The Intra-Metropolitan Area Distribution of GSE Mortgage Purchases Made in Support of Low-income Related Goals

Even though the GSEs, Fannie Mae and Freddie Mac, meet their low-income related housing goals in aggregate, the spatial distribution of their loan purchases within metropolitan areas does not closely match the spatial distribution of households qualified to borrow under the goals. Tracts located in the central cities of their metropolitan areas are more likely to be ‘under-represented’ in the sense that the tracts’ shares of qualifying loans purchased by the GSEs are less than the tracts’ shares of qualified borrowers. The GSEs also fulfill their low income-related mortgage purchase requirements disproportionately by buying qualifying loans issues in tracts with higher ownership rates; One motivation may be risk mitigation, as expected default costs probably are lower in neighborhoods with more, rather than less, ownership. In suburbs, the greater the minority population share at the tract level, the lower the ratio of GSE purchase share to qualified borrower share in the tract; there is no evidence of a correlation with minority population share among central city tracts. GSE loan purchases are high relative to the qualified pool of households in tracts with relatively high incomes. This is consistent with a risk mitigation ‘cherry picking’ story, as the downside to default almost certainly is lower in higher income neighborhoods. The Intra-Metropolitan Area Distribution of GSE Mortgage Purchases Made in Support of Low-income Related Goals