Ann Schnare is vice president of housing economics at the Federal Home Loan Mortgage Corp. In that position, she directs the secondary market agency's research on defaults and prepayments of different loan products. Those findings are used to set prices at which Freddie Mac will buy or securitize the loans,

In addition, Ms. Schnare directs the agency's research on the role played by different factors, such us down payment, debt ratio, and counseling, in determining default.

American Banker talked to Ms. Schnare recently at her of rice in McLean, Va., about the implications of these policies.

Q.: There has been a lot of congressional attention on the fact that your minority lending is lower than the private market's.

SCHNARE: Our minority lending is pretty close to the private markers level.

Let me tell you about some of our analysis that is new. We looked at the minority lending patterns of the primary market and said, "Based on characteristics of different minority populations - their income, their wealth, their age distribution - what would you expect homeownership rates to be for different groups? And then what would you expect the pattern of originations to look like?"

While ownership rates for Asians are still below expected levels, applications and originations are about 60% above what one would expect. It suggests there is a catch-up going on.

For Hispanics, applications are just about right on target, but originations are only about 75% of what you would expect based on this simple model.

So that would suggest that something is wrong, and the differentials are because rejection rates for Hispanics are higher than those for whites.

If you look at blacks, you get a very different story. Originations to blacks are less than half of what one would expect. Even if you raise accept-reject rates to the level you get for whites, they would still be only 60% of what you would expect.

So the low numbers for blacks are being driven by lack of applications, as much as they are by differential accept-reject rates.

Q.: Are you saying that to really boost your numbers for loans to blacks, more blacks would have to walk in the door to lenders?

SCHNARE: Right. This is a much more complicated problem, over which the financial community has only limited influence.

Q.: Are you concerned about defaults in a shrinking market?

SCHNARE: With originations falling so dramatically, you could compete on price or you could compete on quality. We are monitoring quite closely the quality of loans that we get.

Also the growth of third-party originators and lower appreciation of house prices could contribute to defaults.

This could affect the mortgage market in general if it makes incomes less stable. On the other hand, if we continue to recover and have productivity gains, that's a positive.

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