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Research Focus
The Spatial Distribution of Secondary Mortgage Market Purchases Made in
Support of Affordable Housing
Analysis of twenty large metropolitan area shows that the spatial distribution of purchases made by Fannie Mae and Freddie Mac in support of the Low and Moderate-Income Housing goals does not match the spatial distributions of low-and moderate- income households that apply for or take out a mortgage. Multiple regression analysis finds that both neighborhood traits and the risk distribution among goal-eligible applicants (or borrowers) contribute to a spatial mismatch of purchase activity with goal eligible applications and originations. The most robust finding is consistent with a policy of the two GSEs targeting the purchase of Low and Moderate Income Housing Goal loans in relatively high income tracts. Controlling for FHA/VA activity and a host of other variables, the higher is a census tract’s income relative to the median for its metropolitan area, the higher is the GSE purchase rate in the tract relative to that of the overall metropolitan area. Race effects are less robust across metropolitan areas, with the bulk of the evidence suggesting that suburban, not central city tracts with relatively high concentrations of African American households are more likely to have relatively low GSE purchase rates of Low and Moderate-Income Housing Goal loans. Finally, our analysis suggests that a stronger FHA presence increases the perceived risk of a neighborhood in most metropolitan areas, as FHA loans have a higher default risk and a larger FHA presence reduces the origination rate of conventional loans.
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