Government-Sponsored Enterprise Secondary Market Decisions: Effects
on Racial Disparities in Home Mortgage Loan Rejection Rates
Samuel L. Myers, Jr.
Hubert H. Humphrey Institute of Public Affairs
University of Minnesota
Abstract
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.1
Government-Sponsored
Enterprise Secondary Market Decisions: Effects on Racial Disparities
in Home Mortgage Loan Rejection Rates (*.pdf)
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