Does the Community Reinvestment Act (CRA) Cause Banks to Provide a Subsidy to Some Mortgage Borrowers?
Sep. 2004
Abstract
The Community Reinvestment Act (CRA) encourages banks and other depository institutions to lend to lower income households and to households of any income who live in a lower income area; non-depository lenders, such as independent mortgage bankers, are not directly affected by the CRA. Although the CRA applies to many types of loans (and banking services), we concentrate on mortgage lending; in particular, we test whether the CRA leads depository institutions to cross-subsidize from non-CRA-eligible borrowers to CRA-eligible borrowers. We construct a novel dataset containing mortgage terms and borrower characteristics; in addition, we use auxiliary data to bound the selection bias in our estimates. We find that the CRA leads to economically insignificant changes in mortgage rates for CRA-eligible mortgage borrowers. Our data also provides evidence that banks play a different role from mortgage bankers in mortgage markets.
Journal of Economic Literature classification numbers:
G21, G28, H23, R21
Keywords:
Community Reinvestment Act, mortgages, bank regulation
Full Text:
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Last Modified: Mon Sep 20 15:09:50 2004 GMT
Created By: Andreas W. Lehnert <Andreas@marginalq.com>