“Don't Know What You Got Till It's Gone”—The Community Reinvestment Act in a Changing Financial Landscape

Abstract

This study provides new evidence on the impact of the Community Reinvestment Act (CRA) on mortgage lending by taking advantage of an exogenous policy shock in 2014, which caused significant changes in neighborhoods’ CRA eligibility in the Philadelphia market. The loss of CRA coverage leads to an over 10 percent decrease in purchase originations by CRA-regulated lenders. While nondepository institutions replace approximately half, but not all, of the decreased lending, their increased market share was accompanied by a greater involvement in riskier and more costly FHA lending. This study demonstrates how different lenders respond to the incentive of CRA credit.

Keywords: Community Reinvestment Act, Housing, Bank Lending, Mortgage

JEL Classification: G21, G28, D14, G23