----------_.._-_...__..._---­

~orking Paper No. HF-003 

CHARACTERISTICS OF MORTGAGES PURCHASED BY 


FANNIE MAE AND FREDDIE MAC, 1993-95 


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


March 1998 


Office ofPolicy 

Development 

and Resea.rch 

Comments Welcome 

e-mail addresses: 

Paul_ B._ Manchester@hud.gov 


Sue_George _Neal@hud.gov 


Harold Bunce@hud.gov 


Housing Finance 

WORKING PAPER SERIES 

lr 


U.S. Department ofHousing and Urban Development 

Characteristics of Mortgages Purchased by Fannie Mae 

and Freddie Mac, 1993·95 

ABSTRACT 

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

Govemment~Sponsored Enterprises (GSEs) in the conventional secondary mortgage market. The analyses 

focus on detailed borrower, locational, and loan characteristics ofsuch 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. 

Characteristics of Mortgages Purchased 


by Fannie Mae and Freddie Mac, 1993-951 


I. Introduction 

In 1992 Congress expressed concern about an "infonnation 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 infonnation 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 of the GSEs by the Office of 

Federal Housing Enterprise Oversight (OFHEO); 

• 	 Called for HUD to establish annual affordable and geographic goals for the GSEs' 

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

subsequently for 1996-993; and 

• 	 Required the GSEs to submit loan-level data to HUD about the mortgages they buy, 

including detailed borrower and mortgage characteristics. 

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

I The authors gratefully acknowledge the computer and data assistance ofNan a Farshad and Ian 

Keith and the assistance and comments of Randy Scheessele, particularly on the HMDA and 

market analysis in Section IV. Helpful comments were also received from Tuyet Cosslett, 

Theresa DiVenti, Brian Doherty, Sandra Fostek, John Gardner, Peter Kaplan, and William Segal 

ofHUD. The authors assume responsibility for any errors. 

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

respectively. See the federal Housin~ Enterprises Re~ulatOl:y Refoun Act of 1992, Senate 

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

the lack ofinfonnation available on the mortgage purchases of Fannie Mae and Freddie Mac. 

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

Part 81. 
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 intended to help remedy the "information vacuum" that Congress found in 

1992. It focuses on the GSEs' performance in funding affordable loans for lower-income 

families and other disadvantaged borrowers and their neighborhoods. The paper reports the 

results ofseveral detailed analyses concerning the characteristics ofthe mortgages purchased by 

the GSEs from 1993 through 1995. The data reveal changes in the GSEs' performance during 

this period and allow comparisons between the performance ofFannie Mae and Freddie Mac. A 

question explored in depth is the degree to which the GSEs' purchase patterns reflect or depart 

from the patterns of originations found in the primary mortgage origination market. 

A. Organization of Paper 

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

relative to the goals in 1993-95. 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 ofneighborhood) ofthe GSEs' purchases ofloans on one-family owner properties. 

Section IV summarizes a study by Bunce and Scheessele (1996) that uses data provided under the 

Home Mortgage Disclosure Act (HMDA) to compare the characteristics of loans purchased by 

the GSEs with loans originated in the overall primary market and loans retained in portfolio by 

banks and thrifts. Finally, Section V analyzes special topics such as first-time homebuyers, lowand moderate-income borrowers, loan-to-value ratios by income level, minority borrowers, the 

relationship between income and neighborhood characteristics, and various attributes ofFannie 

Mae's community lending mortgages5

• Each major section contains a conclusion that 

summarizes the main findings. 

Except for Section IV, which relies on HMDA data, 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. 

B. Housing Goals and Performance for 1993-95 

In October 1993 HUD issued housing goal targets for 1993-94 for the GSEs; these goals 

were subsequently extended through 1995. During 1993-95, there were three goals: 

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

5 Freddie Mac's community lending programs are not discussed because they were small during 

the 1993-95 period--traditionally Freddie Mac has placed less emphasis on such programs than 

Fannie Mae. 

2 
o A low- and moderate-income goal, which targeted mortgages on housing for 

families with less than median income; 

o 	 A central city goal, which targeted mortgages located in central cities (as defined 

by the Office of Management and Budget)~ and 

o 	 A special affordable goal, which targeted mortgages on housing for very lowincome families and low-income families living in low-income neighborhoods. 

Table 1 reports the goal targets set by HUD and the performance ofthe GSEs on each 

goal between 1993 and 1995.6 As shown there, the low-mod and central cities goals were 

expressed as percentages of the total numbers ofdwelling units financed by each enterprise's 

purchases. The special affordable goals were expressed as minimum dollar amounts, divided 

into multifamily and single-family subgoals--for 1993-94 combined and for 1995. 

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 of Freddie 

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 gmds 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 and their 

single-family subgoals for 1993-95. Fannie Mae's multifamily special affordable performance 

also exceeded its multifamily subgoals for both periods, but Freddie Mac fell short of its 1993-94 

multifamily subgoal. 

To summarize, Fannie Mae's goal performance in the 1993-95 transition period exceeded 

Freddie Mac's performance. Much of this difference in performance was due to Freddie Mac's 

relatively low level ofmultifamily purchases during the transition period (see next section). 

However, as this paper shows, there is also a significant difference between Fannie Mae and 

Freddie Mac in their relative purchases of affordable single-family mortgages. 

In 1996, HUD established three "permanent" housing goals for 1996-99. The major 

change from the transition period was that the central cities goal was replaced by an underserved 

areas goal that targeted the GSEs' purchases to low-income and/or high-minority census tracts 

and nonmetro counties. In addition, the percentage target for the low- and moderate-income goal 

was increased from 30 percent to 40 percent in 1996 and to 42 percent for 1997-99. Appendix A 

defines the 1996-99 goals and shows the GSEs' purchases under these new goals during the 

1993-95 period. 

6 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 ~ort, Office of Policy Development and Research, HUD, July 1996. 

3 
Table 1 

GSEs' Activity and Goals for Transition Period 1 

.f::-. 

Goal 2 

Low- and Moderate-Income: 

Fannie Mae 

Freddie Mac 

Central Cities: 

Fannie Mae 

Freddie Mac 

Special Affordable ($ billions): 

Fannie Mae 

Freddie Mac 

Activity 

1993 1994 

34.4% 45.0% 

29.2% 37.5% 

26.2% 31.5% 

24.3% 25.3% 

I 

$21.4 

$12.7 

1995 

43.2% 

39.0% 

30.4% 

23.4% 

$8.4 

$5.5 

1993 

30.0% 

28.0010 

28.0% 

26.0% 

I 

$16.4 

$11.9 

Goals 

1994 

30.0% 

30.0% 

30.0% 

30.0% 

1995 

30.0% 

30.0% 

30.0% 

30.0% 

$4.6 

$3.4 

I 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 HOD for missing data, 

as described in "Privatization of Fannie Mae and Freddie Mac: Desirability and Feasibility," HUD Report, July 1996, Chapter III. 
II. Overview of the GSEs' Mortgage Purchases 

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

mortgages purchased and total dwelling units fmanced (see Tables 2.A and 2.B). In 1995, Fannie 

Mae's mortgage purchases of$130 billion financed almost 1.6 million dwelling units, while 

Freddie Mac's mortgage purchases of $92 billion financed more than 1.0 million units. 

Reflecting market trends, both GSEs' purchases were somewhat lower in 1995 than in 1994, and 

their 1994 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 (see Figure 1.) 

Figure 1 


GSEs' Total Purchase Volume 


1993-1995 


4 

3.24 

3 

1.97 

2 

o 

Funie Mae Freddie Mac Fannie Mae Freddie Mac 

1993 1994 

Souree: Table I. 

Fannie Mae Freddie Mac 

1995 

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 1995, 77 percent of Fannie Mae's units and 85 percent of Freddie Mac's units were in onefamily owner properties (see Figure 2.) HUD estimates that such properties accounted for 67 

5 

Table 2.A 

GSEs' Mortgage Purchases by Property Type 


In 1995 


1995 Purchases 

Fannie Mae Freddie Mac 

Property Type 

One-Family Owner 

Single-Family Rental: 

(j\ 2-4 Unit Owner-Occupied 2 

1-4 Unit Investor-Owned 

Total Single-Family 

Multifamily 

Total Business 

UPBI 

($Millions) 

$116,440 

3,146 

4,370 

123,956 

6,089 

$130,045 

Percentage of 

Total Dollars 

89.5% 

2.4% 

3.4% 

95.3% 

4.7% 

100.0% 

Dwelling 


Units 


1,209,952 

59,271 

72,389 

1,341,612 

240,954 

1,582,566 

Percentage of 

Total Units 

76.5% 

3.7% 

4.6% 

84.8% 

15.2% 

100.1)% 

UPBI 

($Millions) 

$85,123 

1,549 

3,488 

90,160 

1,582 

$91,142 

Percentage of 

Total Dollars 

92.8% 

1.7% 

3.8% 

98.3% 

1.7% 

100.0% 

Dwelling 


Units 


879,668 

29,889 

54,356 

963,913 

68,381 

1,032,294 

Percentage of 


Total Units 


85.2% 

2.9% 

5.3% 

93.4% 

6.6% 

100.0% 

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


I Unpaid principal balance ofmortgages purchased. 


2 Unit counts include the owner-occupied unit. 

Table 2.B 

GSEs' Mortgage Purchases by Property Type 


In 1993 and 1994 


1993 Purchases 

Fannie Mae Freddie Mac 

UPB 1 Percentage of Dwelling Percentage of UPB Percentage of Dwelling Percentage of 

Property Type ($Millions) Total Dollars Units Total Units ($Millions) Total Dollars Units Total Units 

One-Family Owner $276,510 94.0% 2,826,210 87.1% 1220,569 96.2% 2,227,913 93.7% 

Single-Family Rental: 

2-4 Unit Owner-Occupied 2 

1-4 Unit Investor-Owned 

5,392 

7,737 

1.8% 

2.6% 

105,740 

126,413 

3.3% 

3.9% 

3,474 

4,937 

1.5% 

2.2% 

66,539 

73,714 

2.8% 

3.1% 

Total Single-Family 289,639 98.4% 3,058,363 94.3% 228,980 99.9% 2,368,166 99.5% 

Multifamily 4,602 1.6% 186,471 5.7% 191 0.1% 10,794 0.5% 

-....J Total Business $294,241 100.0"11. 3,244,834 100.0% $229,171 100.0% 2,378,960 100.0% 

1994 Purchases 

Fannie Mae Freddie Mac 

UPB Percentage of Dwelling Percentage of UPB Percentage of Dwelling Percentage of 

Property Type ($Millions) Total Dollars Units Total Units (1MilIions) Total Dollars Units Total Units 

One-Family Owner $146,808 90.7% 1,549,623 78.7% $116,857 94.6% 1,192,261 88.9% 

Single-Family Rental: 

2-4 Unit Owner-Occupied 2 3,990 2.5% 77,341 3.9% 2,698 2.2% 51,279 3.8% 

1-4 Unit Investor-Owned 6,207 3.8% 119,212 6.1% 3,056 2.5% 52,454 3.9% 

Total Single-Family 157,005 97.0% 1,746,176 88.6% 122,611 99.3% 1,295,994 96.6% 

Multifamily 4,773 3.0% 223,779 11.4% 913 0.7% 45,538 3.4% 

Total Business 1161,778 100.0% 1,969,955 100.0% $123,524 1000% 1,341,532 100.0% 

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


I Unpaid principal balance of mortgages purchased. 


