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

See all articles by Vahid Saadi

Vahid Saadi

IE Business School, IE University

Date Written: October 2019

Abstract

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

Saadi, Vahid, Mortgage Supply and the US Housing Boom: The Role of the Community Reinvestment Act (October 2019). SAFE Working Paper No. 155, 2019. Available at SSRN: https://ssrn.com/abstract=2877609 or http://dx.doi.org/10.2139/ssrn.2877609

Vahid Saadi (Contact Author)

IE Business School, IE University

Calle Maria de Molina 12
Madrid, Madrid 28006
Spain

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