, missing data arc excluded. 

I The disuibl.ltions ofloan-co-vail.le Mas and bonower ase for home purchase loans and n:fmance monsasc:s scpantely have been 

maril:cd as proprietary by the aSEs. 

2 From Table 9 ofFannie Mae's and Freddie Mac's Annual Housing Activities Rc:pons for mortsages on all single-family 

owner-ocazpied properties. 

21 
Table 6 

Census Tract Characteristics of Single-Family Mortgages Purchased by the GSEs 

1996-1997 

1996 

Home Purchase Mortgages Refinance Mortgages Total 

Census Tract Characteristics Fannie Mae Freddie Mac Fannie Mae Freddie Mac Fannie Mae Freddie Mac 

Median Income ofTract 

80% ofArea Median or Below 

81-120% of Median 

Over 120% of Median 

8.6% 

52.1% 

39.3% 

7.50/_ 

52.7% 

39.8% 

8.3% 

57.2% 

34.5% 

8.2% 

58.2% 

33.5% 

8.5% 

54.2% 

37.3% 

7.9% 

55.2% 

37.2% 

Minority Composition ofTract 

Less Than 10% Minority 

10-30% Minority 

Over 30% Minority 

55.90" 

30.1% 

14.0% 

61.2% 

27.90" 

10.8% 

60.1% 

25.90" 

14.c)% 

65.2% 

24.0% 

10.8% 

57.6% 

28.4% 

14.0% 

62.90" 

26.2% 

10.7% 

Percent in Low-income aDd 

High-minority Tracts 4.2% 3.2% 3.9% 3.2% 4.1% 3.2% 

Underserved Areas 23.7% 21.3% 25.4% 24.1% 24.4% 22.5% 

1997 

Home Purchase Mortgages Refinance Mortgages Total 

Census Tract Characteristics Fannie Mae Freddie Mac Fannie Mae Freddie Mac Fannie Mae Freddie Mac 

Median Income of Tract 

80% of Area Median or Below 

81-120% of Median 

Over 120% of Median 

9.3% 

52.1% 

38.5% 

7.6% 

52.5% 

39.9010 

9.0% 

56.0% 

35.0% 

9.1% 

58.9% 

32.0% 

9.2% 

53.6% 

37.2% 

8.2% 

55.2% 

36.6% 

Minority Composition ofTract 

Less Than 10% Minority 

10-30% Minority 

Over 30% Minority 

54.1% 

31.0% 

14.9% 

61.6% 

27.7% 

10.7% 

60.4% 

26.3% 

13.3% 

65.1% 

23.3% 

11.5% 

56.4% 

29.3% 

14.3% 

63.1% 

25.9% 

11.0% 

Percent in Low-income aDd 

High-minority Tracts 4.8% 3.2% 4.1% 3.7% 4.5% 3.4% 

Underserved Areas 25.2% 21.2% 25.6% 25.6% 25.3% 23.0% 

Source: HUD analysis of GSEs' loan-level data on mortgages on owner-occupied one-unit properties. 

22 

Soun:c: HUDIPoIic:y DneIopmc::m'" ~. 
Table 7 

Trends in the Characteristics of Home Purchase Loans 


Acquired by the GSEs, 1993 ..19971 


Characteristic 1993 1994 1995 1996 1997 

Very-Low-Income Borrowers1 

Fannie Mae 6.8 % 8.8 % 9.3 % 8.9 % 10.1 % 

Freddie Mac 6.2 6.7 6.8 7.3 7.S 

Freddie MarJFannie Mae 0.91 0.76 0.73 0.82 0.74 

African American Borrowers 

Fannie Mae 2.7 4.0 4.4 3.6 4.1 

Freddie Mac 2.0 2.8 3.2 2.9 2.7 

Freddie MarJFannie Mae 0.74 0.70 0.73 0.79 0.6S 

Hispanic Borrowers 

Fannie Mae 3.8 S.7 6.2 5.6 5.0 

Freddie Mac 3.1 4.0 4.1 3.9 3.9 

Freddie MarJFannie Mae 0.82 0.70 0.66 0.69 0.77 

First-Time Homebuyers1 

Fannie Mae 24.0 31.1 31.9 33.1 30.1 

Freddie Mac 27.3 29.5 28.7 28.5 27.0 

Freddie MarJFannie Mae 1.14 0.95 0.90 0.86 0.90 

Low-Income Tracts 

Fannie Mae 6.8 8.7 8.6 8.6 9.3 

Freddie Mac 6.5 6.6 6.9 7.5 7.6 

Freddie MarJFannie Mae 0.96 0.76 0.80 0.88 0.82 

High-Minority Tracts 

Fannie Mae 13.1 15.7 16.2 14.0 14.9 

Freddie Mac Il.l 11.6 10.9 10.8 10.7 

Freddie MarJFannie Mae 0.85 0.74 0.67 0.77 0.72 

Underserved Areas 

Fannie Mae 21.3 24.7 25.2 23.7 25.2 

Freddie Mac 19.4 20.6 21.4 21.3 21.2 

Freddie MaclFannie Mae 0.91 0.83 0.85 0.90 0.84 

Source: HUD analysis ofGSEs' loan-level data on home purchase mortgages on owner-occupied one-unit properties. From National 

File B, HUD's GSE Public Use Data Base. 

I 	 As a percentage of loans for which information was reported by the GSEs. 

1 	I.e., 6.8% ofthe home purchase mortgages on owner-occupied one-unit properties purchased by Fannie Mae 

in 1993 were for very-low-income borrowers (those with income less than or equal to 60 percent of area median income). 

1 	As reported by the GSEs in their Annual Housing Activities Reports, as a percentage of all home purchase loans, including those 

where first-time homebuyer status is unknown. 

23 

recent years. 13 The GSEs lag the market in support for frrst ..time homebuyer loans because many 

such buyers take out loans insured by the FHA. In 1997,34 percent ofFannie Mae's home 

purchase loans were for frrst-time homebuyers, somewhat above Freddie Mac's first-time 

homebuyer share (28 percent), but both were well below the two-thirds ofFHA-insured home 

purchase loans for first-time homebuyers in recent years. 

