In a new report to Sen. Carol Moseley-Braun, D-Ill., Freddie Mac reiterated that its automated underwriting technology does not discriminate against minority and low-income mortgage applicants.
The report is designed to address Sen. Moseley-Braun's concerns, voiced at an oversight hearing last spring, that the new technology might unfairly bar low-income and minority applicants from buying homes.
Freddie Mac said last week that the performance of loans purchased in 1994 demonstrates that its Loan Prospector system accurately grades the riskiness of mortgages for borrowers of all income, racial, and ethnic groups.
Thus, African-American borrowers who received the highest-risk rating lost their homes to foreclosure 14 times as frequently as African-Americans identified as low-risk, the agency said.
Among Hispanic and white borrowers similar relationships held, according to Freddie Mac, known formally as the Federal Home Loan Mortgage Corp.
Loans to the highest-risk Hispanic borrowers were foreclosed more than 18 times as frequently as loans to low-risk Hispanic borrowers. Among white borrowers, loans to the highest-risk group foreclosed 10 times as often as those to low-risk borrowers.
Freddie's automated system either approves the loan, refers it to an underwriter with advice on what could make the loan risky, or - for the highest-risk loans - slaps on a "caution" label.
"Regardless of income, borrowers in this sample who received a 'caution' classification faced far higher foreclosure rates than borrowers classified as 'refer' or 'accept,'" the report said.
Freddie Mac cited recent research from Fair, Isaac and Co. that shows credit scores - a key feature of the automated approach - also do not discriminate against minority borrowers.
Some critics have argued that the scores are biased because not enough data about minority borrowers are factored into the models.
Fair, Isaac found that 7.8% of adults 18 years of age and older live in "high minority areas." Those areas are defined as ZIP codes where African- Americans and Hispanics make up 70% or more of the population.