Government-Sponsored Enterprise Secondary Market Decisions: Effects on Racial Disparities in Home Mortgage Loan Rejection Rates
Cityscape: A Journal of Policy Development and Research, Volume 6, Number 1, 2002
29 Pages Posted: 8 Dec 2013
Date Written: November 1, 2002
This article describes the results of a study into possible racial discrimination on the part of government-sponsored enterprises (GSEs) — specifically Fannie Mae and Freddie Mac — that buy home mortgage loans on the secondary market. The article begins by laying out the problem: Racial minorities are much more likely than members of the majority population to be denied loans, and loan originators point to pressure from the secondary market as the cause. The role of the secondary market in the lending industry and other research into its effects on discrimination is reviewed. The article then outlines the residual difference approach used in this study to measure racial discrimination. This includes estimating loan rejection equations to compute the measure of discrimination both with and without taking into account the GSE effects. (The equations and their derivations appear in an appendix.) The results for five minority groups (Blacks, Asians, Hispanics, American Indians, and others) are described. The study results indicate that a broad generalization of lender discrimination cannot be explained by GSE discrimination.
Keywords: racial discrimination, mortgage loan, rejection rates, racial disparities, government-sponsored enterprises, minorities
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