2 Unit counts include the owner-occupied unit. 

percent of all dwelling units fmanced in the conventional conforming market. 7,8 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. Thle 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.9 In terms of dwelling units, single-family rental mortgage purchases accounted for 

approximately 8 percent of each GSE's 1995 total purchases. HUD estimates that these 

properties typically account for at least 12 percent ofthe overall mortgage market. 

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 

Figure 1 


Distribution of Mortgage Purchases 


by Major Property Type, 1995 


100 ~~~~~~~~~-----------------------------, 

80 

60 

40 

20 

o 

as 

One-Family Single-Family Multifamily 

Owner Rental 

-Freddie Mac CJFannie Mae .Conforming Market 

Source: Table 2 HUD.... Iii ofHMDA dati. 

7 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 $203,150 in 1993-1995. 

8 See Appendix D ofHUD (I995) for the methodology for determining the shares ofmortgage 

originations accounted for by the different property types. 

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

8 

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

Mac's volume continued to rise in 1995, to $1.58 billion in multifamily mortgages. Despite the 

increases, Freddie Mac's multifamily purchases represented less than 2 percent of its total dollar 

purchases in 1995, and 7 percent ofthe total units it fmanced that year. tO By comparison, HUD 

estimates that multifamily mortgages account for 21 percent ofthe total number of dwelling 

units financed in the conventional conforming market. . 

Fannie Mae has been far more active in the purchase ofmultifamily mortgages. Fannie 

Mae's multifamily purchases rose from $4.6 billion in 1993 to $6.1 billion in 1995. Fannie 

Mae's 1995 multifamily purchases represented 15 percent ofthe enterprise's overall business in 

terms oftotal units financed. 

B. GSEs' Share of Market 

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

between 1980 and 1993 (see Figure 3.) In the early 1980s, the GSEs' share ranged from 12 to 34 

percent ofthe dollar volume oforiginations 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. 11 The GSEs' purchases as a share 

oftotal originations fell further to 43 percent in 1995, despite a decrease in the ARM share ofthe 

market; with higher interest rates in effect in 1995, many originators decided to hold their 

originations in their portfolios, rather than sell them to the GSEs. 

The GSEs represent a much smaller share ofthe multifamily market than the singlefamily market. Based on HUD's Survey ofMortgage Lending Activity, approximately $37 

billion in new multifamily mortgages were originated in 1995. Thus, the GSEs' combined 

purchases of$7.7 billion represented about 21 percent ofthe multifamily market. This 

percentage should increase as Freddie Mac has fully reentered that market since 1995. 

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

dollar amount ofmortgages 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., $23,135 versus $96,777 for Freddie Mac's 1995 purchases). 

l1Banks 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. 

9 

Figure 3 

GSEs' Purchases as Share of 

Conventional Conforming Market, 1980-95 

100 

75 

50 

25 

o 

1980 1994 

Soun:e: Fannie Mae Economics Depanment. 

1982 1984 1986 1988 1990 1992 

C. Conclusions 

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

1993 and 1995. Following broad market patterns, the GSEs' mortgage purchases reached record 

highs during the refinancing wave of 1993, but fell in 1994 and 1995 due to higher interest rates. 

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

from the corresponding distribution of market originations--the GSEs' focus their business more 

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

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

mortgages than the overall market. 

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

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

1993, before declining to 55 percent in 1994 and 43 percent in 1995. In 1995, they accounted for 

only 21 percent ofthe multifamily mortgage market. 

10 

III. Loan, Borrower, and Neighborhood Characteristics 

ofMortgages Purchased by the GSEs 

This section presents basic characteristics ofthe mortgages on one-family owner 

properties purchased by Fannie Mae and Freddie Mac. As reported in Section II, such mortgages 

accounted for 85 percent ofthe total units in properties whose mortgages were purchased by 

Freddie Mac and 77 percent ofthe total units in properties whose mortgages were purchased by 

Fannie Mae in 1995. Because they play 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. 12 

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. Because significant differences sometimes occur between borrowers who are 

purchasing homes and those who are refinancing existing loans, this section presents 1995 data 

for these two types of borrowers separately. In analyzing 1993-95 trends, the analysis focuses on 

the GSEs' acquisitions ofhome purchase loans only, because ofthe importance of 

homeownership to American families. Section IV compares the GSEs' purchases with mortgages 

originated in the primary market. 

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. 

A. Characteristics ofMortgages Purchased 

Information on the financial and locational characteristics ofsingle-family mortgages 

purchased by the GSEs between 1993 and 1995 is presented in Tables 4 and 5. 

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

purchase of a home or the refinancing of an existing mortgage; second mortgages comprise a 

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

secondary market for second mortgages since 1994. Both GSEs' home purchase mortgage 

acquisitions fell in 1994 and then rose somewhat in 1995, as shown in Table 4. 

With regard to refinance mortgages, each GSE's volume of acquisitions declined by more 

than one-half between 1993 and 1994, and by an additional 50 percent between 1994 and 1995. 

12 See Segal and Szymanoski (1996, 1997) for an analysis ofthe GSEs' multifamily mortgage 

purchases. 

11 
Table 3 


Characteristics ofBorrowers 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 

Underserved Areas: 

In metropolitan areas 

Outside metropolitan areas 

Family (or tract median) income 

No greater than: 

60 percent ofArea Median Income (AMla

) 

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 ofAM1b and minority population at or above30 

percent, Qr median income at or below 120 percent 

ofAMI 

CountiesCwith median income at or below 95 percent 

ofAMIb and minority population 30 percent or greater, 

or median income at or below 120 percent of AMI 

aFor 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 

ofthe State. 

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

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

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

portion ofthe Nation. 

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

of counties. 

12 

As a result of these developments, the share ofthe GSEs' purchases accounted for by refinance 

mortgages fell from almost 70 percent in 1993 to 33 percent in 1995. J3 

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

(those originated in a previous year) since 1993. 14 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. 

Mortgage Type and Term. The shares ofmortgage originations accounted for by fixedrate mortgages (FRMs) and by adjustable-rate mortgages (ARMs) depend on the level ofinterest 

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 

from 3.0 percentage points in 1994 to 1.9 percent in 1995, resulting in a decline in the ARM 

share of originations to 32 percent. 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. ls 

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

from 15-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 15-year FRM share of GSEs' purchases declined 

accordingly, from 30 percent in 1993 to 21 percent in 1994 and 14 percent in 1995 for Freddie 

Mac. 

Type of Seller. As shown in Table 4, mortgage companies accounted for almost 65 

percent ofthe loans sold to the GSEs in 1995. Fannie Mae has relied much more on mortgage 

companies than Freddie Mac (68 percent versus 59 percent in 1995). In that year, .Freddie Mac 

purchased 40 percent its mortgages from banks and thrifts, compared to only 29 percent for 

Fannie Mae. 16 

13 The refmance share of total conventional mortgage originations was 50 percent in 1993,25 

percent in 1994, and just over 20 percent in 1995. Thus, refinance mortgages made up a higher 

percentage ofthe GSEs' purchases than ofthe overall market. 

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

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

15 As reported in Freddie Mac's Investor/Analyst Report, Second Quarter 1996, p.l8. 

16 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. 

13 
Table 4 


Financial Characteristics of Single-Family Mortgages 


Purchased by the GSEs, 1993-1995 

Fannie Mae Freddie Mac 

Loan Characteristics 1993 1994 1995 1993 1994 

Number of Loans 2,815,552 1,541,481 1,206,505 2,227,913 1,192,261 879,668 

Home Purchase 1,011,435 776,430 818,134 600,754 517,643 565,646 

Refinance 1,803,520 764,859 378,653 1,625,669 674,012 313,821 

Percent Home Purchase 35.9% 50.4% 68.4% 27.0% 43.4% 64.3% to-' 

.s.- Percent Refinance 64.1% 49.6% 31.4% 73.0% 56.5% 35.7% 

Year ofOrigination 

Current Year 85.9% 68.1% 76.4% 87.3% 70.8% 75.0% 

Prior Year 14.1% 31.9% 23.6% 12.7% 29.2% 25.0% 

Type of Seller Institution 

Mortgage Company 69.6% 70.7% 68.0% 58.9% 65.6% 58.9% 

Thrift 14.1% 14.8% 17.7% 20.4% 18.5% 24.0% 

Bank 13.2% 10.7% 11.1% 19.0% 15.4% 16.3% 

Other 3.2% 3.8% 3.3% 1.7% 0.6% 0.7% 

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 

Source: HUD analysis ofGSE loan-level data on single-family one-unit mortgages. Both home purchase and refinance mortgages are included. 

1995 
Location of Mortgaged Properties. Fannie Mae and Freddie Mac also differ in their 

purchases in urban and rural areas. 17 In 1995, non-metropolitan areas accounted for 14.8 of 

Freddie Mac's purchases compared with 12.3 percent of Fannie Mae's purchases. The regional 

distributions ofthe GSEs' purchases reported in Table 5 largely reflect the distribution of primary 

market originations. Three Census regions accounted for about 60 percent of total business for 

both agencies in 1995: the East North Central, South Atlantic, and Pacific 

B. Home Purchase Loans: Borrower Characteristics 

There are systematic differences between borrowers who are purchasing homes and those 

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

performance ofthe GSEs relative to the housing goals. Therefore, the GSEs' data on borrower 

and neighborhood characteristics are presented separately for home purchase and refinance loans. 

In this subsection, trends for 1993-95 for four key borrower variables (income, 

race/ethnicity, first-time vs. repeat buyers, and down payment) are discussed for each GSE (see 

Tables 6 and 7). In general, the GSEs have increased their purchases of loans for lower-income 

and minority borrowers. To a certain extent, these changes in the GSEs' purchase patterns have 

simply reflected mortgage origination patterns in the primary mortgage market. However, as 

discussed below, some of the gains in the GSEs' affordable lending performance likely resulted 

from new affordable lending programs and outreach efforts initiated by the GSEs. 

Borrower Income. Over the 1993-95 period, about 65 percent of the GSEs' home 

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

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

9 percent ofthe GSEs'loans went to very low-income (VLI) borrowers, a figure below the VLI 

share ofthe primary conventional mortgage market. 18 Data for 1993-95 indicate that Fannie 

Mae's VLI share has consistently exceeded Freddie Mac's VLI share. Between 1993 and 1995, 

Fannie Mae's VLI share rose by 2.5 percentage points, from 6.8 percent in 1993 to 9.3 percent in 

1995; Freddie Mac's VLI share increased by only 0.6 percentage point during this period, rising 

from 6.2 percent to 6.8 percent (see Table 7). 

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

in 1996 were made to white borrowers. In 1993, only 2-3 percent ofthe GSEs' home purchase 

mortgages went to African American borrowers, but by 1995 this had risen to 3-4 percent. 

Similar gains were also made for Hispanics, from 3-4 percent in 1993 to 4-6 percent in 1995. 

Both groups' shares have consistently been higher for Fannie Mae than for Freddie Mac, possibly 

due to Fannie Mae's somewhat greater concentration ofbusiness in metropolitan areas or to its 

17 A more detailed analysis ofthe location ofthe properties financed by the GSEs is given in 

subsection III.C. 

18 Section IV contains a comparison ofthe characteristics ofthe GSEs' purchases with those of 

the overall conventional conforming market, based on HMDA data. 

