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This article uses a unique demonstration program to examine the interaction of CRA-related lending with subprime and FHA lending activity. Specifically, the empirical analysis identifies the extent to which the origination of a CRA mortgage substitutes for FHA and subprime originations during the period 1998–2006. The results suggest that in the years prior to the expansion of the subprime market (1998–2001), the origination of CRA loans carried a small substitution effect with respect to FHA originations, with little to no impact on subprime originations. Conversely, during the years of the subprime industry’s growth (2002–2006), CRA originations substituted at a much higher rate for high-cost originations. These findings are suggestive about the dynamic role of community reinvestment lending within the changing context of the broader mortgage market. To the extent that CRA originations carry lower foreclosure risk than many subprime products, they also carry implications for the extent of neighborhood externalities in the wake of the subprime foreclosure crisis.

This study investigates factors affecting changes in the disparity of home mortgage denial rates between white and minority loan applicants in the U.S. during the period 1991–1997. We develop a two-stage least-squares regression model that incorporates applicant-level characteristics, neighborhood characteristics, regional economic data, and bank-specific data as explanatory variables. Some have argued that mortgage lenders were under increasing pressure from industry regulators to extend additional credit to minorities and low-income groups during the period under study. The model includes each institution's periodic CRA rating as a proxy for regulatory influence. An alternative explanation is that market forces, such as improvements in economic conditions and in bank financial condition and performance, affected default loss estimates and credit standards in a way that disproportionally benefited minority and low-income applicants. The empirical findings are consistent with the latter hypothesis. We conclude that policy makers should consider the impact of market factors when assessing the allocation of mortgage credit in a particular demographic market. The findings also underscore the importance of controlling for lender assessments of credit risk when evaluating compliance with CRA and fair lending statutes.

Homeownership among U.S. families increased notably in recent years, from 63 percent in 1989 to 66.2 percent in 1998. This article examines this trend and the factors contributing to it. We find that (1) homeownership rose for all racial, ethnic, and income groups; (2) the differences in homeownership between minority and nonminority families and between middle-income and lower-income families declined significantly; and (3) changes in family-related characteristics explain homeownership trends among only the top two income quintiles. Among the lower two income quintiles, family-related characteristics explain almost none of the increase in homeownership. This pattern suggests that the favorable economic climate of the last decade, changes in mortgage and housing markets, and changes in the regulations governing those markets account for the increase in homeownership among lower-income families.

Disparities in mortgage lending patterns between minority and nonminority neighborhoods have refocused attention on the Community Reinvestment Act (CRA), a statute designed to encourage lending by financial institutions to nearby lower income neighborhoods. Geographic disparities may derive from discrimination, neighborhood and borrower attributes, as well as regulation itself. This article examines possible spatial impacts of the CRA. Tests for differential lender screening across regulated and nonregulated institutions in five metropolitan areas provide no consistent findings of regulatory effects. The article also tests whether lower income and minority applicants are more likely to be accepted when they apply for loans in lower income and minority neighborhoods. Using data for Boston, evidence is found for concentration effects that may result from institutional factors, information economies, or regulation.

This paper presents the first data on performance of mortgages on residences located in lowand moderate-income neighborhoods of U.S. cities. It provides new data on delinquencies and foreclosure provided by a sample of lenders who are members of the National Association of Affordable Housing Lenders and who have lending programs established pursuant to the Community Reinvestment Act. Sample mortgages on multifamily dwellings perform comparably with national sample data, whereas sample mortgages on single-family mortgages perform much better than comparable national sample data. The findings of this paper demonstrate clearly that lending programs in lowand moderate-income neighborhoods can be viable. The findings do not, however, help to settle the issue as the racial or gender discrimination in mortgage origination.

Schill and Wachter address two important questions: first, do applicant race and the racial composition of the property's neighborhood affect a financial institution's decision to accept a mortgage application, and second, do regulations affect a bank's decision-making? The paper tries to get at the underlying determinants of a bank's loan approval decision. In particular, the authors focus on the possibility that the lender's decision regarding a particular loan might be influenced not only by financial characteristics of the loan itself but also by other regulations to which the lender is subject, e.g., the Community Reinvestment Act (CRA). If a bank will receive CRA credit for making a particular loan, and this credit is valuable to the bank, then the bank might accept the loan when in the absence of CRA it would have rejected it. The authors argue that CRA may lead to a loan concentration effect with banks more likely to approve loans to minorities and low income individuals if the properties to be financed are in minority or low income areas. To study whether CRA affects a bank's lending activity, the authors use a single equation model for loan acceptance. The probability that a mortgage application is accepted is modeled as a function of characteristics of the potential borrower (including race); potential loan terms; and characteristics of the census tract in which the property to be financed is located (including racial composition). The logit regressions estimated using HMDA and Census data for 1990 for five metropolitan areas show that, in general, applications from blacks are less likely to be accepted, but that the racial composition of the property's tract is insignificant. As the authors point out these results do not support the hypothesis that regulation affects acceptance rates. In the second part of the paper the authors use an augmented data set provided by the Boston Fed and find that all else equal, a black applicant's loan is more likely to be accepted if the property is located in a black neighborhood, and a loan from a low-to-moderate income individual is more likely to be accepted if the property is in a low-to-moderate income neighborhood or is in a black neighborhood. These results offer some support for the hypothesis that CRA affects banks' lending decisions and leads to loan concentration. The authors' analysis is quite interesting but their results are difficult to interpret because there are several problems with single equation models. First, they can be subject to simul