Downpayments. Most ofthe mortgages that the GSEs purchase have high 

downpayments. As shown in Table 5, 68-69 percent ofthe home purchase and refinance loans 

acquired by Fannie Mae in 1996-97 had a loan-to-value ratio (LTV) at or below 80 percent. 14 

Such low-LTV (high-down payment) loans accounted for 70 percent ofFreddie Mac's 1997 

purchases, though the share ofloans with very high down payments (L TV s at or below 60 

percent) was slightly larger for Fannie Mae (19 percent) than for Freddie Mac (18 percent). 

Since 1995 Freddie Mac has entered the very high-L TV (greater than 95 percent) market, though 

such loans still amounted to only 0.6 percent ofits loans in 1997, compared with 2.2 percent of 

Fannie Mae's loans last year. 

In general, high-L TV loans are much more common among home purchase mortgages 

than among refinance mortgages, but in 1996 the GSEs declared data on the breakdown ofLTV 

ratios separately for purchase loans and refinance loans to be proprietary. Thus this infonnation 

has been suppressed in Table 5. 

Lower income households are constrained in two ways from becoming homeowners. 

Their incomes limit the monthly mortgage payment for which they can qualify and also make it 

more difficult for them to accumulate a down payment. Thus one would expect more high-LTV 

(low down payment) loans among lower income families. Surprisingly, this has not been the 

case for the mortgages purchased by the GSEs, as shown in Figure 8. In 1993, 86 percent of very 

low-income borrowers made down payments of 20 percent or more, exceeding the corresponding 

high down payment shares for families with incomes between 60 percent and 100 percent of area 

median income (80 percent) and families with incomes in excess of area median (79 percent); 

this same general pattern ofthe highest down payments being made by the lowest-income 

borrowers also prevailed for 1994-97. Further study is warranted to determine whether this 

pattern of higher downpayments among lower income families also prevails in the primary 

conventional mortgage market or whether the mortgages purchased by the GSEs are atypical in 

this regard. 

13 See Chicago Title (1998) for primary mortgage market data on first-time homebuyers. 

14 The GSEs are required by statute to have private mortgage insurance or some other fonn of 

credit enhancement on loans that they purchase with an LTV greater than 80 percent. 

24 
Figure 8 

High Down Payment Loans Purchased by the GSEs, 

By Income Level, 1993-1997 

100% 

80% 

60% 

Percent of loans with 

~ Down Payment of20 

percent or more 

40% 

20% 

0% 

1993 1994 1995 1996 1997 

Borrower Income Relative to AMI: 

.Less Than or Equal to 60% DBetween 61% and 100% .Greater Than 100% 

Note: Preliminary estimate for 1997. 
Census Tract Characteristics. Extensive research has been conducted using HMDA 

data and other infonnation on issues ofredlining and the extent to which lenders are meeting the 

credit needs ofunderserved areas. Such studies show substantial disparities between mortgage 

flows in neighborhoods ofvarying income levels and minority percentages. IS The remainder of 

this subsection examines the characteristics ofthe census tracts containing properties with home 

purchase mortgages sold to Fannie Mae and Freddie Mac in the 1996-97 period. 

Income Level and Minority Composition of Neighborhood. Most mortgages acquired 

by the GSEs are on properties in low-minority areas and in areas with above average incomes 

(see Table 6).16 Specifically, more than halfofeach GSE's loans in 1996-97 were for properties 

in census tracts in which minority residents comprised less than 10 percent ofthe population, and 

fewer than 10 percent were in low-income tracts in each year. In both years, Fannie Mae 

purchased relatively more loans from both low- and high-income tracts than Freddie Mac, which 

had a higher share of its purchases from middle-income tracts (Le., those with median incomes 

between 80 percent and 120 percent of area median income). As in 1995, high-minority/lowincome tracts accounted for less than 5 percent ofthe loans sold to each GSE in 1996 and 1997. 

Underserved Areas. HUD was directed by the 1992 GSE Act to expand and, as 

appropriate, modify the basis for the geographically-targeted goal from central cities, the focus 

during the 1993-95 transition period, to include rural areas and other underserved areas for 

subsequent years. After a considerable amount ofresearch on access to mortgage credit, the 

Department detennined that the definition most consonant with Congressional intent was based 

on the income level and minority composition of metropolitan census tracts and nonmetro 

counties, because such neighborhoods generally have low mortgage origination rates and high 

loan denial rates. Thus the geographically-targeted goal has been specified in this manner for 

1996-99, as noted in Table 3. 

Although the goals were not established on this basis for 1993-95, sufficient information 

is available from the data supplied by the GSEs to measure their purchases in such areas during 

this period. The GSEs' purchases of home purchase loans on properties in underserved areas are 

shown in Table 7 for 1993-97. Such loans rose from 21 percent of Fannie Mae's purchases in 

1993 to 25 percent in 1995, but, surprisingly, declined to 23 percent in 1996 (when the goals 

were first reformulated to focus on such areas), before returning to the 25 percent level in 1997. 

A similar pattern exists for Freddie Mac, with loans on properties in underserved areas rising 

from 19 percent in 1993 to 21 percerit in 1995, but then leveling off at that level in 1996-97. The 

IS These studies were reviewed in detail in Appendix B ofthe Secretary's final rule regulating the 

GSEs, contained on pp. 61925-61958 ofthe December 1, 1995 Federal Re2ister. 

16 Data corresponding to that in Table 6 were presented for 1995 in Table 8 ofthe 1993-95 

Working Paper. 

26 
lack of any change in performance resulting from the reformulation ofthe geographically 

targeted goal may reflect primary market developments, but it may also suggest that HUD' s 

1996-97 underserved areas goal was not set a sufficiently high level to challenge the GSEs. 

c. Home Purchase Loans: 1993-97 Trends 

In measuring goal compliance, all units (whether in rental or owner-occupied housing) 

financed by all mortgages (whether for home purchase or refmancing) are taken into account. 

