ABSTRACT
Discrimination can be investigated at the levels of the individual lender or the system as a whole. This chapter examines the issue from a perspective somewhere in between: specifically, the effect of the secondary market on discrimination. It presents a macro model of a mortgage market, segmented by race, into which a secondary market is added. The model discusses conditions under which a secondary market might help or hurt minority borrowers. Secondary mortgage markets have the effect of increasing the flow of funds into mortgage markets. The chapter describes the evolution of the secondary market and incentive issues with which it must cope. It looks at empirical evidence that may potentially reveal discrimination, including examining Home Mortgage Disclosure Act (HMDA) data to compare loans sold into the secondary market with all loans originated, as well as analyzing credit risk. The chapter examines HMDA data, comparing loans sold into the secondary market with those made in the market as a whole.
