In its second sweeping study of mortgage insurance credit risk, the Federal Reserve Board has taken a new approach to estimating the impact of holding low-income and minority mortgages.

Using information about loan-to-value ratios, the extent of private mortgage insurance, and historical default and loss severity, researchers converted dollar holdings into "risk dollars" and projected long-term losses on the basis of historical experience.

The study, printed in December's Federal Reserve Bulletin, found that the FHA program bore 63% of the credit risk in loans made to lower-income homeowners in 1995. It also bore 67% of the credit risk in loans to black and Hispanic homeowners that year.

In lower-income and minority-dominant census tracts, the FHA program took on almost two-thirds of the credit risk, the study found. For these groups and neighborhoods, the program took on 57% of the credit risk in loans made in 1995.

However, the Fed study noted, the high FHA share of risk reflects in part the program's historical role as an insurer of high loan-to-value mortgages, and its higher historical default rate.

The latest findings are in line with a similar study made by the Fed last year. Then, Fed researchers looked at the dollar volume and number of loans backed by the FHA program, banks, thrifts, and secondary market agencies. The Fed concluded that the program made more loans than any other market participant to lower-income and minority homeowners.

By contrast, the Department of Veterans Affairs took on 12% of the credit risk for low-income borrowers in 1995; 11% for black or Hispanic borrowers; 10% in lower-income census tracts, and 9% in minority-dominant census tracts.

In all, the department took on 12% of the credit risk in loans made to these groups and neighborhoods in 1995.

The conventional mortgage system took on a smaller share of the overall credit risk than government institutions. Private mortgage insurers took on 10% of the credit risk in loans to these targeted groups, while Fannie Mae and Freddie Mac together assumed 6% and banks and thrifts took on 10%, the study found.

Of course, different market participants will be affected by their own particular underwriting standards, business strategies and charter restrictions, the study pointed out.

For example Fannie Mae, formally the Federal National Mortgage Association, is required to share the risk on all mortgages above 80% LTV with private mortgage insurers, said David Jeffers, vice president of corporate relations.

"Congress has explicitly instructed Fannie Mae to take appropriate risks while providing affordable housing finance for American families," Mr. Jeffers said.

By contrast, the FHA program is the most active lender in the low-income and minority lending markets, if its loan volume is measured in risk dollars.

Thus, 38% of FHA risk dollars in 1995 were tied up in lower-income mortgages, versus 34% for the VA program and 26% for private mortgage insurers. The total was 26% for Fannie and Freddie, the Federal Home Loan Mortgage Corp., and 33% for banks and thrifts.

In addition, 24% of FHA credit risk dollars in 1995 were for loans to black or Hispanic borrowers. For Veterans Affairs the proportion was 18%; for private mortgage insurers, 13%; for Fannie and Freddie, 14%; and for banks and thrifts, 15%.

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