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

Author

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  • Vahid Saadi
  • Stijn Van Nieuwerburgh

Abstract

This paper studies the role of the Community Reinvestment Act (CRA) in the U.S. housing boom-bust cycle. I find that enhanced CRA enforcement in 1998 increased the growth rate of mortgage lending by CRA-regulated banks to CRA-eligible census tracts. I show that during the boom period house price growth was higher in the eligible census tracts because of the shift in mortgage supply of regulated banks. Consequently, these census tracts experienced a worse housing bust. I find that CRA-induced mortgages were awarded to borrowers with lower FICO scores and were more frequently delinquent.

Suggested Citation

  • Vahid Saadi & Stijn Van Nieuwerburgh, 2020. "Role of the Community Reinvestment Act in Mortgage Supply and the U.S. Housing Boom," The Review of Financial Studies, Society for Financial Studies, vol. 33(11), pages 5288-5332.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:11:p:5288-5332.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa023
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    Cited by:

    1. Stefano Colonnello & Roberto Marfè & Qizhou Xiong, 2021. "Housing Yields," Working Papers 2021:21, Department of Economics, University of Venice "Ca' Foscari", revised 2021.
    2. Sudipta Basu & Justin Vitanza & Wei Wang & Xiaoyu Ross Zhu, 2022. "Walking the walk? Bank ESG disclosures and home mortgage lending," Review of Accounting Studies, Springer, vol. 27(3), pages 779-821, September.

    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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