But given the importance placed by most Americans on purchasing their own home, trends in 

several key dimensions ofsingle-family home purchase loans acquired by the GSEs are 

summarized in Table 7. Each statistic measures the shares ofsuch loans for each borrower and 

census tract category and ratios between Freddie Mac's shares and Fannie Mae's shares for each 

characteristic are also presented. Six general patterns emerge: 

First, gains by very low-income borrowers between 1993 and 1995 continued between 

1995 and 1997. For Freddie Mac, this group's share of home purchase mortgages rose from 6.2 

percent in 1993 to 6.8 percent in 1995 and 7.4 percent in 1997, and for Fannie Mae, from 6.8 

percent in 1993 to 9.3 percent in 1995 and 10.1 percent in 1997. 

Second, gains by minority borrowers between 1993 and 1995 were not maintained 

between 1995 and 1997. For Fannie Mae, the share of home purchase loans going to African 

Americans rose from 2.7 percent in 1993 to 4.4 percent in 1995, but declined to 4.1 percent by 

1997, with a comparable trend for Freddie Mac, from 2.0 percent in 1993 to 3.2 percent in 1995 

and 2.7 percent in 1997. A similar pattern arose among Hispanics, who saw their share of such 

loans increase between 1993 and 1995, before declining between 1995 and 1997. And in 

absolute terms, the total number of home purchase mortgage loans rose by 10 percent between 

1995 and 1997, but the numbers of such loans fell by 2 percent for African Americans and by 5 

17 percent for Hispanics over the last two years. 

Third, the disparities between the 1995-97 trends in income characteristics of borrowers 

and their racial/ethnic characteristics were (not surprisingly) reflected in the neighborhood data, 

with the share of home purchase loans in low-income tracts continuing to rise between 1995 and 

1997, while the share for high-minority tracts declined over this period. 

Fourth, in 1994 the first-time homebuyers' share ofhome purchase mortgages was 

comparable for Freddie Mac and for Fannie Mae, but since that time a gap has opened up 

17HMDA data on the numbers of loans made to minority borrowers in the primary market in 

1997 will not be available until this summer. 

27 
betweeen the two GSEs in this dimension oftheir lending. 18 

Fifth, despite HUD's reformulation ofits geographically-targeted goal to underserved 

areas, effective in 1996, the share ofthe GSEs' loans in such areas declined slightly between 

1995 and 1997.19 

Sixth, the convergence between the two GSEs in the shares of their loans for lowerincome and minority borrowers and their neighborhoods between 1995 and 1996 was generally 

reversed in 1997, as shown by the 1995-96 increases and 1996-97 decreases in the "Freddie 

MaclFannie Mae ratios" for most of the categories in Table 7. For example, the share of Freddie 

Mac's loans in low-income tracts rose between 1995 and 1996, both in absolute terms and 

relative to Fannie Mae's share; unlike Fannie Mae's record, Freddie Mac's low-income tract 

share showed no further increase in 1997. Thus, with the exception of loans made to Hispanics, 

1997 saw a return to the pre-1996 pattern ofdisparities between the two GSEs in most 

dimensions of lower-income and minority lending. 

D. Cross-tabulations of GSEs' Purchases of Single Family Mortgages By Race and Income 

The tabulations in Table 7 indicate that the shares ofthe loans purchased by Freddie Mac 

loans for African-Americans, Hispanics, and very low-income borrowers have consistently been 

below the corresponding shares of loans purchased by Fannie Mae. These discrepancies are 

analyzed in more detail in Table 8, which provides a cross-tabulation ofhome purchase loans by 

GSE by race and income for 1997. 

The ratios of loans purchased by Freddie Mac to loans purchased by Fannie Mae indicate 

the compounding effects ofthe patterns in Table 7 on lower-income minority households. For 

example, in 1997 Freddie Mac's purchases of home purchase loans to very low-income African 

Americans amounted to 29 percent ofFannie Mae's purchases of such loans, and the 

corresponding ratio for very low-income Hispanics was 39 percent. The corresponding ratio for 

white borrowers with incomes above area median was 73 percent.20 Within every group except 

Asian Americans, the Freddie Mac-Fannie Mae ratio was substantially lower for lower-income 

18The first-time homebuyer percentage for Fannie Mae in 1993 (24 percent) seems inconsistent 

with other dimensions oftheir lending and may reflect inaccuracies in the data for 1993. 

19As shown in Table B.2 of Bunce-Scheessele (1998), the share ofthe conforming market 

accounted for by underserved areas declined slightly between 1995 and 1996; data for 1997 are 

not yet available. 

2°Equivalently, it may be noted that Freddie Mac accounted for 42 percent ofthe GSEs' 

combined purchases of mortgages made to above median income whites, but 23 percent ofthe 

total purchases ofmortgages made to very-low income African Americans. 

28 
Table 8 

Home Purchase Loans for Owner-Occupied One-Unit Properties, 


By Race and Income, 1997 


Borrower Income 

RacelEthnicity 

African-American 

Freddie Mac 

Fannie Mae 

Ratio 

Hispanic 

Freddie Mac 

Fannie Mae 

Ratio 

Asian American 

Freddie Mac 

Fannie Mae 

Ratio 

White 

Freddie Mac 

Fannie Mae 

Ratio 

Totae 

Freddie Mac 

Fannie Mae 

Ratio 

Very-Low 


Income 


1,826 

6,247 

0.29 2 

2,561 

6,606 

0.39 

1,446 

2,979 

0.49 

33,523 

60,431 

0.55 

40,192 

78,190 

0.51 

Low- and 


Moderate Income 


4,377 

10,267 

0.43 

6,529 

13,559 

0.48 

5,668 

10,594 

0.54 

119,643 

175,600 

0.68 

140,237 

217,026 

0.65 

Above Median 


Income 


8,017 

15,565 

0.52 

) 1,600 

19,337 

0.60 

10,134 

17,738 

0.57 

308,339 

420,775 

0.73 

352,130 

494,240 

0.71 

Total! 

14,220 

32,079 

0.44 

20,690 

39,502 

0.52 

17,248 

31,311 

0.55 

461,505 

656,806 

0.70 

532,559 

789,456 

0.67 

Source: HUD's analysis ofdata from the GSEs' Public Use Data Base, National File B. 