15 
Table 5 


Locational Characteristics of Single-Family Mortgages 


Purchased by the GSEs, 1993-1995 


Fannie Mae Freddie Mac 

Geographic Location 1993 1994 1995 1993 1994 

Number of Mortgages 2,952,592 1,653,406 1,283,229 2,315,066 1,254,686 934,478 

Location 

Metropolitan Areas 88.9% 89.0% 87.7% 86.9% 87.1% 85.2% 

Non-Metropolitan Areas 11.1% 11.0% 12.3% 13.1% 12.9% 14.8% 

...... 

0" Census Division 

New England 6.6% 6.1% 4.9% 5.6% 5.7% 4.5% 

Middle Atlantic 11.4% 11.6% 10.2% 11.3% 11.9% 8.8% 

East North Central 18.6% 17.7% 20.4% 23.4% 19.1% 22.9% 

West North Central 6.7% 6.8% 5.6% 6.0% 6.4% 6.3% 

South Atlantic 17.0% 16.8% 16.4% 15.6% 18.0% 18.6% 

East South Central 3.3% 3.7% 4.2% 3.0% 3.6% 4.2% 

West South Central 6.8% 8.3% 7.5% 4.4% 5.9% 6.7% 

Mountain 7.1% 8.7% 8.9% 6.1% 8.5% 9.4% 

Pacific 21.8% 19.4% 21.4% 23.9% 20.7% 18.4% 

Puerto Rico 0.0% 0.4% 0.2% 0.5% 0.2% 0.2% 

OtherlUnknown 0.5% 0.3% 0.3% 0.0% 0.0% 0.0% 

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 

Source: HUD analysis ofthe GSEs' loan-level data on all single-family mortgages. Both home purchase and refinance 

mortgages included. The inclusion of owner-occupied 2-4 unit and investor-owned 1-4 unit mortgages is why 

the numbers of mortgages in Table 5 are greater than in Table 4. 

1995 
Table 6 

Loan and Borrower Characteristics of Single-Family 


Mortgages Purchased by the GSEs, 1995 


Loan and Borrower 

Characteristics 

Home Purchase 

Fannie Mae Freddie Mac 

Refinance 

Fannie Mae Freddie Mac 

Total 

Fannie Mae Freddie Mac 

Number of Loans 818,134 565,646 378,653 313,821 1,196,787 879,467 

Loan-to-Value Ratio 

Over 95% 

91-95% 

81-90% 

61-80% 

60% or Less 

2.5% 

17.4% 

16.4% 

45.4% 

18.4% 

100.0% 

0.0% 

14.7% 

17.0% 

49.7% 

18.6% 

100.0% 

Income of Borrower(s) 

60% ofArea Median or Below 

61-100% of Median 

Below Area Median 

Over 100% ofMedian 

9.4% 

28.0% 

37.3% 

62.7% 

100.0% 

6.6% 

24.8% 

31.4% 

68.6% 

100.0% 

8.0% 

26.3% 

34.4% 

65.6% 

100.0% 

7.7% 

26.1% 

33.9% 

66.1% 

100.0% 

8.9% 

27.4% 

36.3% 

63.6% 

100.0% 

7.0% 

25.3% 

32.3% 

67.7% 

100.0% 

First-time Home Buyeri 31.9% 28.7% 21.0% 16.9010 

RacelNational Origin of Borrower 

White 

African American 

Hispanic 

Asian or Pacific Islander 

American Indian or Alaskan Native 

Other 

81.5% 

4.5% 

6.1% 

4.0% 

0.4% 

3.6% 

100.0% 

85.3% 

3.2% 

4.1% 

3.2% 

0.3% 

4.0% 

100.0% 

86.1% 

3.4% 

3.9% 

3.3% 

0.3% 

3.0% 

100.0% 

87.1% 

2.9% 

3.6% 

2.5% 

0.3% 

3.6% 

100.0% 

82.9% 

4.1% 

5.4% 

3.8% 

0.4% 

3.4% 

100.0% 

85.9% 

3.1% 

3.9% 

2.9% 

0.3% 

3.8% 

100.0% 

Age ofBorrower 

Under 30 

30-39 

40 and Over 

14.5% 

34.3% 

46.8% 

13.4% 

34.3% 

48.2% 

Gender ofBorrower(s) 

All Male 

All Female 

Male and Female 

17.9% 

16.8% 

65.3% 

16.9% 

15.5% 

67.6% 

13.7% 

14.5% 

71.8% 

13.7% 

14.0% 

72.3% 

16.5% 

16.0% 

67.5% 

15.8% 

15.0% 

69.2% 

Source: HUD analysis ofGSE loan-level data for single-family owner-occupied one-unit mortgage purchases. Both home purchase 

and refinance mortgages are included. In computing the percentages, missing data are excluded. 

From Table 12 of Fannie Mae's and Freddie Mac's Annual Housing Activities Report. 

17 

I 
Table 7 

Trends in the Characteristics of Home Purchase Loans 


Acquired by the GSEs, 1993-1995 


Characteristic 

Very-Low-Income Borrowersl 

Fannie Mae 

Freddie Mac 

African American Borrowers 

Fannie Mae 

Freddie Mac 

Hispanic Borrowers 

Fannie Mae 

Freddie Mac 

First-Time Homebuyers2 

Fannie Mae 

Freddie Mac 

Low-Income Tracts 

Fannie Mae 

Freddie Mac 

High-Minority Tracts 

Fannie Mae 

Freddie Mac 

Underserved Areas 

Fannie Mae 

Freddie Mac 

1993 

6.8% 

6.2 

2.7 

2.0 

3.8 

3.1 

24.0 

31.5 

6.8 

6.5 

I3.1 

11.1 

21.3 

19.4 

1994 


8.8 % 

6.7 

4.0 

2.8 

5.7 

4.0 

31.1 

29.9 

8.7 

6.6 

15.7 

11.6 

24.7 

20.6 

1995 

9.3 % 

6.8 

4.4 

3.2 

6.2 

4.1 

31.9 

28.7 

8.6 

6.9 

16.2 

10.9 

25.2 

21.4 

Source: HUD analysis of GSEs' loan-level data on mortgages for single-family one-unit 

owner-occupied properties. 

1 	 That is. 6.8% ofthe home loan mortgages purchased by Fannie Mae in 1993 were 

for very-low-income borrowers (with income less than 60 percent of area median income). 

2 	As reported by the GSEs in their Annual Housing Activity Reports. 

18 
greater emphasis on outreach to traditionally underserved borrowers during this period. 19 

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

homebuyers 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 hoines. Although the proportion ofthe 

population in this group decreased from 18 percent in 1985 to 16 percent in 1994, first-time 

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

recent years.20 The GSEs lag the market in support for first-time homebuyer loans because many 

such buyers take out loans insured by the FHA. In 1995,32 percent ofFannie Mae's home 

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

homebuyer share (30 percent)-- both were well below the two-thirds ofFHA-insured loans for 

first-time homebuyers. 

Downpayments. Most ofthe mortgages that the GSEs purchase are originated with high 

downpayments. As shown in Table 6, 64 percent ofthe home purchase and refinance loans 

acquired by Fannie Mae in 1995 had a loan-to-value (LTV) ratio at or below 80 percent.21 Such 

low-L TV (high-down payment) loans accounted for almost 70 percent ofFreddie Mac's 1995 

purchases. Home purchase loans are typically associated with lower downpayments. Still, more 

than halfofthe home purchase loans acquired by each GSE during 1994 and 1995 had an LTV 

ratio at or below 80 percent. 22 

Reflecting its greater orientation toward affordable lending during this period, Fannie 

Mae purchased a larger proportion oflow-down payment loans (with an LTV ratio above 90 

percent) than did Freddie Mac. Both GSEs increased their purchases of such low-down payment 

loans between 1993 and 1995, from 20 to 30 percent of home purchase loans for Fannie Mae and 

from 16 to 23 percent for Freddie Mac.23 

Gains in Affordable Lending. The gains in affordable lending reported above for the 

GSEs are consistent with the recent expansion of affordable lending programs in the primary 

market, both of which may in part reflect the emphasis placed by the GSEs on programs to meet 

the housing goals promulgated by HUD. Between 1993 and 1995, conventional lenders, the 

GSEs, and private mortgage insurers implemented numerous changes that extended 

homeownership opportunities to lower-income and minority households. The new initiatives 

19 Differences between the GSEs could also result from differences in underwriting standards and 

business practices. 

20 See Chicago Title (1996) for data on first-time homebuyers. 

21 The GSEs are required by statute to have private mortgage insurance or some other form of 

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

22 The remainder ofthe discussion on LTV ratios is taken from HUD (1996), pages 98-99. LTV 

ratios are not shown separately for home purchase loans and refinance loans in Table 6 because 

in 1997 the GSEs declared such data to be proprietary. 

23 Section V notes that the GSE-purchased loans for lower-income borrowers have lower LTV 

ratios than purchased loans for higher-income borrowers. 

19 

focused on greater flexibility in underwriting, lower up-front mortgage costs, and greater market 

outreach to traditionally underserved borrowers. In addition, many State and local governments 

initiated programs to assist lower-income and first-time homebuyers with closing costs and 

downpayments. The GSEs have been heavily involved ill this development, with new products 

such as Fannie Mae's Community Homebuyers Program and Freddie Mac's Affordable Gold 

Program.24 

The GSEs' increased support for affordable housing is also consistent with continued low 

interest rates, minimal increases in housing prices, and strong economic growth since 1993. 

Although interest rates rose in 1994-95, the National Association ofRealtors' affordability index 

fell only slightly from its 1993 peak, due to stable home prices and income growth. Housing was 

still more affordable in 1995 than in any year during the 1975-92 period. 

C. Home Purchase Loans: Neighborhood Characteristics 

Extensive research has been conducted using HMDA data and other information on 

issues ofredlining and the extent to which lenders are meeting the credit needs of underserved 

areas. Such studies show substantial disparities between mortgage flows in neighborhoods of 

varying income levels and minority percentages.25 This subsection examines the geographic 

characteristics ofthe metropolitan areas and neighborhoods containing properties with home 

purchase mortgages sold to Fannie Mae and Freddie Mac in the 1993-95 period. 

Location ofMortgaged Properties in Metropolitan Areas. Almost two-thirds of each 

GSE's one-family-owner mortgage purchases were on properties in the suburbs in 1993-95.26 

Between 1993 and 1995, Fannie Mae's purchases shifted slightly from the suburbs toward central 

cities, which accounted for almost one-quarter ofits one-family owner mortgages in 1995. In 

contrast, the central city share of Freddie Mac's one-family owner mortgage purchases declined 

by 2 percentage points between 1993 and 1995.21 

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

appropriate, modify the base 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 

24 For a discussion ofthe GSEs' recent affordability programs, see HUD (1996), pages 92-95. 

25 These studies are reviewed in detail in Appendix B ofthe Secretary's final rule regulating the 

GSEs, contained on pp. 61925-61958 ofthe December 1, 1995 Federal Re~ister. 

26 Suburbs are defined as those portions ofmetropolitan statistical areas (MSAs) which are 

outside of central cities. Adjustments were made for split tracts -- i.e., those which cross central 

city-suburban boundaries. 

27 Single-family rental properties and multifamily properties are more likely to be in central cities 

than one-family owner properties; thus, the figures stated here understate the percentages of all 

units in central cities for both GSEs. 

20 

Department decided that the definition most consonant with Congressional intent was based on 

income level and minority composition for 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 sp~cifIed in this manner for 1996-99 (see 

Table 3). 

