Reexamining the 'Role of the Community Reinvestment Act in Mortgage Supply and the U.S. Housing Boom'

34 Pages Posted: 27 Feb 2024

See all articles by Kenneth P. Brevoort

Kenneth P. Brevoort

Board of Governors of the Federal Reserve System

Date Written: February, 2024

Abstract

Concerns have lingered since the 2007 subprime crisis that government housing policies promote risky mortgage lending. The first peer-reviewed evidence of a causal effect was published by the Review of Financial Studies in a paper (Saadi, 2020) linking the crisis to changes in the Community Reinvestment Act (CRA) in 1995. A review of that paper, however, shows that it misrepresents the policy changes as having taken effect in mid-1998, 2.5 years after they were implemented. When the correct timing is used, a similar analysis yields no evidence of a relationship between CRA and riskier mortgage lending. Instead, the results are shown to reflect an unrelated confounding event, the first collapse of the U.S. subprime mortgage market following Russia's debt default in August 1998.

Keywords: Community Reinvestment Act (CRA), House prices, Mortgage lending, Subprime crisis

JEL Classification: G21, G28, R38

Suggested Citation

Brevoort, Kenneth, Reexamining the 'Role of the Community Reinvestment Act in Mortgage Supply and the U.S. Housing Boom' (February, 2024). FEDS Working Paper No. 2024-9, Available at SSRN: https://ssrn.com/abstract=4738057 or http://dx.doi.org/10.17016/FEDS.2024.009

Kenneth Brevoort (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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