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

Kenneth Brevoort

No 2024-009, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Concerns have lingered since the 2007 subprime crisis that government housing policies promote risky mortgage lending. The first peer-reviewed evidence of a causal effect was published by the Review of Financial Studies in a paper (Saadi, 2020) linking the crisis to changes in the Community Reinvestment Act (CRA) in 1995. A review of that paper, however, shows that it misrepresents the policy changes as having taken effect in mid-1998, 2.5 years after they were implemented. When the correct timing is used, a similar analysis yields no evidence of a relationship between CRA and riskier mortgage lending. Instead, the results are shown to reflect an unrelated confounding event, the first collapse of the U.S. subprime mortgage market following Russia's debt default in August 1998.

Keywords: Community Reinvestment Act (CRA), House prices; Mortgage lending; Subprime crisis (search for similar items in EconPapers)
JEL-codes: G21 G28 R38 (search for similar items in EconPapers)
Pages: 34 p.
Date: 2024-02-06
New Economics Papers: this item is included in nep-ban, nep-cis and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-09

DOI: 10.17016/FEDS.2024.009

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