I Excludes units where borrower's income ratio cannot be detennined due to missing annual income and! or 

missing area median income; such units are included in the numerators in the calculations in Table 7. 

2 	The ratio of Freddie Mac's purchases to Fannie Maels purchases for any category is equivalent to showing 

each GSE's share oftheir combined purchases. That is, ifr is the ratio, Freddie Mac's share of loans to VLI 

African Americans is rl(1 +r) and Fannie Mae's share ofloans to VLI African Americans is 11(1 +r) - in this 

case, 22 percent ( .29/1.29) and 78 percent (1/1.29), respectively. 

3 	Includes other races, borrower and coborrower of different races; excludes not applicable. 

29 
borrowers than for higher-income borrowers 

In order to determine ifgeographical differences between the GSEs in their purchase 

patterns account for the discrepancies in their shares ofsingle-family lending for minority and 

lower-income borrowers, the cross-tabulations shown in Table 8 have been run for 15 

metropolitan areas.21 The Freddie Mac-Fannie Mae purchase ratios are shown for very lowincome and above median income African American and White borrowers in Table 9. For four 

areas (Los Angeles, New York, San Francisco, and Washington) the ratios do not differ greatly 

between the two racial groups and the two income categories shown, but the nationwide patterns 

shown in Table 8 appear in the other eleven metropolitan areas. The reasons for the discrepancies 

between the GSEs in these eleven MSAs are not apparent.ll 

E. Refinance Loans By Income Level, 1993-97 

In general, refmancing mortgagors tend to be older and take out loans with significantly 

lower LTVs than home purchase borrowers. Higher-income borrowers are most likely to 

refmance their loans when interest rates are lowest, as shown in Table 10, which presents the 

distribution ofrefinance mortgages by income level for the 1993-97 period. More than half of 

refmancers with incomes in excess of AMI took out their new loans in 1993, when mortgage 

rates were at the lowest level ofthis period, but only about one-third of very low-income 

refmancers took advantage ofthese lowest rates. Thus only about one-fifth of above-median 

income refinancers were in the market in the higher interest rate years of 1995 and 1996, 

compared with more than 30 percent of very low-income refinancers. 

Data on the interest rates on individual loans is not available, but the timing of 

refinancings suggests that on average lower-income families paid higher rates on their 

refinancings than higher-income borrowers for the 1993-97 period as a whole. This may reflect 

better knowledge ofthe benefits ofrefinancing among higher-income borrowers, or it may be due 

to other factors. Fannie Mae has reported that it has undertaken a project with ACORN to better 

educate lower-income homeowners about the gains from refinancing their loans. 

21Loan purpose by borrower race and income is not available at the individual MSA level, thus 

the tabulations in Table 9 include all single-family loans--for home purchase, refinancing, and 

second loans. 

llBecause of inconsistencies between the GSEs in reporting lender names, it is not possible to 

compare the sales ofgiven lenders to the GSEs in the same metropolitan area using data from the 

GSE Public Use Data Base. However, such comparisons can be made utilizing the data on loans 

sold to each GSE as reported by lenders in accordance with the Home Mortgage Disclosure Act 

(HMDA). Such an analysis would indicate, for example, ifthe loans sold by Lender X to Fannie 

Mae in metropolitan area Y "look like" the loans sold by Lender X to Freddie Mac in 

metropolitan area Y. 

30 
Table 9 

Ratio of Single-Family Loans Purchased by Freddie Mac to Single-Family Loans 


Purchased by Fannie Mae, Very Low Income (VLI) and Above Median Income (AMI) 


African-American and White Borrowers, Selected MSAs, 1997· 


African-Americans 	 Whites 

MSA 	 VLI AMI VLI AMI MSA Total2 

Atlanta 0.483 0.67 0.65 0.73 0.67 

Baltimore 0.38 0.61 0.53 0.74 0.68 

Boston 0.36 0.56 0.66 0.81 0.78 

Chicago 0.43 0.58 0.59 0.64 0.63 

Dallas 0.20 0.48 0.39 0.62 0.55 

Detroit 0.55 0.81 1.05 0.92 0.93 

Houston 0.17 0.53 0.51 0.68 0.59 

Kansas City 0.15 0.36 0.63 0.81 0.73 

Los Angeles 0.35 0.44 0.44 0.54 0.53 

Miami 0.26 0.42 0.30 0.70 0.65 

New York 0.20 0.44 0.29 0.54 0.47 

Philadelphia 0.62 0.76 0.70 0.81 0.79 

San Francisco 0.61 0.63 0.52 0.56 0.53 

Seattle 0.29 0.48 0.53 0.64 0.63 

Washington 0.39 0.56 0.64 0.74 0.68 

U.S. 	 0.37 0.53 0.63 0.75 0.70 

Source: HUD's analysis of data from the GSEs' Public Use Data Base, Census Tract File. 

I 	 Includes all single-family loans for home purchase, refinance, or second mortgages. 

2 	For all races and income levels, excluding loans with missing borrower or area median income or borrower race. 

J 	 The ratio of Freddie Mac's purchases to Fannie mae's purchases for any category is equivalent to showing 

each GSE's share oftheir combined purchases. That is, if r is the ratio, Freddie Mac's share of loans to VLI 

African Americans is r/(l+r) and Fannie Mae's share of loans to VLI African Americans is l/(l+r) - in this 

case 32 percent (.48/1.48) and 68 percent (111.48), respectively. 

