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"Mortgage Market Overlap"

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The Department of Housing and Urban Development announces
the release of a new research report titled "A Study of
Market Sector Overlap and Mortgage Lending." This
recently completed study investigates the amount of
overlap between two mortgage market sectors, the Federal
Housing Administration (FHA) and the Government-Sponsored
Enterprises (GSE) 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. Compared to GSE-purchased loans, FHA-
insured loans had lower borrower credit scores and higher
loan-to-value ratios, and were targeted to lower-income
and minority borrowers. However, the study found that the
overlap between the FHA and GSE mortgage markets has
risen as GSEs become more competitive in purchasing loans
from low-income and minority borrowers. Although the two
mortgage market sectors mostly serve distinct segments of
the population, about 10 percent of the FHA borrowers
could have qualified for conventional loans, in that they
had risk characteristics similar to GSE borrowers.

In another component of the study, a default risk score
was estimated (based on FHA loan performance), and
applied to Home Mortgage Disclosure Act (HMDA) loans made
between 1998 and 2000. A high correlation was found
between the default risk scores and FICO (Fair Isaac and
Company) credit scores, although a better prediction of
risk comes from using all information concerning
borrower, loan, property, and neighborhood
characteristics.

The study can be ordered for a nominal fee by calling HUD
USER at 1-800-245-2691.


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