Secondary Mortgage Market

Information on Underwriting and Home Loans in the Atlanta Area Gao ID: RCED-91-2 November 28, 1990

Pursuant to a congressional request, GAO examined home secondary mortgage lending, focusing on whether: (1) underwriting criteria of secondary market institutions and private mortgage insurers contributed to racial discrimination; and (2) statistical evidence of discrimination existed in the Atlanta, Georgia, area by home mortgage lenders that were not depository institutions.

GAO found that: (1) underwriting guidelines for the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Departments of Housing and Urban Development (HUD) and Veterans Affairs (VA) were built around certain risk assessments; (2) in 80 Atlanta zip code areas, Fannie Mae and the Freddie Mac purchased 45,700 mortgage loans, and HUD insured 11,527 mortgage loans in the 2-year period ending June 30, 1989; (3) Fannie Mae, Freddie Mac, and HUD purchased or insured almost twice as many home mortgage loans in predominantly white areas as in predominantly minority areas; (4) in the areas with 61 percent to 100 percent white population, Fannie Mae, Freddie Mac, and HUD purchased or insured 13.9 loans per 100 homeowners; (5) in areas with 61 percent per 100 percent minority population, the agencies' loan activity was 7.0 per 100 homeowners; (6) the agencies loans rates were 1.8 times greater in areas with average income levels of $35,000 to $74,000 than they were in areas with average income levels of $7,500 to $34,999; (7) home prices were generally higher in predominantly white and higher income areas; and (8) for the 5-county area, 53 percent of the loans VA guaranteed were for white individuals and 47 percent were for minorities.

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