31 

Table 10 

Current Year Refinance Loans Purchased 

by the GSEs, by Borrower Income, 

Owner-Occupied I-Unit Properties, 1993-97 

Year of OriginationIPurchase 

Borrower Income Ratio I 1993 1994 1995 1996 1997 

Total or 

Average, 1993-97 

<=60% of AMI 

Number of Loans 

Percent of 1993-97 Total 

128,294 

34.8% 

62,015 

16.8% 

38,706 

10.5% 

72,841 

19.7% 

67,313 

18.2% 

369,169 

100.0% 

w 

N 

60% to <= 100% ofAMI 

Number ofLoans 

Percent of 1993-97 Total 

666,432 

45.3% 

229,704 

15.6% 

128,389 

8.7% 

237,088 

16.1% 

209,235 

14.2% 

1,470,848 

100.0% 

> 100% ofAMI 

Number ofLoans 

Percent of 1993-97 Total 

2,192,375 

53.6% 

553,849 

13.5% 

320,031 

7.8% 

547,370 

13.4% 

477,196 

11.7% 

4,090,821 

100.0% 

Total 2 

Number ofLoans 

Percent of 1993-97 Total 

2,987,101 

50.4% 

845,568 

14.3% 

487,126 

8.2% 

857,299 

14.5% 

753,744 

12.7% 

5,930,838 

100.0% 

Effective Mortgage Rate 3 7.13% 7.49% 7.85% 7.74% 7.68% 7.58% 

Source: HUD analysis ofGSEs' loan-level data from the Public Use Data Base; Federal Housing Finance Board's Mortgage Interest Rate Survey. 


I Borrower income relative to area median income (AMI) 


2 Excludes "not applicable" cases. 


3 The average yearly effective mortgage rate is the contract interest rate plus all fees, points, and charges amortized over a 10-year period. 

F. Conclusions 

This section has described basic characteristics ofthe mortgages that the GSEs purchased 

in 1996 and 1997 and summarized some trends over the 1993-97 period. Six points stand out. 

First, almost all ofthe loans purchased by the GSEs are for the purchase of a home or the 

refinancing of an existing mortgage. The GSEs' acquistions of home purchase loans generally 

move in tandem, but in 1997 Fannie Mae's purchases ofsuch loans rose by 4 percent, while 

Freddie Mac's purchases declined by 10 percent. 

Second, gains between 1993 and 1995 in the shares ofthe GSEs' mortgages taken out by 

very low-income families continued between 1995 and 1997. The very low-income share of 

home purchase mortgages rose from 6.8 percent in 1993 to 9.3 percent in 1995 and 10.1 percent 

in 1997 for Fannie Mae, and from 6.2 percent in 1993 to 6.8 percent in 1995 and 7.5 percent for 

Freddie Mac. 

Third, some ofthe gains in minorities' shares ofthe GSEs' loans between 1993 and 1995 

were reversed between 1995 and 1997. African-Americans' share ofthe GSEs' combined home 

purchase loans rose from 2.4 percent in 1993 to 3.9 percent in 1995, before slipping to 3.5 

percent in 1997. The corresponding shares for Hispanics were 3.6 percent in 1993, 5.3 percent in 

1995, and 4.6 percent in 1997. 

Fourth, the GSEs lag the market in support for first-time homebuyer loans. In 1997, 34 

percent of Fannie Mae's home purchase loans were for first-time homebuyers, somewhat above 

Freddie Mac's share (28 percent). But both were less than the 45 percent of buyers in the 

primary market who are first-time homebuyers and well below the two-thirds of FHA-insured 

home purchase loans for such buyers in recent years. 

Fifth, somewhat surprisingly, the lower-income loans purchased by the GSEs generally 

have had higher downpayments than the loans they have purchased which were taken out by 

higher-income families. Specifically, in 1993, 86 percent ofvery low-income borrowers made 

down payments of 20 percent or more, exceeding the corresponding high down payment shares 

for families with incomes between 60 percent and 100 percent of area median income (80 

percent) and families with incomes in excess of area median (79 percent). This same pattern, of 

the highest down payments being made by the lowest-income borrowers, also prevailed for the 

GSEs' 1994-97 purchases. 

Finally, the gap between Fannie Mae and Freddie Mac in most dimensions of lowerincome and minority lending narrowed between 1995 and 1996, but widened again between 1996 

and 1997. For example, the share of Freddie Mac's loans made for properties in low-income 

tracts rose between 1995 and 1996, while the corresponding share for Fannie Mae's loans 

remained unchanged. But this pattern was reversed in 1997, restoring the 1995 gap between the 

GSEs in their purchases of loans on properties in these areas. 

33 

Appendix A 

GSEs' Housing Goals for 1993-95 

In October 1993 the Secretary established three goals for Fannie Mae and Freddie Mac for the 

1993...95 "transition period": 

• A low- and moderate-income goal, set at 30 percent (28 percent for Freddie Mac for 

1993)......i.e., for each year, 1994 ...95, at least 30 percent oftotal units financed by each 

GSE's mortgage purchases should have been (1) owner-occupied units for which the 

borrower's income is less than or equal to area median income or (2) rental units with 

rents (adjusted for unit size) not in excess of30 percent ofarea median income; 

• A geographically-targeted goal, also set at 30 percent (26 percent for Freddie Mac and 

28 percent for Fannie Mae for 1993)--i.e., for each year, 1994-95, at least 30 percent of 

total units financed by each GSE's mortgage purchases should have been for properties 

located in central cities, as defined periodically by the Office ofManagement and 

Budget; 

• A special affordable goal, set at $16.4 billion and $11.9 billion for 1993-94 combined 

for Fannie Mae and Freddie Mac respectively, and at $4.6 billion and $3.4 billion for 

1995--i.e., at least these dollar amounts of units financed by the GSEs' mortgage 

purchases should have been owner-occupied units for which the borrower's income was 

less than or equal to (1) 60 percent of area median income (very low-income families) or 

(2) iflocated in a low-income census tract or nonmetropolitan county, 80 percent of area 

median income (low-income families in low-income areas), or rental units affordable at 

these income levels. 

A.l.! 

The performances ofthe GSEs on each goal between 1993 and 1995 are shown in Table 

Both GSEs' performance exceeded their low-mod goals in every year during the 

transition period. For example, 43 percent ofFannie Mae's purchases and 39 percent ofFreddie 

Mac's purchases qualified as low-mod purchases in 1995; these figures far surpassed HUD's 30 

percent target for the low-mod goal. Fannie Mae surpassed the central cities goals in two ofthe 

three years (1994 and 1995), but Freddie Mac fell short ofthe goals in all three years. With 

regard to special affordable mortgages, both GSEs exceeded their aggregate targets for 1993-95. 