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

information is available from the data supplied by the GSEs to the Department to measure their 

purchases in such areas during this period. Table 7 shows that purchases ofmortgages of 

properties located in underserved areas accounted for 21.3 percent of Fannie Mae's purchases in 

1993, rising to 25.2 percent in 1995; the comparable figures for Freddie Mac were 19.4 percent 

in 1993 and 21.4 percent in 1995. 

Income Level and Minority Composition of Neighborhood. Most home purchase 

mortgages acquired by the GSEs are on properties in low-minority areas and in areas with above 

average incomes (see Table 8). Specifically, more than half of each GSE's loans in 1995 were 

for properties in census tracts in which minority residents comprised less than 10 percent ofthe 

population, and about two-thirds were on properties in tracts with median tract incomes above 

the area median in each year from 1993 through 1995. High-minority low-income tracts 

accounted for less than 5 percent of home purchase loans sold to each GSE in 1995. 

However, larger shares ofboth GSEs' home purchase loans were on properties in lowincome tracts in 1995 than in 1993. Fannie Mae's share ofloans in high-minority tracts also rose 

significantly, while the corresponding figure for Freddie Mac remained approximately constant, 

as shown in Table 7. 

D. Refinance Loan Characteristics 

Compared to home purchase borrowers, refinancing mortgagors in a heavy refinance year 

such as 1993 tended to be older, had higher incomes, were somewhat less likely to be AfricanAmerican or Hispanic, tended to take out loans with significantly lower LTV s, and were 

somewhat more likely to live in the suburbs and high-income census tracts. For example, the 

percentage of Freddie Mac's refinance loans for low-income borrowers in 1993 was 13.3 percent, 

which was 3.7 percentage points lower than the corresponding percentage for home purchase 

loans.28 Although low interest rates in the last few years have induced many borrowers to 

refinance soon after their mortgages were originated, refinancing mortgagors more typically have 

been able to build up equity by virtue ofhaving owned their home for some length oftime, thus 

their LTV s are lower. 

28 In a low refinance year such as 1995 some ofthese differences did not appear--for example, for 

Freddie Mac the percentage ofrefinancing borrowers with low income was approximately 2 

percentage points higher than the percentage of home purchase borrowers with low income. This 

suggests that higher-income families are better able to refinance their mortgages at the lowest 

rates in the interest rate cycle. 

21 
Table 8 

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

1995 

N 

N 

Census Tract Characteristics 

Median Income of Tract 

80% ofArea Median or Below 

81-120% of Median 

Over 120% of Median 

Minority Composition ofTract 

Less Than 10% Minority 

10-30% Minority 

Over 30% Minority 

Percent in Low-income and 

High-minority Tracts 

Home Purchase Mortgages 

Fannie Mae Freddie Mac 

9.1% 7.1% 

53.0% 53.0% 

37.9% 39.9% 

100.0% 100.0% 

54.4% 61.3% 

29.1% 27.8% 

16.5% 10.8% 

100.0% 100.0% 

4.8% 3.1% 

Refinance Mortgages 

Fannie Mae Freddie Mac 

8.4% 7.9% 

56.5% 58.3% 

35.2% 33.8% 

100.0% 100.0% 

58.4% 63.3% 

26.1% 23.8% 

15.5% 13.0% 

100.0% 100.0% 

4.3% 3.7% 

Total 

Fannie Mae Freddie Mac 

8.8% 7.4% 

53.7% 54.9% 

36.7% 37.7% 

99.2% 100.0% 

55.2% ·62.0% 

27.9% 26.4% 

16.0% 11.6% 

99.2% 100.0% 

4.6% 3.3% 

Underserved Areas 25.7% 21.7% 25.9% 25.1% 25.7% 22.9% 

Source: HUD analysis ofGSEs' loan-level data on single-family one-unit mortgages. 
Some of the same trends were experienced from 1993 to 1995 for refinance loans as for 

home purchase loans -- proportionally more low-income borrowers took out loans, a larger share 

ofrefinance mortgages went to African-Americans and Hispanics, and higher percentages were 

for properties located in low-income and high-minority tr~cts, 

E. Conclusions 

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

between 1993 and 1995. Four general points can be gleaned from this discussion. First, GSE 

purchases depend importantly on what is happening in the overall mortgage market. For 

instance, GSE purchase activity tends to increase during low-interest-rate periods when 

borrowers are refmancing into fixed-rate mortgages, and to decrease during high-interest-rate 

periods when borrowers are switching to ARMs. 

Second, there appear to be some fundamental differences between the purchase strategies 

of the two GSEs. For example, Freddie Mac depends more on thrift institutions and commercial 

banks for its loans than does Fannie Mae, which relies more on mortgage bankers. Fannie Mae's 

purchases are more focused on urban areas than Freddie Mac's purchases. 

Third, there were significant increases between 1993 and 1995 in the GSEs' support for 

groups traditionally underserved by the mortgage market. For example, loans for AfricanAmerican and Hispanic families increased from 6.5 percent of Fannie Mae's purchases in 1993 to 

10.6 percent in 1995, with the corresponding increase for Freddie Mac from 5.1 percent to 7.3 

percent. 

Finally, Fannie Mae provided more funding support for disadvantaged borrowers and 

their neighborhoods than Freddie Mac in this period. Fannie Mae's performance exceeded 

Freddie Mac's on all the affordable lending categories examined in this section. 

23 

IV. GSEs' Purchases Compared with Originations 

in the Primary Markef9 

A. Introduction 

The data reported in Section III on the characteristics ofthe GSEs' purchases are difficult 

to interpret without similar data for the overall market. A key policy question is the extent to 

which the GSEs' purchases of affordable loans follow or depart from the pattern ofmortgage 

originations in the primary conventional conforming market. The enterprises have stated that 

their loan purchases reflect the primary mortgage market's origination patterns across different 

income and racial categories of borrowers, and that their funding for historically underserved 

borrowers is comparable to that ofmortgage portfolio lenders.30 Other analysts, however, have 

reached different conclusions -- reporting that the GSEs' record offunding for lower-income 

borrowers and underserved neighborhoods is not commensurate with the performance of 

portfolio lenders.3! 

Comparisons ofthe GSEs with the primary market are based on data provided in 

accordance with the Home Mortgage Disclosure Act ("HMDA data") for single-family owner 

home purchase loans. HMDA data provides information on total originations in the conforming 

conventional mortgage, on mortgages that are sold to each ofthe GSEs, and on originations not 

sold to the GSEs. Most mortgages not sold to the GSEs are originated by depository institutions 

(banks and thrifts) and held in their portfolios. 

Overview and Main Findings. Subsections B and C report that the shares ofFannie 

Mae's and, especially, Freddie Mac's purchases ofmortgages for lower-income borrowers and 

underserved neighborhoods fell short ofthe corresponding shares of other market participants in 

recent years. Subsection D finds that the GSEs significantly improved their affordable lending 

performance between 1992 and 1995, with the gains for Fannie Mae exceeding those for Freddie 

Mac. Fannie Mae's improvement allowed it to narrow the gap between its affordable lending 

performance and that ofother lenders in the conforming mortgage market. During this period, 

29 This section is adapted from Harold Bunce and Randall M. Scheessele, "The GSEs' Funding 

ofAffordable Loans", Housing Finance Working PaperNo. HF-001, Office ofPolicy 

Development and Research, Department ofHousing and Urban Development, December, 1996. 

30 For example, in its 1995 report, "Financing Homes for a Diverse America", Freddie Mac 

concluded that the income and racial characteristics of borrowers whose loans it purchased were 

very similar to those ofthe overall conventional conforming market. 

31 See Canner and Passmore (1995), HUD (1995, 1996), Lind (1996a,b), and Canner ru. 

(1997). 

24 
Freddie Mac's improvement was not always great enough to keep it in step with Fannie Mae and 

other lenders in the market. In some cases, Freddie Mac's purchases ofmortgages from certain 

types of lower-income borrowers and neighborhoods actually declined relative to the market over 

this period. Conclusions are presented in subsection E. . 

B. 	 Comparison ofBorrower and Neighborhood Characteristics: Mortgages Originated 

in the Market and Mortgages Purchased by the GSEs 

Data on "distribution ofbusinessI' percentages indicate the importance ofvarious 

borrower and neighborhood characteristics in the mortgage operations ofthe major mortgage 

market participants; in Table 9, these are compared with the same characteristics of all loans 

originated in the conventional conforming market in 1995.32 Loans purchased by the GSEs were 

Figure 4 

Very-Low-Income Share s of 

GSEs' Purchases, Retained Mortgages, and Market 

Originations, Home Purchase Mortgages, 1995 

Percent 

16 

14.0 

14 

12 

10 

8 

6 

4 

2 

0 

Freddie Mac Fannie Mae Banks S&Ls Conforming 

Market Source: 1995 HMDA Data 

32 The HMDA data are restricted to home purchase mortgages with valid metropolitan tracts only. 

Mortgages with a balance less than $15,000 and mortgages where the loan amount is more than 

six times borrower income have been excluded from this analysis. Two definitions ofthe 

conforming home purchase mortgage market are included in Table 9 -- one that excludes loans 

originated by forty-two B&C lenders and nine manufactured housing lenders and one that 

includes them. The text focuses on the GSEs' share ofthe conforming market excluding B&C 

and manufactured housing loans. Appendix A ofBunce and Scheessele (1996) discusses the 

GSEs' arguments that these loans should not be included in market comparisons with their 

25 

Table 9 

GSEs' Purchases and Conforming Conventional Home Loans by 


Borrower and Census Tract Characteristics, 1995 


Borrower Income Freddie Mac 

GSEs' Purchases 

Fannie Mae Both GSEs Banks 

Depositories· 

S&Ls All 

Conforming 

Market2 

(exckuding 

B&C and MH 

lenders) 

B&C 

Lendersl 

Manufactured 

Housing4 

Total 

Conforming 

Market 

N 

0\ 

Below 60% AMll 

Below 80"10 AMI 

Below Median 

Borrower Race/ National Ori&l!!, 

African-American 

Hispanic 

Either 

Census Tracts 

Low-lncome6 

High African American7 

High Minorit/ 

Underserved Areas' 

7.5% 

18.9% 

33.9% 

3.9% 

4.8% 

8.7% 

7.7% 

3.2% 

10.8% 

19.4% 

8.6% 

213% 

37.2% 

5.2% 

7.3% 

12.5% 

9.5% 

4.2% 

15.4% 

230% 

8.2% 

20.4% 

36.0% 

4.7% 

6.4% 

11.1% 

8.8% 

3.8% 

13.6% 

21.7% 

14.0% 

28.8% 

43.4% 

5.8% 

5.5% 

11.3% 

13.1% 

5.4% 

13.1% 

27.7% 

10.4% 

23.7% 

38.6% 

4.6% 

6.9% 

11.5% 

10.7% 

4.1% 

14.6% 

24.5% 

12.5% 

26.7% 

4\.5% 

5.3% 

6.0% 

11.3% 

12.1% 

4.9% 

13.5% 

26.4% 

10.2% 

23.4% 

38.7% 

5.3% 

6.2% 

11.5% 

10.5% 

4.5% 

13.7% 

24.0% 

14.0% 

29.5% 

46.1% 

13.5% 

9.2% 

22.7% 

17.5% 

11.4% 

26.7% 

35.8% 

26.7% 

49.1% 

67.1% 

5.9% 

6.3% 

12.2% 

18.5% 

7.6% 

17.5% 

41.8% 

11.4% 

25.3% 

40.7% 

5.6% 

6.3% 

11.9% 

11.2% 

4,8% 

1.4.3% 

25.4% 

Note: Tabulation limited to home purchase mortgages in metropolitan areas. Mortgages with loan amounts less than $15,000 (except for manufactured 

homes) or loan-to-income ratios greater than 6 are excluded. See Appendix A of Bunce and Scheessele ( 1996) for further discussion ofexcluded data. 

