CRA Lending in a Changing Context: Evidence of Interaction with FHA and Subprime Originations

Posted: 24 Mar 2012

See all articles by Jonathan Spader

Jonathan Spader

Harvard University - Joint Center for Housing Studies

Roberto Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning

Date Written: March 22, 2012

Abstract

This article uses a unique demonstration program to examine the interaction of CRA-related lending with subprime and FHA lending activity. Specifically, the empirical analysis identifies the extent to which the origination of a CRA mortgage substitutes for FHA and subprime originations during the period 1998-2006. The results suggest that in the years prior to the expansion of the subprime market (1998-2001), the origination of CAP loans carried a small substitution effect with respect to FHA originations, with little to no impact on subprime originations. Conversely, during the years of the subprime industry's growth (2002-2006), CAP originations substituted at a much higher rate for high-cost originations. These findings are suggestive about the dynamic role of community reinvestment lending within the changing context of the broader mortgage market. To the extent that CRA originations carry lower foreclosures risk than many subprime products, they also carry implications for the extent of neighborhood externalities in the wake of the subprime foreclosure crisis.

Keywords: community reinvestment act, mortgage origination

Suggested Citation

Spader, Jonathan and Quercia, Roberto G., CRA Lending in a Changing Context: Evidence of Interaction with FHA and Subprime Originations (March 22, 2012). Journal of Real Estate Finance and Economics, Vol. 44, No. 4, 2012. Available at SSRN: https://ssrn.com/abstract=2027566

Jonathan Spader (Contact Author)

Harvard University - Joint Center for Housing Studies ( email )

1033 Massachusetts Ave, 5th Floor
Cambridge, MA 02138
United States

Roberto G. Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning ( email )

New East Building
Chapel Hill, NC 27599-3140
United States
919-962-4766 (Phone)
Not available (Fax)

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