1 For a full discussion ofthe transition period housing goals, see Chapter 3 ofHUD's 

privatization study, Privatization ofFannie Mae and Freddie MaC(: Desirability and Feasibility. A 

HUD Re.port, Office of Policy Development and Research, HUD, July 1996. 

34 
Table A.I 


GSEs' Activity and Goals for the 1993-95 Transition Period 1 


Activity Goals 

Goal 2 1993 1994 1995 1993 1994 1995 

Low- and Moderate-Income: 

Fannie Mae 34.4% 45.0% 43.2% 30% 30% 30% 

Freddie Mac 29.2% 37.5% 39.0% 28% 30% 30% 

Central Cities: 

Fannie Mae 26.3% 31.5% 30.4% 28% 30% 30% 

Freddie Mac 24.3% 25.3% 23.4% 26% 30% 30% 

w 

V1 

Special Affordable ($ billions): I I 

Fannie Mae $21.4 $8.4 $16.4 $4.6 

Freddie Mac $12.7 $5.5 $11.9 $3.4 

1 For low- and moderate-income and central cities, activity and goals are measured as percentages of dwelling units in properties 

whose mortgages were purchased by the GSEs in each year. For special affordable, activity and goals are measured in billions of dollars 

in 1993-94 (two-year goal) and 1995. 

2 Abbreviated definitions of goals: 

Low- and Moderate-Income: Households with income less than or equal to area median income. 

Central Cities: Units in properties located in central cities, as defined by the Office of Management and Budget. 

Special Affordable: Single-family units affordable to very low-income families and low-income families in low-income areas; 

multifamily units affordable to low-income families and very low-income families. 

Source: As reported by Fannie Mae and Freddie Mac in their Annual Housing Activities Reports, adjusted by HUD for missing data, 

as described in "Privatization of Fannie Mae and Freddie Mac: Desirability and Feasibility:' HUD Report, July 1996, Chapter III. 
Appendix B 


Missing Data for the GSEs' Loans 


For some mortgages the GSEs have not collected sufficient data to determine whether or 

not the units financed qualify for the low- and moderate-income and special affordable goals 

established by the Secretary. Information on the extent ofthis "missing data" is presented in 

Table B.l for 1993-97 for mortgages on owner-occupied units, where borrower income is needed 

in order to measure performance on these two goals, and for single-family and multifamily rental 

units, where tenant rent is needed. Although there is not a first-time homebuyer goal for the 

GSEs, there is a great deal of interest in the GSEs' provision ofsuch fmancing, and the GSEs are 

required to provide HUD with data on home purchase mortgages to distinguish first-time buyers 

from repeat buyers--thus "missing homebuyer status" is also included in Table B.l. 1 

It should be noted that the GSEs are not required to collect income and rent information 

on mortgages which were originated prior to 1993, since the 1992 GSE Act did not take effect 

until January 1, 1993.2 However, this is the only situation where a GSE's responsibility to collect 

income and rent data for the units financed has been waived by the Department. 

Several points stand out in Table B.l: 

• 	 In every category in every year, Fannie Mae has had substantially more missing 

data than Freddie Mac--e.g., in 1997 tenant rent was missing for nearly 28 percent 

ofthe single-family rental units financed by Fannie Mae, but for fewer than 2 

percent of such units financed by Freddie Mac; 

• 	 With the exception of 1995, the missing data problem has diminished steadily 

over time for Freddie Mac, which may be explained by a decrease in the share of 

its purchases accounted for by pre-1993 originations; 

• 	 The missing data problem has gotten worse in recent years for Fannie Mae--for 

example, the percentages ofowner-occupied units with missing borrower income 

and multifamily units with missing tenant rent were higher in 1997 than in 1994; 

IThe GSEs define "first-time homebuyer" as a buyer who will reside in the mortgaged 

premises who had no ownership interest (sole or joint) in a residential property during the threeyear period preceding the date ofthe purchase ofthe home. 

2Purchases of pre-1993 mortgages with missing income or rent data have no effect on the 

GSEs' goal performance, since any such mortgages are excluded from the numerator and the 

denominator in calculating performance under the low- and moderate-income and special 

affordable goals. If a GSE obtains this data for pre-1993 mortgages, the units are included in the 

denominator and, as appropriate, the numerator in calculating goal performance. 

36 
Table B.l 


GSEs' Mortgages with Missing Information, 1993-97 


Year ofAcquisition 

1993 1994 1995 1996 1997 

Percent ofOwner-Occupied Units 

Financed with Missing Borrower Income 

Fannie Mae 11.70/0 5.5% 9.5% 6.6% 6.8% 

Freddie Mac 10.4%) 2.8% 7.2% 3.2% 1.4% 

Percent of Single-Family Rental Units 

Financed with Missing Tenant Rent 

w 

....,J 

Fannie Mae 31.2% 31.5% 46.4% 18.9% 27.9% 

Freddie Mac 15.0% 5.0% 25.1% 4.7% 1.8% 

Percent of Multifamily Rental Units 

Financed with Missing Tenant Rent 

Fannie Mae 1.8% 5.4% 31.6% 6.8% 10.9% 

Freddie Mac 0.0% 0.0% 2.3% 0.0% 0.0% 

Percent of Conventional Home Purchase 

Mortgages with Missing Homebuyer Status) 

Fannie Mae 19.2% 5.7% 9.0% 4.7% 12.7% 

Freddie Mac 13.2% 1.2% 4.9% 3.8% 4.9% 

) Homebuyer status should be reported as "first-time homebuyer" or ttrepeat homebuyer". 

Source: GSEs' Annual Housing Activities Reports, Tables 2, 3, 4, and 12. 
• 	 With the exception ofmissing homebuyer status, which was more prevalent in its 

1997 data than in its 1994 data, Freddie Mac may have reduced the missing data 

problem to the lowest feasible level in 1997; and 

• 	 The reasons for Fannie Mae's weak record ofdata collection are not clear, but it 

has far to go to reach a satisfactory level ofdata quality. 1 

The Department plans to explore this missing data question in more detail in the future, 

and future analyses relating to the GSEs' purchases may highlight such data more than has been 

done in the past, when units with missing data have typically been excluded in making 

tabulations. 

lIfall acquisitions ofmortgages originated prior to 1993 were excluded from Table B.1, 

the missing data percentages would be much lower for 1993 and somewhat lower in some cases 

for other years, but the same general conclusions would follow. 

