Finance and Economics Discussion Series: Giving Credit Where Credit Is Due? the Community Reinvestment ACT and Mortgage Lending in Lower-Income Neighb (Paperback) (ISBN-13: 9781288706976)

I identify and quantify the mortgage supply effect of the Community Reinvestment Act (CRA), a law mandating that banks help provide credit in lower-income neighborhoods, by exploiting a discontinuity in the selection rule determining which census tracts CRA targets. Using a comprehensive source of micro data on MSA mortgage applications, I find that CRA affects bank lending primarily in large MSA's, where banks are most scrutinized. The analysis indicates that CRA's effect on bank originations was about 4% between 1994 and 1996, and expanded to 8% in 1997-2002, consistent with the timing of a reform strengthening CRA. I provide some evidence that marginal loans go to atypical, potentially higher-risk borrowers. The results also indicate net "crowd-in" lending to targeted tracts by unregulated institutions rises in post-reform years, in particular to those areas that have had relatively low home purchase volume in the recent past, consistent with a model of information externalities in credit markets. Finally, using changes in tract eligibility status following the release of Census 2000 data as an additional source of variation, I find that CRA increased bank lending to newly targeted tracts in large MSA's by 4-5% in 2004 and 2005.


Author: United States Federal Reserve Board,Neil Bhutta
ISBN-10: 1288706979
ISBN-13: 9781288706976
Publisher: Bibliogov
Language: English
Published: 02/05/2013
Pages: 46
Format: Paperback
Weight: 0.22lbs
Size: 9.69h x 7.44w x 0.10d