A Study of Market Sector Overlap and Mortgage
Lending (May 2005, 158 p)
This recently completed study investigates the amount of
overlap between two mortgage market sectors, the Federal Housing
Administration (FHA) and the Government-Sponsored Enterprises
(GSEs), Fannie Mae and Freddie Mac. In this case, overlap
refers to loans that could have been handled in either market.
Previously collected loan-level data provided the basis for
estimating the overlap within 11 metropolitan statistical
areas in 1998-2000. Compared to GSE-purchased loans, FHA-insured
loans had lower borrower credit scores and higher loan-to-value
ratios, and were more strongly targeted to lower-income and
minority borrowers. However, the study found that although
the two mortgage market sectors mostly serve distinct segments
of the population, about 10 percent of FHA loans had risk
characteristics similar to loans purchased by the GSEs.
The study also examined overlap between other pairs of mortgage
market sectors. It found that 15 percent of FHA loans had
risk characteristics similar to loans insured by private mortgage
insurance companies, and only 13 percent of FHA loans had
risk characteristics similar to subprime loans, a smaller
than expected degree of overlap that is accounted for by the
typically smaller downpayments on FHA loans compared to subprime
loans.
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