38 
REFERENCES 

Avery, Robert B.; Beeson, Patricia E.; and Snidennan, Mark E. 1994. "Underserved Mortgage 

Markets: Evidence from HMDA." Working Paper Series 94-21. Federal Reserve Bank 

ofCleveland. (December). 

___. 1995. "An Evaluation ofHMDA Data." Fair Lendini Analysis, 

American Bankers Association. 

Bunce, Harold L.; Capone, Charles A.; Neal, Sue G.; Reeder, William J.; Scheessele, Randall 

M.; and Szymanoski, Edward J, 1995. An Analysis ofFHA's Sini:le-Family Insurance 

ProfWllD, Office ofPolicy Development and Research, U.S. Department ofHousing and 

Urban Development, (October). 

Bunce, Harold L.; Neal, Sue G.; Reeder, William J.; and Sepanik, Ronald J. 1996, New Trends 

in American Homeownership, Office of Policy Development and Research, U.S. 

Department ofHousing and Urban Development. (June). 

Bunce, Harold L., and Scheessele, Randall M, 1996, The GSEs' Fundini: ofAffordable Loans, 

It Working Paper No. HF-001. Office ofPolicy Development and Research, U,S. 

Department ofHousing and Urban Development (December). 

Bunce, Harold L" and Scheessele, Randall M. 1998. The GSEs' Funding of Affordable Loans: 

1996 Update. Working Paper No, HF-005. Office ofPolicy Development and Research, 

U.S, Department ofHousing and Urban Development (July). 

Canner, Glenn B., and Gabriel, Stuart A. 1992. "Market Segmentation and Lender 

Specialization in the Primary and Secondary Mortgage Markets," Housing Policy 

Debate. (Vol. 3, No.2), 

Canner, Glenn B" and Passmore, Wayne. 1995. "Credit Risk and the Provision ofMortgages to 

Lower-Income and Minority Homebuyers." Federal Reserve Bulletin, (November). 

Canner, Glenn B.; Passmore, Wayne; and Surette, Brian J. 1996. "Distribution ofCredit Risk 

Among Providers ofMortgages to Lower-Income and Minority Homebuyers." Federal 

Reserve Bulletin. (December). 

Canner, Glenn B., and Smith, Dolores S, 1991. "Expanded HMDA Data on Residential 

Lending." Federal Reserve Bulletin, (November). 

39 

• 

___. 1992. "Expanded HMDA Data on Residential Lending: One Year Later." Federal 

Reserve Bulletin. (November). 

Chicago Title and Trust Family ofTitle Insurers. 1998. Who's Buyin" Homes in America. 

(January). 

Congressional Budg.et Office. 1996. Assessinl: the Public Costs and Benefits ofFannie Mae and 

Freddie Mac. (May). 

DiVenti, Theresa R. 1998. The GSEs' Purchases of Sinl:le-Family Rental Property Mortl:al:es. 

Working Paper No. HF-004. Office ofPolicy Development and Research, U.S. 

Department ofHousing and Urban Development. (March). 

Federal Home Loan Mortgage Corporation (FHLMC). 1995. Financjnl: Homes for a DiYerse 

America. McLean, Virginia. (November) 

Fields, Ruth G. 1996. "The Mortgage Lending Sleeper is Waking Up in Manufactured Homes," 

Secondm:y Marketinl: Executiye. (October). 

General Accounting Office. 1996. Housinl: Enterprises: potential Impacts of Seyerinl: 

Goyernment Sponsorship. (May). 

Home, David K. 1994. "Evaluation ofthe Role ofRace in Mortgage Lending," FDIC Banking 

Review. (Spring/Summer). 

Lind, John E. 1996a. "Community Reinvestment and Equal Credit Opportunity Performance of 

Fannie Mae and Freddie Mac from the 1994 HMDA Data." San Francisco, CANICCOR. 

(February 12). 

___. 1996b. II A Comparison ofthe Community Reinvestment and Equal Credit 

Opportunity Performance of Fannie Mae and Freddie Mac Portfolios by Supplier from 

the 1994 HMDA Data." San Francisco, CANICCOR. (April 8). 

Manchester, Paul B.; Neal, Sue George; and Bunce, Harold L. 1998. Characteristics of 

Mortgages Purchased by Fannie Mae and Freddie Mac. 1993-95. Working Paper No. 

HF-003. Office of Policy Development and Research, U.S. Department of Housing and 

Urban Development. (March). 

Segal, William and Szymanoski, Edward J. 1997. The Multifamily Secondruy Mortgage Market: 

The Role of Goyernment-Sponsored Enterprises. Working Paper No. HF-002. Office of 

Policy Development and Research, U.S. Department ofHousing and Urban 

Development. (March). 

40 

'" 
___. 1998. "Fannie Mae, Freddie Mac, and the Multifamily Mortgage Market." Cityscape. 

A Journal of Policy Deyelopment and Research. Volume 4, Number 1. 

U.S. Department ofHousing and Urban Development. 1995. The SecretaJ:y ofHUD's 

Reiulation ofthe Federal National Mortaaae Association and the Federal Home Loan 

Mortiaae Corporation, Final Rule, 60 Fed. Reg. 61,646. (December 1). 

___. 1996. Privatization ofFannie Mae and Freddie Mac: Desirability and Feasibility. A 

HUD Re.port. Office ofPolicy Development and Research. (May). 

U.S. Department ofthe Treasury. 1996. Goyernment Sponsorship ofthe Federal National 

Mortiaie Association and the Federal Home LOan Mortiaie Corporation. (July). 

Wachter, Susan M. and Megbolugbe, Isaac F. 1992. "Racial and Ethnic Disparities in 

Homeownership." Housini Policy Debate, pp. 333-370. 

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American Bankers Association . 

.. 

.. 

41 


It 
.. 


" 

Housing Finance 

WORKING PAPER SERIES 

HF-OOI The GSEs' Funding of Affordable Loans, by Harold L. 

