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Mortgage Lending, Default, and the Community Reinvestment Act

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  • DANIEL RINGO

Abstract

The Community Reinvestment Act (CRA) encourages banks to lend to low‐ and moderate‐income individuals. This paper estimates the effect of the CRA on mortgage lending, exploiting variation in the set of banks whose lending performance is assessed in a given neighborhood due to redefinitions of Metropolitan Statistical Areas in 2003. Incorporating a typical tract into one additional banks' assessment area increased mortgage lending there by approximately 2%. Lending to low‐income borrowers was particularly affected. While income‐conditional default risk was little changed, CRA‐induced loans were riskier than average, due to their borrowers' lower incomes.

Suggested Citation

  • Daniel Ringo, 2023. "Mortgage Lending, Default, and the Community Reinvestment Act," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(1), pages 77-102, February.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:1:p:77-102
    DOI: 10.1111/jmcb.12932
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    References listed on IDEAS

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