Fannie Mae and Freddie Mac came to the defense of their underwriting guidelines, saying that a U.S. housing agency report criticizing them was unscientific and riddled with errors.

The Department of Housing and Urban Development, in what it termed a preliminary study, suggested that the guidelines may have an adverse effect on minority and low-income homebuyers.

One conclusion was that automated underwriting systems and credit scores "may place lower-income borrowers at a disadvantage when applying for a loan, even when they are acceptable credit risks," the report said.

Representatives of the giant secondary-market mortgage companies, which have identified low-income and minority borrowers as an important customer base, were incensed.

"This report cannot be taken seriously. Its conclusions are based on no statistical evidence, no examination of loans or underwriting systems, and no data other than anecdotal conversations with a handful of lenders," said a spokesman for Fannie Mae.

Fannie Mae is "the largest provider of mortgage credit to minority homebuyers in America," he said. Fannie supplied $47 billion of affordable- housing finance to more than 450,000 minority families and households in 1998 - a 76% increase from the company's 1997 total-he said.

A spokeswoman for Freddie Mac characterized the report as "irresponsible" and "riddled with inaccurate statements and allegations that are not supportable."

"Automated underwriting has enabled us to make more loans to low-income and minority homebuyers" and let Freddie qualify borrowers that could not qualify in the past, she said. What's more, Freddie's automated underwriting system, Loan Prospector, is "not tougher on one racial group over another," she said.

The report said that though the government-sponsored enterprises have taken steps to improve their underwriting criteria and serve low- and moderate-income borrowers, they "do not appear to have gone as far as some primary lenders."

Though Fannie and Freddie's guidelines "do not explicitly disqualify borrowers based on their race or ethnicity, they do disqualify borrowers with low incomes, limited wealth, and poor credit histories," the report said. And borrowers with these characteristics are "disproportionately minority." The study, prepared by the Urban Institute in Washington, focuses on single-family underwriting and appraisal guidelines at Fannie and Freddie, said more information is needed to guide the department in regulating the companies.

"HUD's ability to comment on the potential effects of these technological innovations on low- and moderate-income and minority borrowers is hampered" by a lack of data, it said.

"I've never really had a complaint from a staff person that their underwriting guidelines are discriminatory," said Francine Justa, executive director of Neighborhood Housing Services of New York City. Both Fannie and Freddie have been "very open, accommodating, agreeable, and willing to work" with community housing groups, she said.

Automated underwriting is closely monitored by affordable-housing advocates. "Some groups in the field feel like lenders that are relying more heavily on automated underwriting are screening out people who used to qualify," said Debby Goldberg, a reinvestment specialist for the Center for Community Change in Washington.

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