Spatial Variation in GSE Mortgage Purchase Activity

Abstract

This study analyzes the government-sponsored enterprises’ (GSEs’) mortgage purchase patterns over the period from 1993 through 1996 and focuses on their share of the secondary mortgage market in specific market segments identified by borrower income, borrower race, and other indicators of policy interest. Using a database on GSE loan purchases from HUD’s Public Use Database (PUDB) combined with data on non-GSE loan purchases reported under the Home Mortgage Disclosure Act in 44 of the largest metropolitan areas in the country, we provide a picture of GSE mortgage purchase patterns in a variety of urban areas. We report a series of cross-tabulations estimating the market share of each GSE by borrower and neighborhood characteristics, coupled with a logistic regression analysis on the influence of specific borrower and neighborhood characteristics on the probability that a given loan will be purchased by one of the GSEs. These analyses suggest that during the period covered by the study, Fannie Mae and Freddie Mac provided a lower proportion of funding for mortgage lending to lower income and minority borrowers than to higher income or White borrowers. The GSEs also had lower market shares in lower income neighborhoods than in higher income neighborhoods, in central-city areas compared to suburban areas, and in neighborhoods that are geographically targeted according to HUD’s mandates for GSE loan purchase activity compared to nontargeted neighborhoods. The logistic regressions further suggest that the GSEs were more likely to purchase loans in racially mixed tracts than in predominantly White tracts. Finally, we focus on spatial differences in GSE mortgage purchase patterns using clustering methods and find that GSE purchases differ in all included California metropolitan areas (along with Boston, Newark, New York, and Washington) compared with the rest of the metropolitan statistical areas (MSAs) studied. Loans made to borrowers with relatively high loan balances were less likely to be purchased by the GSEs in the California-plus metropolitan areas than in the remaining metropolitan areas. This may reflect the relatively high housing prices in the California-plus