Mortgage Supply and the US Housing Boom: The Role of the Community Reinvestment Act
80 Pages Posted: 1 Dec 2016 Last revised: 5 Feb 2020
Date Written: October 2019
This paper studies the role of the Community Reinvestment Act (CRA) in the US housing boom-bust cycle. I find that the enhancement in CRA enforcement in 1998 increased the growth rate of mortgage lending by CRA-regulated banks to CRA-eligible census tracts. I show that during the boom period house price growth was higher in the eligible census tracts because of the shift in mortgage supply of regulated banks. Consequently, these census tracts experienced a worse housing bust. I find that CRA-induced mortgages went to borrowers with lower FICO scores and encountered more frequent delinquencies.
Keywords: The Community Reinvestment Act, Mortgage supply, House prices, Homeownership
JEL Classification: G28, G21, R21, R31
Suggested Citation: Suggested Citation