Is the CRA Still Relevant to Mortgage Lending?

22 Pages Posted: 6 Sep 2019

See all articles by Paul S. Calem

Paul S. Calem

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Lauren Lambie-Hanson

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: August 30, 2019

Abstract

Market share of conforming-size, home purchase mortgage originations has steadily and substantially shifted from banking institutions to nonbank lenders over recent years. In 2017, nonbanks originated more than 1.8 million conventional and FHA purchase mortgages (53% of the market), as compared to 1.4 million by banks. In contrast, nonbanks originated 30% of purchase-money mortgages (by volume) in 2000 and 24% in 2007. Does the declining role of banking institutions imply that the Community Reinvestment Act (CRA) is becoming less relevant to mortgage lending, since only they are subject to the requirements of the CRA?

We address this question by exploring the changing composition of home purchase mortgage originations since 2000. We focus on the share of FHA and conforming-sized conventional loans to low- or moderate income households or to finance properties in low- or moderate-income neighborhoods, and provide a more detailed examination of the shifts in market composition than previous studies.

Our analysis points to a conclusion that the CRA continues to be relevant to maintaining broad access to mortgage credit. We find that the overall share of loans to low-or moderate-income borrowers has decreased compared to pre-2004, which we view as a reasonable benchmark period. However, this decrease has mostly been offset by an increased share to borrowers (broadly distributed by income) purchasing properties in low- or moderate-income neighborhoods.

Keywords: Mortgages, Community Reinvestment Act, CRA, FHA

Suggested Citation

Calem, Paul S. and Lambie-Hanson, Lauren and Wachter, Susan M., Is the CRA Still Relevant to Mortgage Lending? (August 30, 2019). Available at SSRN: https://ssrn.com/abstract=3445415 or http://dx.doi.org/10.2139/ssrn.3445415

Paul S. Calem

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Lauren Lambie-Hanson

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

HOME PAGE: http://sites.google.com/laurenlambiehanson

Susan M. Wachter (Contact Author)

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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