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Community Reinvestment Act lending : is it profitable?

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  • Larry Meeker
  • Forest Myers
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    Abstract

    In 1977, Congress passed the Community Reinvestment Act (CRA) to encourage federally insured depository institutions to lend in low- to moderate-income neighborhoods and to low- to moderate-income people. Since then, the profitability of the many special lending programs designed to achieve these goals has been questioned on both theoretical and practical grounds. ; The study examines the CRA loan profitability issue in the context of home mortgage lending. We surveyed 97 large institutions to explore profitability differences between their CRA and conventional home mortgage lending. ; Twenty-four percent of those answering the survey said their CRA lending was as profitable as their conventional lending. We found these lenders were more likely to treat their CRA lending like they did their conventional lending. Further, they managed to keep origination and servicing costs for their CRA loans similar to those for their conventional loans. These findings have important implications for lenders, community groups, government enhancement providers, and banking regulators as they seek wider markets for CRA loans.

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    File URL: http://www.kansascityfed.org/PUBLICAT/FIP/prs96-2.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Kansas City in its journal Financial Industry Perspectives.

    Volume (Year): (1996)
    Issue (Month): Dec ()
    Pages: 13-35

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    Handle: RePEc:fip:fedkfi:y:1996:i:dec:p:13-35

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    Related research

    Keywords: Community Reinvestment Act of 1977;

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    Cited by:
    1. Glenn B. Canner & Elizabeth Laderman & Andreas Lehnert & Wayne Passmore, 2002. "Does the Community Reinvestment Act (CRA) cause banks to provide a subsidy to some mortgage borrowers?," Finance and Economics Discussion Series 2002-19, Board of Governors of the Federal Reserve System (U.S.).

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