Scheessele, December 1996. 

Bunce and Randall M 

This paper examines the borrower and neighborhood characteristics of mortgages purchased by 

Fannie Mae and Freddie Mac, the two major Government-Sponsored Enterprises (GSEs) in the 

conventional secondary mortgage market. The GSEs' mortgage purchases are compared to all 

mortgages originated in the conventional conforming loan market, including originations 

retained in portfolio by banks and thrift institutions. The analysis is based on Home Mortgage 

Disclosure Act (HMDA) data on home purchase loans originated in metropolitan areas between 

1992 and 1995. The paper finds that there is room for further increases in purchases of 

affordable loans by Fannie Mae and, especially, Freddie Mac. 

HF-002 The Multifamily Secondary Mortgage Market: The Role of GovernmentSponsored Enterprises, by William Segal and EdwardJ. Szymanoski, March 1997. 

• 

This paper examines the performance of Fannie Mae and Freddie Mac in enhancing the liquidity 

and efficiency ofthe affordable segment ofthe multifamily mortgage market. The paper focuses 

specifically on the period since 1993, when HUD established affordable housing goals for these 

two Government-Sponsored Enterprises (GSEs). A private secondary mortgage market has 

developed to address the finance needs of higher end properties; yet a comparable market for 

mortgages on properties affordable to lower-income families lags in development. Placed within 

a wider market context, it is found that the GSEs have been cautious in their affordable 

multifamily transactions. It is concluded that the GSEs have the potential to do more to enhance 

the affordable segment ofthe multifamily mortgage market. 

HF-003 Characteristics of Mortgages Purchased by Fannie Mae and Freddie Mac, 1993-95, 

by Paul B. Manchester, Sue George Neal, and Harold L. Bunce, March 1998. 

This paper examines the mortgages purchased by Fannie Mae and Freddie Mac, the two major 

Government-Sponsored Enterprises (GSEs) in the conventional secondary mortgage market. 

The analyses focus on detailed borrower, locational, and loan characteristics of such mortgages 

in the "1993-95 transition period," established by Congress in the Federal Housing Enterprises 

Financial Safety and Soundness Act of 1992. In general, the report is based on the loan-level 

data that the GSEs submit annually to the Department. The paper finds that although there were 

significant increases between 1993 and 1995 in the GSEs' funding of loans for groups 

traditionally underserved by the mortgage market, their support is generally less than that 

provided by portfolio lenders. 

For more infonnation about any of the Housing Finance Working Paper Series, please contact the authors by calling (202) 

401-0388 or (202) 708-1455 (TTY) or by writing to the author(s) at: U.S. Department of Housing and Urban 

Development, Office ofPolicy Development and Research, 451 7th Street, SW, Washington, DC 20410. 

Additional infonnation on housing fmance topics also may be found by visiting the following web sites: 

http://www.huduser.org and http://www .rtk.net. 

• 
HF-004 


HF-OOS 

HF-006 

HF-007 

The GSEs' Purchases of Single-Family Rental Property Mortgages, by Theresa R. 

DiVenti, March 1998. 

This paper examines the single-family rental mortgages purchased by Fannie Mae and Freddie 

Mac, the two major Government-Sponsored Enterprises (GSEs) in the conventional secondary 

mortgage market. These properties are the "mom and pop shops" of the rental market, meaning 

they are small and largely individually owned and managed. To date there has been little 

research on this segment of the rental market. This analysis looks at neighborhood, 

affordability, borrower, and financial characteristics of the GSEs' mortgage purchases. The 

study finds that, while single-family rental properties are a small portion of the GSEs' overall 

business, they are a large and important segment ofthe rental stock for lower income families. 

The GSEs' Funding of Affordable Loans: 1996 Update, by Harold L. Bunce and 

Randall M Scheessele, July 1998. 

This paper (an update of HF-001) examines the borrower and neighborhood characteristics of 

mortgages purchased by Fannie Mae and Freddie Mac, the two major Government-Sponsored 

Enterprises (GSEs) in the conventional secondary mortgage market. The analysis is based on 

Home Mortgage Disclosure Act (HMDA) data on home purchase loans originated in 

metropolitan areas between 1992 and 1996. The GSEs' mortgage purchases are compared to all 

mortgages originated in the conventional conforming loan market, including originations 

retained in portfolio by banks and thrift institutions. The paper finds that there continues to be 

room for further increases in purchases of affordable loans by Fannie Mae and, especially, 

Freddie Mac. 

Characteristics of Mortgages Purchased by Fannie Mae and Freddie Mac: 1996-97 

Update, by Paul B. Manchester, August 1998. 

This paper (an update of HF-003) examines the mortgages purchased by Fannie Mae and 

Freddie Mac, the two major Government-Sponsored Enterprises (GSEs) in the conventional 

secondary mortgage market. The analyses focus on detailed borrower, locational, and loan 

characteristics of such mortgages in the 1996-97 period. In general, the report is based on the 

loan-level data that the GSEs submit annually to the Department. The paper finds that the GSEs 

generally increased their performance on the goals established by HUD in 1995 and that they 

surpassed all of their 1996-97 goals, with Fannie Mae's performance exceeding Freddie Mac's 

performance on each ofthe goals in both years. 

HMDA Coverage of the Mortgage Market, by Randall M Scheessele, July 1998. 

This paper examines the coverage of HMDA data by taking advantage of loan-level data 

reported to HUD on mortgages insured by FHA and mortgages purchased by the GSEs. The 

FHA and GSE data bases provide an accurate standard against which HMDA data on FHA and 

GSE loans can be measured. The results of this paper provide background for using HMDA 

data to estimate the market share of loans for FHA and the GSEs by reporting HMDA coverage 

rates for FHA originations and GSE acquisitions of mortgages for 1993 through 1996. The 

paper finds that HMDA data under-reports GSE acquisitions mainly because a few large lenders 

fail to correctly report the sale of a significant number of their loans to the GSEs. 

Notwithstanding coverage issues, HMDA data continues to be the most comprehensive data 

base for measuring primary and secondary mortgage market activity. • 


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