The two huge companies that dominate the secondary market for home loans, Fannie Mae and Freddie Mac, have identified minorities as a growth sector for the mortgage industry, yet both continue to battle allegations by consumer advocates that their policies foster illegal discrimination.

This week the spotlight focused on Freddie Mac, the smaller of the two agencies, which was hit by a lawsuit over alleged employment discrimination and the entrance of the Rev. Jesse Jackson into the fray.

Freddie Mac said the employment suits were "groundless," but acknowledged it has lagged behind its larger rival in buying loans to minorities.

"It is a fact that our purchases of minority mortgages are lower than Fannie Mae's, as a percent of our business," said a spokeswoman for Freddie Mac. "I think that's why it has become an issue for us."

Mr. Jackson said the issues of fair employment and fair-lending need to be addressed, and that he would take up the matters with President Clinton and with Freddie Mac chairman Leland Brendsel.

"We must put it on the front burner in full view," Mr. Jackson said. "It perpetuates the race gap. It's a time of great growth, but it's not being shared."

Freddie Mac and Fannie Mae have introduced programs designed to increase lending to minorities-most notably easing requirements to allow 3% down payments that can be paid through gifts or grants.

But lenders interviewed this week said they still prefer to reach minorities through the government's FHA program-a theme that may rankle Fannie and Freddie's lobbyists, who are fighting against a proposal to expand the lending authority of the Department of Housing and Urban Development's FHA program. And these lenders did note a gap between Fannie and Freddie in terms of reaching out to minority lenders.

"We probably are using more FHA than conventional products" to reach minority borrowers, said Daniel Russell, executive vice president for affordable housing at Norwest Mortgage.

Fannie and Freddie are both "really trying to position all of their specialized affordable housing products as products that meet the needs of ethnic homebuyers," Mr. Russell said. But he added, "I'd like to see a bit more investment on the part of the agencies into partnering with lenders."

Despite Mr. Jackson's calls for investors to disinvest, shares in Freddie Mac barely budged. Still, the controversy gets to the heart of Fannie and Freddie's role as government-sponsored enterprises. The two are private companies with allegiance to their shareholders, but they also have a public mission to foster homeownership for underserved people.

"With all these special loan programs that have been created that are more and more competitive with FHA, we still see that Fannie and Freddie's purchases are relatively low for minorities, lower than the market," said Calvin Bradford, president of Bradford & Associates.

The big issue for Fannie and Freddie has been "how to get their underwriting guidelines established so they work for people who have different economic circumstances" than borrowers who meet their traditional standards, said Mr. Russell of Norwest Mortgage.

Mr. Russell said that historically, the problem has been with differences in application rates. In the past, he said, minorities were not even applying for loans.

"When you talk to the agencies, there is a real push on their part to purchase as many loans made to ethnic minorities as they can get," Mr. Russell said.

"What drives the particular investor, whether its Fannie, Freddie, or FHA, is the need of the borrower in terms of down payment and or other parameters of the loan," said James P. Linnane, vice president and New York tri-state district manager at Dime Bancorp.

Fannie Mae, through its Fannie Mae Foundation, conducts outreach programs that focus on "directly marketing to consumers," Mr. Russell said. "Fannie Mae is motivating people" to consider homeownership, he said.

Under chairman James A. Johnson, Fannie Mae has been known to speak out on behalf of minority homeownership, and it recently named an African- American, Franklin D. Raines, to succeed him.

Freddie Mac's chairman, Leland Brendsel, has also recently emphasized his company's efforts to enter the subprime market, as a means for lenders to build business in an sector that has more growth potential than the market for mortgages among whites.

But Fannie and Freddie do resonate differently with lenders.

"I have not seen Freddie Mac do any direct advertising to deliver a message to consumers, ethnic minority or otherwise, about homeownership, as Fannie Mae has done," Mr. Russell said.

D. Steve Boland, first vice president and director of fair-lending at Countrywide Home Loans Inc. in Calabasas, Calif., noted that minorities span the income spectrum. The critical question for lenders, he said, is "Do the different products serve different income strata?"

Countrywide said that in 1996 over a third of its FHA loans were made to minority and lower-income borrowers, and that almost 20% of its conventional loans went to minority and lower-income borrowers. Countrywide did not provide more specific information to separate minority from lower- income borrowers or to compare its number of FHA loans to conventional loans.

FHA loans make up only a small percentage of Dime's business-less than 1% in April-but a significant percentage is minority lending, Mr. Linnane said. And he said 75% of Dime's loans to minorities are going to Fannie and Freddie.

But Dime has also created its own product specifically designed for low- and moderate-income borrowers in New York, and this product is attracting a lot of minority borrowers, he said.

Lenders, Fannie, and Freddie agree that FHA loans play a significant role in the marketplace. For Dime, FHA loans are a "good tool" where credit is less than perfect, Mr. Linnane said.

He said FHA loans also enable lenders to take a slightly more aggressive strategy, because of the more relaxed credit focus-FHA loans focus on the last 12 months of credit history, whereas Fannie and Freddie focus on 24 months.

"Fannie does tend to have more community homebuyer products, more options than Freddie, but I haven't seen any statistics that separate the two with minority lending," Mr. Linnane said

First Indiana Bank in Indianapolis has found that FHA loans are more attractive from the borrowers' and realtors' standpoint because of the underwriting guidelines, said Dan Dierlam, vice president of community lending. First Indiana sells loans to both Fannie and Freddie, and has increased its minority lending over the last five years from an application and closing perspective.

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