• Depository originations (including originations of mortgage company subsidiaries) that were not sold during the calendar year. 


2 Conforming market percentages do not include data for 42 B&C and nine manufactured housing (MH) lenders. 


1 Loans by 42 lenders that originated primarily B&C loans. 


4 Loans by nine lenders that originated primarily manufactured housing loans. 


I AMI refers to the median income of the metropolitan area. 


6 Census tract median income less than or equal to 80 percent of AMI. 


7 African American (Minority) composition of census tract is equal or greater than 30 percent. 


I 	Metropolitan census tracts with (I) median income less than or equal to 90 percent of AMI or (2) minority concentration greater than or equal to 30 percent 

and tract median income less than or equal to 120 percent of AMI. 
less likely to be taken out by lower-income families than were loans retained by portfolio lenders, 

especially commercial banks.33 For example, very low-income borrowers accounted for 7.5 

percent of loans purchased by Freddie Mac, 8.6 percent of loans purchased by Fannie Mae, and 

14.0 percent ofloans retained by banks (see Figure 4.) African-American borrowers accounted 

for 3.9 percent of loans sold to Freddie Mac and 5.2 percent of loans sold to Fannie Mae, 

compared with 5.8 percent of loans retained by banks. On the other hand, Hispanic borrowers 

accounted for a larger share ofloans sold to Fannie Mae (7.3 percent) than loans retained by 

banks (5.5 percent). 

Figure S 

Sbares of GSEs' Purcbases, Retained Mortgages, 

and Market Originations of Home Purcbase 

Mortgages in Underserved Areas, 1995 

Percent 

30 

25 

20 

15 

10 

5 

o 

Freddie Mac Fannie Mae Banks S&Ls Confonning 

Market 

Source: 1995 HMDA Data. 

Neighborhood data in Table 9 show similar differentials between the GSEs and banks. 

Low-income census tracts accounted for 7.7 percent ofloans sold to Freddie Mac and 9.5 percent 

ofloans sold to Fannie Mae, compared with 13.1 percent ofloans retained by banks in 1995. 

High African-American neighborhoods34 accounted for 3.2 percent ofFreddie Mac's loans and 

4.2 percent of Fannie Mae's loans, compared with 5.4 percent ofloans retained by banks. 

purchases, and also discusses additional adjustments to the HMDA data. 

33 The HMDA data in Table 9 on GSE purchases by various racial and income categories is quite 

similar to the GSE loan-level data reported in Section III, generally differing by only a percentage 

point. Tables A.I and A.2 in Bunce and Scheessele (1996) contain comparisons ofthe loan-level 

data that the GSEs provide to HUD with HMDA data on GSE purchases. 

34 High African-American neighborhoods are census tracts where African-Americans account for 

at least 30 percent ofthe tract population. 

27 
However, high-minority census tracts (those in which African-Americans, Hispanics, and AsianAmericans are at least 30 percent oftotal population) accounted for a larger proportion ofthe 

loans purchased by Fannie Mae (15.4 percent) than ofthe mortgages retained by banks (13.1 

percent). With regard to lending in underserved areas (as'defmed by HUD), in 1995 the GSEs 

lagged behind commercial banks and thrift institutions, as shown in Figure 5. 

In general, the HMDA data show that the GSEs are not doing as good ajob as portfolio 

lenders in funding disadvantaged borrowers and neighborhoods. Freddie Mac's affordable 

lending performance, in particular, stands out as lagging other sectors ofthe market. Fannie Mae 

funds disadvantaged borrowers and underserved neighborhoods at a much higher rate than 

Freddie Mac, which agrees with the findings reported in Section III. In fact, Fannie Mae's 

performance in some instances approaches or exceeds that ofthe thrift industry. 

C. 	 GSEs' Purchases as Shares ofMortgages Originated in the Market by Borrower 

and Neighborhood Characteristics 

The GSEs' purchases as shares of all conforming conventional loans originated provide 

another measure ofthe GSEs' role in providing funding for various types of borrowers and 

neighborhoods (see Table 10.) While the GSEs purchased 37 percent ofloans made to very lowincome borrowers, they bought 48 percent of loans made to high-income borrowers (see Figure 

6.) The GSEs purchased 40 percent ofloans taken out by African-Americans, 47 percent of 

Figure 6 


GSEs' Home Loan Purchases as Share of 


Conforming Conventional Market, by Borrower 


Income, 1995 


Percent 60 

50 

40 

30 

20 

10 

0 

49"10 

< =60"'{' 61-80% 81-100% 101-120% > 120% 

Borrower Income Relative to Area Median Income 

Source: 1995 HMDA data 

28 

Table 10 

GSEs' Share ofHome Purchase Loans 


In Conforming Conventio.nal.Market 


By Borrower and Census Tract Characteristics, 


1995 HMDA Data 


Borrower and Census Tract 


Characteristics 


Income of Borrower(s) 

60% ofArea Median or Below 

61-80% ofMedian 

81-100% of Median 

101-120% ofMedian 

Over 120% ofMedian 

Below Area Median 


Above Area Median 


Borrower RacelNational Origin 

African American 

Hispanic 

White 

Median Income ofTract 

80% ofArea Median or Below 

81-100% ofMedian 

101-120% of Median 

Over 120% of Median 

African-American Composition ofTract 

50% or More 

30-49% 

10-29% 

Less Than 10% 

Minority Composition ofTract 

50% Minority or More 

30-49% Minority 

10-29% Minority 

Less Than 10% Minority 

Underserved Areas 

Served Areas 

Confonning 


Market Without 


B&C and MH 


Loans 


37% 

43% 

47% 

49% 

48% 

43% 

48% 

40% 

47% 

45% 

41% 

46% 

50% 

53% 

41% 

43% 

47% 

50% 

48% 

51% 

52% 

48% 

45% 

51% 

Total 


Confonning 


Marketl 

30% 

37% 

42% 

45% 

45% 

37% 

45% 

35% 

42% 

42% 

36% 

40% 

46% 

51% 

35% 

36% 

41% 

46% 

42% 

45% 

47% 

45% 

39% 

47% 

Source: HUD analysis of 1995 HMDA data. See notes to Table 9 for exclusions 

from tabulation. 

Total conforming market includes data for 42 B&C lenders and nine manufactured 

housing (MH) lenders. 

29 

I 
Hispanics' loans, and 45 percent ofnon-Hispanic whites' loans. Thus the GSEs playa more 

important role in the higher-income, white, and Hispanic markets than they do in the markets for 

lower-income and African-American borrowers. 

Similar results are obtained from a comparison ofneighborhood characteristics for loans 

originated and loans purchased by the GSEs. The GSEs' share ofthe market in 1995 increased 

from 41 percent of originations in low-income tracts to 53 percent ofthe loans in high-income 

tracts. The data for minority composition ofthe tract show a more mixed pattern. The GSEs 

purchased 41 percent ofthe loans in high-African-American tracts, compared with 50 percent of 

the loans in predominantly white tracts. However, the GSEs' share ofthe market did not vary 

much with regard to the percent ofthe tract population accounted for by all minorities (i.e., 

African-Americans, Hispanics, and Asian-Americans). The GSEs purchased 45 percent ofthe 

loans made on properties in underserved areas, as defined by HUD, compared with 51 percent of 

the loans made on properties in other areas. 

Broader Market Definition. The market shares discussed above exclude most 

manufactured housing (MH) and B&C loans made by specialized lenders from the market totals 

because such loans have generally not met the GSEs' underwriting criteria.3S The last column of 

Table 10 presents data on the GSEs' share of each market segment using a broader market 

definition that includes these two loan types, thus providing a more comprehensive picture ofthe 

GSEs' affordable purchases relative to the total conforming market. The GSEs purchased 30 

percent of all conforming loans made to very low-income borrowers, and 45 percent of all loans 

for borrowers with incomes exceeding 120 percent of area median -- a larger differential between 

their roles at various income levels than that reported above. Similarly, the GSEs' share ofthis 

broader market in 1995 varied more with the income ofthe census tract -- from 36 percent ofall 

loans in low-income tracts to 51 percent in high-income tracts. As expected, these data show a 

heavier concentration by the GSEs on the "higher end" ofthe market than the earlier 

comparisons, which excluded specialized lenders' manufactured housing and B&C loans from 

the analysis. 

D. Affordable Lending: Trends and the GSEs' Role 

The HMDA data show clearly that the GSEs lagged the overall market in 1995 in serving 

disadvantaged groups. An additional issue is whether the GSEs have improved their affordable 

lending performance relative to the primary market between 1992 and 1995. 

Section II noted that the GSEs, private lenders, and private mortgage insurers have all 

markedly increased their outreach efforts and have developed new products aimed at serving 

lower-income and minority borrowers and their communities during the 1990s. Data on trends in 

3S Manufactured housing and B&C loans originated by depository institutions could not be 

separately identified and thus are included in all the analyses. Bunce and Scheessele (1996) 

argue that including these loans in the depository data is appropriate given that the GSEs and the 

depositories both receive substantial benefits from the Federal government. See Bunce and 

Scheessele for the various arguments for including (and excluding) manufactured housing and 

B&C loans from the market comparisons. 

30 
affordable lending suggest that these industry initiatives are working (see Table 11.) Loans to 

lower-income families and minorities increased substantially as a share of all loans between 1992 

and 1995. For example, very low-income families' share of home purchase loans increased by 

34 percent during this period, from 7.6 percent to 10.2 petcent. Similarly, the combined share for 

African-Americans and Hispanics increased by 53 percent, from 7.5 percent to 11.5 percent. 

Low interest rates, income growth, and moderate house price inflation made homeownership 

very affordable during this period, but most observers think that the new industry initiatives were 

also an important factor explaining the substantial improvement in lending to lower-income and 

minority families. 

Performance of GSEs Relative to Depositories. GSEs and depositories (banks and 

thrifts) both improved their affordable lending performance between 1992 and 1995. Fannie 

Mae significantly improved its affordable lending performance relative to depositories, which is 

consistent with the many special programs it has initiated over the past few years. For example, 

in 1992 very low-income (VLI) borrowers accounted for 5.1 percent of Fannie Mae's home loan 

purchases and 10.4 percent of home purchase loans retained by depositories, for a "Fannie Maeto-depositories VLI performance ratio" of 0.49 (5.111 0.4). By 1995, this ratio rose to 0.69 

(8.6/12.5) -- that is, the VLI share of Fannie Mae's purchases had increased from 49 percent to 

69 percent ofthe depositories' VLI share. 

In most cases Freddie Mac also improved its performance relative to depositories, but not 

as much as Fannie Mae. Freddie Mac's very-low-income share (5.2 percent) was slightly greater 

than Fannie Mae's in 1992, but its VLI share increased by less, to 7.5 percent, by 1995. Thus the 

"Freddie Mac-to-depositories VLI performance ratio" increased from 0.50 in 1992 to 0.60 in 

1995, while Fannie Mae's ratio increased from 0.49 to 0.69 over the same period, as discussed 

above. With regard to underserved areas, the "Freddie Mac-to-depositories ratio" declined 

slightly (from 0.74 in 1992 to 0.73 in 1995), while Fannie Mae's ratio increased from 0.73 to 

0.87. (See Figure 7.) 

