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Urban Institute: GSEs Underserve Weaker Credit Mortgage Applicants

2015 HUD

Recently, Dave Stevens, head of the Mortgage Bankers Association, revealed a shocking statistic—the GSEs denied 56 percent of African American mortgage applicants. Many, including Fannie Mae [1], responded that the MBA's numbers overestimated the denial rate for minorities. A new blog post [2] from the Urban Institute [3] commented that the MBA’s denial rate wasn't too high; rather, it was much too low.

The group examined the credit profiles of applicants, noting that the denial rate really only matters for weaker credit profile applicants—they are more likely to get denied. The Urban Institute used Home Mortgage Disclosure Act (HMDA) as the source for their mortgage application analysis.

The group found that at least 16 percent of applicants were denied GSE loans for purchase of an owner-occupied property in 2012, according to HMDA. However, when compared to CoreLogic's data, the Urban Institute found the denial rate for low credit profile applicants for GSE loans was at least 54 percent.

By race in 2012, 40 percent of all African Americans and 27 percent of all Hispanic applicants were denied loans, compared to the 14 percent of white and 15 percent of Asian applicants who were denied.

But tellingly, weaker credit profile applicants were denied at a significantly higher rate than other applicants.

The Urban Institute commented, "Yet of low credit profile applicants, at least 75 percent of African American applicants were denied GSE loans, 67 percent of Hispanic, 50 percent of white and 55 percent of Asian. In 2001 (a pre-bubble year), at least 37 percent of African Americans were denied GSE loans, as were 25 percent of Hispanics, 15 percent of whites and 11 percent of Asians."

The Urban Institute's data shows that the GSE market is excluding a majority of borrowers with weaker credit profiles, and isn’t strictly limited to African American borrowers as evidenced by Stevens' remarks.