The Community Reinvestment Act: What Do We Know, and What Do We Need to Know?

ABSTRACT

The Community Reinvestment Act (CRA) was enacted in 1977 to encourage depository institutions to meet the credit needs of their communities. In 2018, the Office of the Comptroller of the Currency put out an advance notice of proposed rulemaking to gather feedback on how the CRA could be modernized. The 1,485 comment letters make clear there is no consensus on what modernization means. We argue that any revision of the regulations would be more effective if it had strong grounding in facts about current CRA lending. Using 2016 Home Mortgage Disclosure Act data and 2016 Federal Financial Institutions Examination Council loan files, we assess what we know about CRA lending from existing data sources and what we could analyze if we had more data and increased transparency on the data that are already collected.

KEYWORDS:

• Community Reinvestment Act (CRA) lending
• mortgage lending
• small business lending
• community development lending
• low-and moderate-income (LMI) neighborhoods and LMI borrowers

Acknowledgments

We are very grateful to Buzz Roberts, Ellen Seidman, and Susan Watcher and to two anonymous referees for their helpful comments and suggestions. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

1. The data in this article are drawn from Goodman et al. (2018), which uses 2016 data and was submitted as a comment letter in response to the OCC’s ANPR.

2. There were 723 institutions with CRA files. Not all these institutions are HMDA reporters. We matched 385 of the CRA loan files to HMDA data, capturing 1.91 million of the 3.49 million single-family loans from banks in the HMDA data.

3. This situation will not improve with the release of the more complete 2018 data. There will be no common respondent identifier between the two data sets.

4. FFIEC files also provide data on loans broken down by the loan’s original amount: $100,000 or less, $100,001 to $250,000, and $250,000 to $1 million. We did not use this information.

5. Using the narrow definition, small business lending is only slightly smaller than single-family mortgage lending that counts for CRA purposes.

6. See, for example, Benson F. Roberts (on behalf of the National Association of Affordable Mortgage Lenders), comment letter to the Office of the Comptroller of the Currency, November 19, 2018.

7. “Quick Facts: Resident Demographics,” National Multifamily Housing Council, accessed August 16, 2019, https://www.nmhc.org/research-insight/quick-facts-figures/quick-facts-resident-demographics/

8. Although we did not explicitly tie this to assessment areas, if a bank had a major presence in an area, that area would inevitably be considered part of its assessment area.

Additional information

Funding

This work was supported by the National Association of Affordable Mortgage Lenders.

Notes on contributors

Laurie Goodman

Laurie Goodman is the founder and Co-Center Director of the Housing Finance Policy Center at the Urban Institute. Prior to joining Urban, Goodman spent 30 years as a mortgage backed securities analyst and research department manager at a number of Wall Street firms, including Amherst Securities, where she developed a reputation for her analysis of housing policy issues, and UBS, where she was a top ranked research analyst. She has published more than 200 journal articles and co-authored/co-edited five books. She holds a BA in Mathematics from the University of Pennsylvania, and an AM and PhD in Economics from Stanford University.

Jun Zhu

Jun Zhu is a visiting assistant professor with the Finance Department at Indiana University–Bloomington (IU) and a Nonresident Fellow with the Housing Finance Policy Center (HFPC) at the Urban Institute. Before joining IU, she was a principal research associate with HFPC at the Urban Institute, and a senior economist in the Office of the Chief Economist at Freddie Mac. She has published extensively on housing finance issues. Zhu holds a PhD in real estate and a minor in economics from the University of Wisconsin–Madison, a MS in real estate from Tsinghua University and a BS in real estate and a minor in computer science from Huazhong University of Science and Technology.

John Walsh

John Walsh is a research assistant in the Housing Finance Policy Center at the Urban Institute. Before joining Urban, he interned with the U.S. Department of Housing and Urban Development in the financial management division. Walsh graduated from Indiana University’s School of Public and Environmental Affairs with a degree in policy analysis, a minor in economics, and a certificate in applied research and inquiry. As a senior, he coauthored his thesis on the Community Reinvestment Act and its impact on mortgage outcomes during the 2008 economic recession.