Performance ofGSEs Relative to the Overall Conforming Market. Table 11 also 

reports (in parentheses) the shares ofGSEs' loans relative to the shares ofthe overall conforming 

conventional market. The shares ofFannie Mae's purchases for lower-income and minority 

borrowers and their neighborhoods have increased markedly relative to the corresponding shares 

for the overall market. In fact, Fannie Mae's improvement eliminated the gap between its 

performance and that of the market in some cases (e.g., African-American and Hispanic 

borrowers). However, the shares of its mortgages for some borrowers and neighborhoods (e.g., 

VLI borrowers and properties in high African-American tracts) continue to be below the primary 

market's shares. 

31 

Table 11 

Conforming Conventional Market, 1992-95 


Shares of Home Purchase Loans for Various Groups 


Conforming 

Freddie Macl Fannie Mael Depositories Markee 

Very-Law-Income Borrowers 

1992 5.2% (.68) 5.1% (.67) 10.4% 7.6% 

1993 6.6% 7.4% 13.6% 9.4% 

1994 7.8% 9.4% 13.0% 10.7% 

1995 7.5% (.74) 8.6% (.84) 12.5% 10.2% 

African-American Borrowers 

1992 2.2% (.71) 2.8% (.90) 3.6% 3.1% 

1993 2.5% 3.2% 4.6% 3.7% 

1994 3.4% 5.0% 5.0% 5.0% 

1995 3.CJOIo (.74) 5.2% (.98) 5.3% 5.3% 

Hispanic Borrowers 

1992 3.6% (.82) 3.9% (.89) 5.0% 4.4% 

1993 3.7% 4.4% 5.2% 4.6% 

1994 4.8% 6.7% 5.7% 5.9% 

1995 4.8% (.77) 7.3% (1.18) 6.0% 6.2% 

Underserved Areas 

1992 18.9% (.86) 18.7% (.85) 25.6% 21.9% 

1993 18.0% 18.6% 26.0% 21.3% 

1994 19.3% 22.5% 25.9% 23.5% 

1995 19.4% (.81) 23.0% (.96) 26.4% 24.00/0 

Law-Income Census Tracts 

1992 7.3% (.79) 7.0% (.76) 11.5% 9.2% 

1993 7.1% 7.3% 12.1% 9.0% 

1994 7.4% 9.0% 11.7% 10.1% 

1995 7.7% (.73) 9.5% (.90) 12.1% 10.5% 

High-Minority Tracts) 

1992 12.0% (.93) 12.9% (.98) 13.7% 13.1% 

1993 11.2% 11.6% 13.5% 12.5% 

1994 11.CJOio 14.8% 13.6% 13.8% 

1995 10.8% (.79) 15.4% ( 1.12) 13.5% 13.7% 

Hi~h-African-American Tracts) 

1992 2.6% (.70) 3.2% (.86) 4.4% 3.7% 

1993 2.7% 3.2% 4.CJOIo 3.8% 

1994 2.9% 4.1% 4.8% 4.4% 

1995 3.2% (.71) 4.2% (.93) 4.9% 4.5% 

Note: 1992-1995 HMDA data for conforming conventional home purchase loans in metropolitan areas. 

I Number in parentheses is GSE percent divided by the percent for the conforming market (without selected B&C 

and manufactured housing loans). 

2 Conforming market percentages do not include data for 42 B&C and nine manufactured home lenders. 

See Appendix A of Bunce and Scheessele (1996) for further discussion of excluded data. 

) A neighborhood is defined as High-Minority (High-African-American) if at least 30 percent ofthe 

tract population is Minority (African American). 32 
Figure 7 

Sbares ofGSEs' Purcbases Depositories' Retained Mortgages, and 


Conforming Market Originations of Home Purcbase Mortgages in 


Underserved Areas, 1992 and 1995 


Percent 

30 

25 

20 

15 

10 

5 

0 

26.4 

Freddie Mac Fannie Mac Depositories Conforming Market 

Source: 1992-95 HMDA Data. 

Freddie Mac's improvements between 1992 and 1995 were not large enough to 

significantly reduce its affordable lending gap relative to the conforming market. For several 

socioeconomic categories examined here. Freddie Mac's performance either declined relative to 

the market or showed only very slight increases. For example. the "Freddie Mac-to-market" ratio 

for low-income census tracts declined from 0.79 in 1992 to 0.73 in 1995, while the ratio for 

African-American borrowers increased slightly from 0.71 to 0.74. 

E. Conclusions 

This section has analyzed HMDA data to place the GSEs' affordable lending performance 

in perspective. Between 1992 and 1995, Fannie Mae imprOVed its performance relative to both 

depositories and the overall market. In 1995, the share ofFannie Mae's loans exceeded or was 

close to the market for several categories (e.g., Hispanic and African-American borrowers, highminority tracts, underserved areas); however, Fannie Mae's performance fell significantly short of 

portfolio lenders (especially commercial banks) on most dimensions ofaffordable lending. 

Between 1992 and 1995, Freddie Mac improved its performance relative to portfolio 

lenders but not relative to Fannie Mae and the overall market. In fact, Freddie Mac started the 

period purchasing affordable mortgages at the same rate as Fannie Mae; but by 1995. Freddie 

Mac had been outpaced by Fannie Mae in purchasing affordable loans. Freddie Mac's 1995 

performance also fell significantly short of both portfolio lenders and the overall conforming 

market on all dimensions of affordable lending. 

33 
There are several reasons why portfolio lenders might serve disadvantaged groups better 

than the GSEs. Canner and Passmore (1995) pointed out that portfolio lenders have extensive 

knowledge oftheir communities, which they are able to utilize to manage credit risk. In addition, 

they may have direct interactions with their borrowers, further enabling them to assess credit risk 

more accurately. These factors allow portfolio lenders to underwrite loans more flexibly than 

firms strictly following the GSEs' guidelines. Secondary market firms such as the GSEs must set 

underwriting standards more strictly to compensate for the fact that they do not have such 

detailed knowledge. 

Another important factor influencing the types of loans held by portfolio lenders is the 

Community Reinvestment Act (CRA), which requires depository institutions to help meet the 

credit needs oftheir communities. CRA provides an incentive for portfolio lenders to initiate 

affordable lending programs with underwriting flexibility, and the loans are often held in 

portfolio because they do not conform to the GSEs' underwriting standards. 

These factors may explain why portfolio lenders are retaining disproportionally high 

shares ofthe affordable loans that they originate. However, in the 1992 GSE Act, Congress 

stated that it expected the GSEs to meet public purposes in return for the sizeable benefits that 

accrue to them from their Federal charters. Specifically, Congress referred to the ability ofthe 

GSEs to "lead the industry" in the fmancing ofhomes for lower-income borrowers and for 

properties in underserved neighborhoods. Based on the findings of this section, the GSEs, 

especially Freddie Mac, have some ways to go before they accomplish this objective. 

34 

v. GSEs' Purchases of Loans on One-Family Owner Properties: 

Analyses of Special Topics 

The previous sections have presented basic characteristics ofthe GSEs' purchases of 

loans on one-family owner-occupied properties and have compared the GSEs' activities with 

primary market originations and mortgages retained by depositories. This section extends that 

analysis by using the loan-level data that the GSEs submit to HUD to address a variety of more 

specialized topics. Issues discussed in this section include the characteristics of first-time 

homebuyers, low- and moderate-income borrowers, and minority homebuyers; loan-to-value 

(LTV) ratios by income level; and the relationship between income and neighborhood 

characteristics. Finally, analyses ofthe characteristics ofthe loans and borrowers in Fannie 

Mae's community lending programs are presented, and comparisons are made with Fannie Mae's 

total purchases.36 

A. First-Time Homebuyer Characteristics 

As discussed in Section III, first-time buyers have been a major factor in the housing 

market in the 1990s, accounting for almost 50 percent of all home buyers. The GSEs have been 

less active in this market, with about 30 percent oftheir home purchase loans between 1993 and 

1995 going to first-time homebuyers.37 

First-time Homebuyers and Other Mortgagors. As shown in Table 12, first-time 

homebuyers whose loans were purchased by the GSEs were younger, had lower incomes, and 

were more likely to be minority group members than other mortgagors (Le., repeat buyers plus 

refinancers). For example, 27 percent offirst-time homebuyers with Fannie Mae-purchased 

loans in 1995 were low-income families, compared to 17 percent ofother mortgagors. In 

addition, first-time buyers more frequently took out loans with high loan-to-value ratios and 

tended to buy more often in lower-income and higher-minority neighborhoods and in central 

cities. As reported in HUD's privatization study, the share offirst-time buyers with loan-to-value 

ratios over 90 percent was about twice the share for other mortgagors for both GSES?8 Still, a 

surprisingly large percentage ofthe GSEs' first-time homebuyer loans have had high 

downpayments--in 1995,35 percent ofFannie Mae's and 41 percent ofFreddie Mac's first-time 

homebuyer loans had downpayments of20 percent or more. 

36 Freddie Mac's specialized community lending program has not been analyzed because it was 

much smaller than Fannie Mae's program during this period-- Freddie Mac has traditionally 

placed more emphasis on using its standard program to fund affordable mortgages. 

37 In contrast, about two-thirds ofFHA's home purchase mortgages are for first-time homebuyers. 

With respect to the total market (FHA, V A and conventional), Chicago Title (1996) reported that 

first-time homebuyers accounted for 46 percent of all homebuyers in 1995. 

38 See Privatization ofFannie Mae and Freddie Mac: Desirability and Feasibility. A HUD R$a?ort, 

July 1996, p. 99. 

35 

Table 12 

Characteristics of First-Time Homebuyers and Other Mortgagors 

for GSEs' Purchases of Single-Family. Mortgages, 1995 

Fannie Mae Freddie Mac 

Characteristics First-time Other First-time Other 

Number of Loans 258,057 1,025,172 158,948 775,530 

Income ofBorrower(s) 

80% of Area Median or Below 

Over 120% of Median 

27.2% 

35.0% 

17.6% 

49.1% 

22.9% 

40.3% 

15.1% 

50.8% 

RacelNational Origin of Borrower 

White 

Black or Hispanic 

73.2% 

16.3% 

81.1% 

8.5% 

77.5% 

10.3% 

78.8% 

6.9% 

Age ofBorrower 

Less than 30 

40 and Over 

31.0% 

24.3% 

9.1% 

50.4% 

29.4% 

22.6% 

8.0% 

46.5% 

Tract Median Income 

80% ofArea Median or Below 

Over 120% of Median 

12.4% 

31.6% 

8.9% 

37.3% 

9.0% 

34.7% 

8.0% 

37.2% 

Tract Minority Composition 

Less than 10% 

30% or More 

49.2% 

21.3% 

57.0% 

15.1% 

57.1% 

14.2% 

61.2% 

12.2% 

In Low-Income and High 

Minority Tracts 7.2% 4.7% 4.4% 3.8% 

In Underserved Areas 31.1% 25.4% 25.1% 23.7% 

Location 

Metropolitan Areas 

Non-metropolitan Areas 

89.3% 

10.7% 

86.5% 

13.3% 

87.2% 

12.8% 

84.7% 

15.3% 

Source: HUD analysis of GSE loan-level data on single-family one-unit mortgages. Both home purchase and 

refinance mortgages are included. "Other" mortgages include all mortgages purchased by the GSEs, 

except those for first-time homebuyers. 

