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Community Reinvestment Act lending : is it profitable?

Author

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  • Larry Meeker
  • Forest Myers

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.

Suggested Citation

  • Larry Meeker & Forest Myers, 1996. "Community Reinvestment Act lending : is it profitable?," Financial Industry Perspectives, Federal Reserve Bank of Kansas City, issue Dec, pages 13-35.
  • Handle: RePEc:fip:fedkfi:y:1996:i:dec:p:13-35
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    File URL: http://www.kansascityfed.org/PUBLICAT/FIP/prs96-2.pdf
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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 (US).

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    Keywords

    Community Reinvestment Act of 1977;

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