 Bank adaptation to neighborhood change: Mortgage lending and the Community Reinvestment ActHyojung Lee and Raphael W. Bostic Journal of Urban Economics, 2020, vol. 116, issue C Abstract: This research explores whether banks strategically leverage regulatory rules for the Community Reinvestment Act that fix a neighborhood's eligibility status over a decade based on a neighborhood's economic trajectory over that decade. Using 2004–2011 Home Mortgage Disclosure Act (HMDA) data, we find that banks approve loans more frequently in those neighborhoods that are most rapidly improving, and that this effect is stronger if the neighborhoods are CRA-eligible low- and moderate-income (LMI) tracts. We find the “moving up” CRA premium ranges in magnitude from a 2 to 13 percent reduction in the likelihood an application is not approved. These results suggest that banks learn which neighborhoods are most rapidly improving and funnel activity to those places to reduce default risk while complying with the fair lending regulation. The results imply a potential unanticipated consequence of the regulation is that it changes the distribution of resources within the target population. Keywords: Mortgage Lending; Bank Adaptation; Neighborhood Change; Community Reinvestment Act (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:116:y:2020:i:c:s0094119019300889 DOI: 10.1016/j.jue.2019.103211 Access Statistics for this article Journal of Urban Economics is currently edited by S.S. Rosenthal and W.C. Strange More articles in Journal of Urban Economics from Elsevier |
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