This includes "no" and "not applicable", but in the percentages below, "not applicable" is excluded. 

36 


I 
Still, most differences between fIrst-time homebuyers and other mortgagors are a matter 

of degree. As shown in Table 12, the bulk of fIrst-time buyers are similar to other mortgagors in 

many respects -- they have above-median incomes and buy outside of central cities and minority 

and low-income neighborhoods. As noted above, while fIrst-time buyers generally put less 

money down at closing than other mortgagors, a large percentage put down more than 20 percent. 

Differences Between the GSEs. Fannie Mae and Freddie Mac are generally similar with 

regard to the characteristics oftheir mortgagors other than fIrst-time homebuyers. They exhibit 

larger differences in the characteristics oftheir fIrst-time buyer mortgages. Relative to Freddie 

Mac, Fannie Mae more frequently purchased loans made to such buyers in low-income and highminority neighborhoods and in central cities, and their fIrst-time homebuyers were more likely to 

be low-income or minority borrowers. 

B. Low- and Moderate-Income Borrower Characteristics 

Demographics. Relative to borrowers with incomes greater than the area median, lowand moderate-income ("low-modI!) borrowers are younger, more often minority group members, 

and more frequently fIrst-time homebuyers (see Table 13.) They more frequently purchase in 

low-income and high-minority tracts and in central cities. Despite their lower incomes, and 

presumably lower assets, low-mod borrowers do not have higher loan-to-value ratios, an issue 

examined further in the next subsection. 

Low-mod borrowers are as likely as higher-income borrowers to purchase in the suburbs. 

Nearly 25 percent buy in tracts with median incomes above 120 percent ofthe area median, 

compared to 43 percent of borrowers with incomes above the median. One out of every seven 

low-mod borrowers buys in low-income tracts. 

Differences Between the GSEs. There are systematic differences between the GSEs' 

low-mod borrowers. Higher percentages ofFannie Mae's borrowers are younger, minority group 

members, fIrst-time homebuyers, and have high loan-to-value ratios than Freddie Mac's 

borrowers, and a greater percentage of the properties are in low-income and high-minority tracts 

and in central cities. For example, 19.7 percent of Fannie Mae's low-mod purchases in 1995 

were on properties in tracts with minority population exceeding 30 percent; the corresponding 

fIgure for Freddie Mac was 14.9 percent. 

C. LTV Ratios by Income Level 

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 

37 

Table 13 


Characteristics of GSE Purchases of Single-Family Mortgages 


to Borrowers with Income Above and -Below Area Median Income 


1995 


Fannie Mae 	 Freddie Mac 

Characteristics 

First-Time Homebuyer 

RaceINational Origin ofBorrower 

White 

Black or Hispanic 

Tract Median Income 

80% ofArea Median or Below 

Over 120% ofMedian 

Tract Minority Composition 

Less than 10% 

30% or More 

In Low Income and 

High Minority Tracts 

In Underserved Areas 

Location 

Metropolitan Areas 

Non-metropolitan Areas 

Loan-to-Value Rati02 

80% or Less 

Greater than 90% 

Age ofBorrower 

Less than 30 

40 and Over 

Below Median 

29.1% 1 

77.3% 

14.1% 

14.9% 

24.0% 

52.4% 

19.7% 

8.3% 

34.3% 

89.3% 

10.7% 

61.5% 

24.4% 

18.8% 

43.2% 

Above Median 

18.2% 

82.3% 

8.5% 

6.2% 

43.8% 

56.4% 

14.9% 

3.6% 

21.9% 

85.2% 

14.8% 

62.4% 

19.1% 

11.4% 

46.8% 

Below Median 

23.5% 

80.6% 

]0.0% 

12.4% 

25.5% 

58.1% 

14.9% 

6.0% 

30.0% 

87.9% 

12.1% 

70.3% 

14.7% 

15.8% 

43.9% 

Above Median 

15.9% 

82.5% 

6.4% 

5.5% 

43.1% 

62.5% 

11.0% 

2.7% 

20.1% 

83.3% 

]6.7% 

65.6% 

15.9% 

10.6% 

44.()'% 

Source: HUD analysis ofGSE loan-level data on all single-family mortgages, including mortgages on owner-occupied 

2-4 unit and investor-owned 1-4 unit properties. Both home purchase and refinance mortgages are included. 

1 Interpreted as follows: 29.1 percent of Fannie Mae's below-median-income borrowers in 1995 were first-time 

home buyers. 

2 	All the variables except loan-to-value ratio are from the census tract file ofthe GSE public use data base; 

loan-to-value ratios are from national file A ofthe public use data base. 

38 
more difficult for them to accumulate a down payment. Table 14 examines the distribution of 

loan-to-value ratios by borrower income and other characteristics for the GSEs' home purchase 

mortgages in 1995.39 

Surprisingly, lower-income borrowers did not have higher loan-to-value ratios than other 

income groups, despite their greater difficulty in accumulating a down payment. About 19 

percent ofvery low-income borrowers had L TV ratios over 90 percent, which was about the 

same as the corresponding percentage for higher-income borrowers. In addition, very lowincome borrowers were more likely to have larger downpayments than all higher-income groups. 

In 1995, 71 percent ofvery low-income borrowers had LTV ratios less than 80 percent, 

compared with about 64 percent of borrowers in higher-income groups. 

Other Characteristics. Aside from borrower income, the relationship between loan-tovalue ratio and other characteristics is more in line with expectations. Groups expected to have 

fewer assets for a large down payment, such as first-time homebuyers, minorities, and those who 

purchase in low-income tracts or high-minority tracts, were more likely to have high-LTV 

mortgages than the average borrower (see Table 14.) For example, in 1995, almost 25 percent of 

loans in low-income census tracts had an LTV ratio over 90 percent, compared with 15 percent 

of loans in high-income tracts. 

D. Minority Homebuyer Characteristics 

First-time homebuyers were more prevalent among minority buyers than among nonminority buyers, and a higher percentage ofminority homebuyers purchased in low-income and 

high-minority tracts (see Table 15.) Minorities also purchased more frequently in urban areas 

and less frequently in rural areas. African-American borrowers tended to be older than nonminority borrowers, or other minority borrowers, while Hispanic and Asian-American 

homebuyers tended to be younger than non-minority borrowers. Hispanics and AfricanAmericans were much more likely than whites to have high-LTV loans.40 In 1995, 42 percent of 

Fannie Mae's African-American borrowers had LTV ratios in excess of90 percent, compared 

with 19 percent ofwhite borrowers; the corresponding figures for Freddie Mac's borrowers were 

31 percent and 15 percent. 

E. Relationship Between Borrower Income and Neighborhood Characteristics 

A common assumption is that borrowers in low-income and high-minority tracts are 

mostly low-income families. In fact, there is much diversity in the characteristics ofthe 

borrowers in such tracts (see Table 16.) These areas do have higher proportions of lower-income 

39 To simplify the analysis, data are combined for the two GSEs since there is little difference 

between them in the relationship ofLTV ratios to the other variables in Table 14. 

40 African-Americans have fewer assets than whites, even after controlling for income. See 

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

Homeownership," Housin~ Policy Debate, 1992, pages 333-370. 

39 
Table 14 

Distribution of Loan-to-Value Ratios 


for GSE Single-Family Mortgage Purchases 


by Borrower and Census Tract Characteristics, 1995 


Loan-to-Value Ratio 

Income ofBorrower(s) 

Less Than or Equal to 60% 

>60%to 100% 

Over 100% 

RacelNational Origin ofBorrower 

White 

African American 

Hispanic 

Tract Median Income 

80% of Area Median or Below 

81-120% ofMedian 

Over 120% of Median 

Tract Minority Composition 

Less than 10% 

10-29% Minority 

30% or More 

Low Income and High 

Minority Tracts2 

80% or 

Less 

71.2% 1 

63.2% 

63.8% 

66.1% 

41.3% 

46.7% 

58.4% 

64.8% 

68.5% 

68.8% 

62.3% 

59.2% 

55.6% 

81-90% 

10.0% 

15.8% 

18.5% 

16.7% 

20.0% 

20.3% 

16.9% 

16.8% 

16.5% 

15.8% 

18.0% 

17.8% 

17.9% 

Over 

90% 

18.8% 

21.0% 

17.7% 

17.2% 

38.8% 

33.0% 

24.6% 

18.4% 

15.0% 

15.4% 

19.7% 

23.0% 

26.5% 

All 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

Source: HUD analysis of GSE loan-level data on owner-occupied one-unit home purchase and refinance 

mortgages. 

1 	Interpreted as follows: 71.2 percent ofthe borrowers with less than 60 percent ofthe area median income 

had a mortgage with loan-to-value ratio less than 80 percent. 

2 	Tract median income less than 80 percent of area median income and minority popUlation at least 30 

percent of tract population. 

40 

I 

Table 15 

Characteristics of GSE Single-Family' Loans to Borrowers 


By Racial and Ethnic Group, 1995 


Fannie Mae Freddie Mac 

African African 

Characteristics American iSEanic Asian White American iSEanic Asian White 

Loan-to-Value Ratio 

800A, or Less 37.1% I 41.6% 70.0% 64.3% 46.4% 55.1% 70.8% 68.5% 

Greater than 90% 41.9% 37.9% 13.6% 19.1% 30.8% 22.9% 11.3% 14.7% 

First-Time Homebuyer 32.7% 36.4% 31.8% 20.1% 23.7% 24.2% 29.2% 17.3% 

Age of Borrower 

Less than 30 10.7% 18.3% 12.9% 14.3% 8.3% 13.9% 11.8% 12.5% 

40 and Over 50.6% 39.7% 43.9% 45.9% 50.8% 42.7% 41.3% 44.1% 

Tract Median Income 

800A, of Area Median or Below 23.9% 23.0% 11.5% 6.8% 19.7% 20.0% 10.1% 6.1% 

Over 120% of Median 25.3% 26.9% 40.0% 37.8% 29.9% 28.3% 41.5% 37.7% 

Tract Minority Composition 

Less than 10% 15.1% 10.7% 18.3% 64.5% 19.3% 14.1% 24.9% 68.3% 

300A, or More 55.6% 62.8% 50.0% 8.0% 48.7% 55.2% 38.7% 6.6% 

Low Income and 

High Minority Tracts2 21.2% 20.2% 9.4% 2.3% 16.9% 17.4% 7.6% 1.8% 

In Underserved Areas 55.6% 54.5% 43.9% 21.9% 48.9% 49.1% 36.5% 20.6% 

In Served Areas 44.4% 45.5% 56.1% 78.1% 51.1% 50.9% 63.5% 79.4% 

Location 

Metropolitan Areas 95.4% 95.5% 93.7% 85.5% 94.3% 92.7% 93.7% 83.7% 

Non-metropolitan Areas 4.6% 4.5% 6.3% 14.5% 5.7% 7.3% 6.3% 16.3% 

Source: HUD analysis ofGSE loan-level data for single-family owner-occupied one-unit home purchase and refinance mortgages. 

Interpreted as follows: 37.1 percent ofAfrican-American mortgagors had a mortgage with a loan-to-value ratio less than 80 percent. 

2 Tract income not in excess of80 percent ofarea median income and minority population at least 30 percent of tract population. 

