Subprime Lending and the Community Reinvestment Act

Posted: 8 Aug 2016

See all articles by Kevin A. Park

Kevin A. Park

Federal National Mortgage Association (Fannie Mae)

Date Written: November 1, 2008

Abstract

The Community Reinvestment Act (CRA) encourages banks to expand mortgage lending in the communities in which they have branch offices, subject to maintaining overall levels of financial safety and soundness. Some have argued that this regulation forced banks to lower their credit standards and engage in riskier mortgage products in order to extend credit to lower-income individuals, who perhaps should not have received such loans. However, data provided by the Home Mortgage Disclosure Act (HMDA) reveal that loans covered by the CRA accounted for only a fraction of mortgage lending to lower-income borrowers and neighborhoods. This is especially true of higher-priced, or subprime, mortgages. CRA assessment-area lending accounted for only nine percent of higher-priced loans to lower-income borrowers and neighborhoods, while independent mortgage companies accounted for the majority. Further, the subprime share of assessment-area loans made to lower-income borrowers and lower-income neighborhoods was lower than the subprime share for all loans made between 2004 and 2006.

Keywords: Community Reinvestment Act, banking, financial, regulation, subprime, mortgage, Home Mortgage Disclosure Act

JEL Classification: G21, G23, G28, R30

Suggested Citation

Park, Kevin Alan, Subprime Lending and the Community Reinvestment Act (November 1, 2008). Available at SSRN: https://ssrn.com/abstract=2819184

Kevin Alan Park (Contact Author)

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

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