The Patterns of GSE Participation in Minority and Racially Changing Markets Reviewed From the Context of the Levels of Distress Associated With High Levels of FHA Lending

Abstract

This study employs a case study methodology to analyze government-sponsored enterprise (GSE) lending in minority and racially changing areas, focusing specifically on the Washington, D.C. and Chicago metropolitan areas during 1994‐96. Sources include Home Mortgage Disclosure Act data on mortgage lending, Mortgage Insurance Companies of America data on private mortgage insurance, U.S. Department of Housing and Urban Development Section 335 data on locations and delinquency status of Federal Housing Administration (FHA) loans, and the 1990 census of housing and population. There are two main findings regarding GSE lending in minority and racially changing areas. First, the structure of the housing markets in terms of the patterns of housing values, incomes, and the differential distribution of minority populations across existing and newly developing areas affects the patterns of GSE purchases. Second, the particular constellation of lenders in the local markets influences the relative levels of FHA and GSE lending across different markets. In different markets the largest and most influential FHA, GSE, and minority lenders may be essentially the same or quite different. Individual lenders and small groups of lenders can significantly affect lending and GSE purchasing patterns.