The Impact of Secondary Mortgage Market Guidelines on Affordable and Fair Lending: A Reconnaissance from the Front Lines

Two government sponsored enterprises (GSEs): Fannie Mae and Freddie Mac play a dominant role in housing finance markets. As a result, the underwriting standards developed by the GSEs are widely used by lenders, and determine who qualifies for conventional mortgage finance. In recent years, Fannie Mae and Freddie Mac have altered their guidelines, allowed lenders to use credit scores, and introduced automated underwriting systems in order to identify and serve more credit-worthy lower income and minority borrowers. Are these changes making a difference? This paper presents the views and opinions of knowledgeable key informants in four cities who work with the GSEs' guidelines on a daily basis to answer this question. In general, these experts said that the GSEs have improved their service to lower income and minority borrowers. But, many people also said that the GSEs could do better, especially since some lenders are taking even more aggressive steps to serve lower income borrowers. We suggest that more information is needed in order to determine whether these critics of the GSEs are correct.