41 
Table 16 

Distribution of Borrower Incomes for GSE Home Purchase Loans 

by Geographic Location, 1995 

Income ofBorrower 

All GSE Home Purchase Loans 

Tract Median Income 

80% ofArea Median or Below 

81-120% ofMedian 

Over 120% ofMedian 

Tract Minority Composition 

Less than 10% 

10-29% Minority 

30% or More 

Low Income and 

High Minority Tracts2 

Less than 60% 

ofMedian 

8.2% 

21.8% I 

9.3% 

4.0% 

7.3% 

8.3% 

12.0% 

21.8% 

60 -100% 


26.6% 

36.8% 

30.9% 

18.9% 

25.7% 

26.6% 

30.5% 

36.9% 

Over 100% 

65.2% 

41.4% 

59.8% 

77.0% 

67.0% 

65.1% 

57.4% 

41.2% 

All 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

100.0% 

Source: HUD analysis of GSE loan-level data for single-family owner-occupied one-unit mortgage purchases. 

Excludes cases where data are missing. 

1 	Interpreted as follows: 21.8 percent ofloans in low-income (i.e. less than 80 percent AMI) census tracts are for 

very-low-income (i.e. less than 60 percent AMI) borrowers. 

2 Tract income not in excess of 80 percent of area median income and minority population at least 30 percent 

oftract population. 

42 

and minority borrowers than tracts with higher incomes and smaller minority populations. 

However, higher-income borrowers still have a significant presence in the lower-income tracts. 

In 1995,41 percent of borrowers in low-income tracts had above-median incomes. Abovemedian-income borrowers comprised 57 percent of all botrowers in high-minority tracts. In 

census tracts that were both low-income and high-minority, these higher-income borrowers 

accounted for 41 percent of horne purchase loans in 1995. 

F. Characteristics of Community Lending Mortgages 

This section reviews characteristics ofloans designated by the GSEs as "community 

lending mortgages," that is, loans in programs particularly structured to lower-income borrowers 

who may have difficulty meeting traditional down payment requirements. This section draws 

from Chapter 4 ofHUD's privatization study (HUD, 1996). 

Volume of Activity. Fannie Mae has been the more active ofthe two GSEs in the 

designated community lending area, with 86,000 such loans reported to HUD in 1995, compared 

with 10,000 community lending loans reported by Freddie Mac. Fannie Mae had a higher 

volume ofthese loans in 1994 (93,000), which was a sharp increase from 55,000 loans ofthis 

type in 1993. Freddie Mac's 1995 community lending business was a jump from 5,000 loans in 

1994 and 6,000 loans in 1993. 

Differences between Community Lending Mortgages and Other Mortgages. 

Because oftheir greater volume ofsuch designated mortgages, comparisons between community 

lending horne purchase mortgages and total book ofbusiness are discussed for Fannie Mae only. 

In general, community lending mortgages went disproportionately to disadvantaged groups over 

the time period. 

• 	 Community lending mortgages had higher loan-to-value ratios than Fannie Mae's overall 

business in 1995 -- 79 percent ofthe former had LTV ratios over 90 percent in 1995 (up 

significantly from 1993), versus 35 percent ofthe latter. 

• 	 Sixty-two percent of community lending mortgages and 45 percent oftotal loans were 

for low-income families. 

• 	 Thirty percent ofFannie Mae's community lending loans were for African-American 

or Hispanic borrowers in 1995 (an increase over 1993), nearly twice the percentage of 

their total business for these groups. 

• 	 Fifty-six percent of community lending loans were for first-time homebuyers in 1995 

(an increase from 1993), but only 31 percent of all horne purchase mortgages were in 

this category. 

• 	 Other characteristics: Fannie Mae's community lending loans were somewhat less 

likely than total loans to be made on suburban properties, more likely to be on 

properties in low-income census tracts, and somewhat more likely to be made on 

properties in high-minority tracts. 

43 
G. Conclusions 

The analyses reported in this section have yielded both expected and unexpected 

conclusions about the characteristics ofthe loans that the GSEs purchase. First, as anticipated, in 

comparison with repeat buyers, first-time homebuyers were younger, had lower incomes, were 

more likely to be members ofminority groups, and took out loans with higher loan-to-value 

ratios. Also, minority homebuyers were more frequently first-time buyers than non-minority 

buyers, and purchased more frequently in low-income and high-minority tracts ofurban areas, 

and less frequently in rural areas. 

Second, somewhat surprisingly, low- and moderate-income borrowers were as likely as 

higher-income borrowers to purchase homes in the suburbs, and nearly 30 percent bought in 

tracts with median incomes greater than 120 percent of area median. And high loan-to-value 

ratio loans were found as often among low-income borrowers as among middle- and high-income 

borrowers. 

Third, the data showed a significant amount of income diversity in low-income and highminority tracts. For example, in 1995, borrowers with above-median incomes comprised 41 

percent of borrowers in low-income tracts and 57 percent of all borrowers in high-minority tracts. 

Finally, consistent with expectations, community lending loans purchased by Fannie Mae 

in 1995 differed dramatically from other loans purchased by Fannie Mae. For example, they 

exhibited much higher shares for low-income and minority families and for first-time 

homebuyers. 

44 

Appendix A 

GSEs' Housing Goals for 1996·99 

• 

In December 1995 the Secretary established three goals for Fanme Mae and Freddie Mac: 

• 	 A low- and moderate-income goal, set at 40 percent for 1996 and 42 percent for 1997­

99--i.e., for each year, 1997-99, at least 42 percent oftotal units financed by each GSE's 

mortgage purchases would have to be (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 of area median income; 

• 	 A geographically-targeted goal, set at 21 percent for 1996 and 24 percent for 1997-99-­

Le., for each year, 1997-99, at least 24 percent oftotal units financed by each GSE's 

mortgage purchases would have to be owner-occupied or rental units in "underserved 

areas," dermed as metropolitan census tracts and nonmetropolitan counties with (1) 

median tract [county] income less than or equal to 90 percent ofarea median income [95 

percent in nonmetropolitan areas] or (2) minority concentration of at least 30 percent with 

median tract or county income no greater than 120 percent of area median income; and 

• 	 A special affordable goal, set at 12 percent for 1996 and 14 percent for 1997-99--Le., for 

each year, 1997-99, at least 14 percent oftotal units financed by each GSE's mortgage 

purchases would have to be owner-occupied units for which the borrower's income is less 

than or equal to (1) 60 percent of area median income (very low-income families) or (2) if 

located 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. 

Although the GSEs' goals were not fonnulated on the same basis for 1993-95, loan-level data 

provided by the GSEs has allowed the Department to calculate what their perfonnance would 

have been in those years under the 1996-99 goal structure. These results are shown in Table A.I . 

• 


45 

Table A.I 


Overview of the GSEs' Activity Relative to Final Rule Goal Definitions 1 


Goal 2 

Low- and Moderate-Income: 

Fannie Mae 

Freddie Mac 

Geographically Targeted: 

Fannie Mae 

Freddie Mac ~ 

0'> 

Special Affordable: 

Fannie Mae 

Freddie Mac 

1993 


34.1% 

30.0% 

22.9% 

21.3% 

10.0% 

7.2% 

1994 


45.1% 

38.0% 

29.0% 

24.2% 

16.7% 

11.4% 

1995 


42.8% 

39.6% 

31.2% 

25.2% 

15.8% 

13.2% 

1996 


45.1% 

41.3% 

28.2% 

25.0% 

17.4% 

14.2% 

1997-99 

Goals 

42.0% 

24.0% 

14.0% 

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

1993-1996, and goals for 1997-99. 

2 Abbreviated definitions of goals: 

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

Geographically Targeted: Dwelling units in metropolitan census tracts with (I) median family income less than or equal to 90 percent 0 

AMI or (2) minority concentration of at least 30 percent with tract median income less than or equal to 120 percent of AMI. 

Nonmetropolitan Counties are included if median family income does not exceed 95 percent of the greater of state or national 

nonmetropolitan median income. 

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

located in low-income areas. 

Source: HUD analysis of data submitted by the GSEs. 
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 .. of Cleveland. (December) . 

___. 1995. "An Evaluation ofHMDA Data." Fair Lendin~ 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 of FHAIS Sin~le-Family Insurance 

Pro~ram. Office of Policy Development and Research, U.S. Department of Housing 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' Fundin~ of Affordable Loans. 

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

Department ofHousing and Urban Development. 

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

Specialization in the Primary and Secondary Mortgage Markets." Housin~ 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 of Credit Risk 

Among Providers of Mortgages to Lower-Income and Minority Homebuyers. II Federal 

Reserve Bulletin. (December). 

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

Lending." Federal Reserve Bulletin. (November). 

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

Reserve Bulletin. (November). 

Chicago Title and Trust Family ofTitle Insurers. 1997. Who's Buyin~ Homes in America. 

(January). 

Congressional Budget Office. 1996. Assessin~ the Public Costs and Benefits of Fannie Mae and 

Freddie Mac. U.S. Government Printing Office. (May). 

47 
Federal Home Loan Mortgage Corporation (FHLMC). 1995. Financin~ Homes for a Diverse 

America. McLean, Virginia. (November) 

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

Secondary Marketin~ Executive. (October). 

General Accounting Office. 1996. Housjn~ Enterprises: Potential Impacts of Seyerin~ 

Government Sponsorship. (May). 

Home, David K. 1994. "Evaluation ofthe Role of Race in Mortgage Lending." FDIC Bankin~ 

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. "A Comparison ofthe Community Reinvestment and Equal Credit 

Opportunity Performance ofFannie Mae and Freddie Mac Portfolios by Supplier from 

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

Segal, William and Szymanoski, Edward J. 1996. The Multifamily Secondary Mort~a~e Market: 

The Role ofGovernment-Sponsored Entetprises. Working Paper No. HF-002. Office of 

Policy Development and Research, U.S. Department of Housing and Urban 

Development. 

___. 1997. "Fannie Mae, Freddie Mac, and the Multifamily Mortgage Market." (paper in 

draft form) 

U.S. Department ofHousing and Urban Development. 1995. The Secretary ofHUD's 

Re~ulation ofthe Federal National Mort~a~e Association and the Federal Home Loan 

Mort~a~e Corporatjon, Final Rule, 60 Fed. Reg. 61,646. (December 1). 

___'" 1996. Privatization of Fannie Mae and Freddie Mac: Desirability and Feasibility. A 

HUD Report. Office ofPolicy Development and Research. (May). 

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

Mort~a~e Association and the Federal Home Loan Mort~a~e Corporation. U.S. 

Government Printing Office. (July). 

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

Homeownership." Housin~ Policy Debate, pp. 333-370. 

Yezer, Anthony M. 1995. "Biases in Tests for Redlining by Lenders." Fair Lendin~ Analysis. 

American Bankers Association. 

48 
• Housing Finance 

WORKING PAPER SERIES 

HF-OOI The GSEs' Funding of Affordable Loans, by Harold L. Bunce and Randall M 

Scheessele, December 1996. 

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. Szymanos/d, March 1997. 

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

and efficiency ofthe affordable segment of the 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 enhanc<? 

the affordable segment of the 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 February 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 ofsuch 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 information about any ofthe Housing Finance Working Paper Series, please contact the authors by calling (202) 40 1­

0388 or (202) 708-1455 (TIY) or by writing to the author(s) at: U.S. Department ofHousing and Urban Development, Office 

of Policy Development and Research, 451 7th Street, SW, Washington, DC 20410. 

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

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