Does Giving CRA Credit for Loan Purchases Increase Mortgage Credit in Low-to-Moderate Income Communities?

Kenneth Brevoort

No 2022-047, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Under the Community Reinvestment Act (CRA) banks can fulfill their affirmative obligation to meet local credit needs by lending in low-to-moderate-income (LMI) communities or by purchasing loans made by others. This paper evaluates whether giving CRA credit for purchases has had its intended effect of increasing LMI credit availability by making LMI loans more liquid. Analyses using a regression discontinuity design show that CRA increases loan purchases without affecting LMI originations. Instead, banks purchase loans that are temporarily diverted from the Government Sponsored Enterprises, which provides little benefit to the communities the CRA is meant to help.

Keywords: Community Reinvestment Act (CRA); Mortgage lending; Redlining; Low- and moderate income (LMI) (search for similar items in EconPapers)
JEL-codes: G21 G28 R38 (search for similar items in EconPapers)
Pages: 64 p.
Date: 2022-07-19
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2022-47

DOI: 10.17016/FEDS.2022.047

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