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Community Reinvestment and Credit Risk: Evidence from an Affordable‐Home‐Loan Program

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  • Paul S. Calem
  • Susan M. Wachter

Abstract

This study examines the performance of home purchase loans originated by a major depository institution in Philadelphia under a flexible lending program between 1988 and 1994. We examine long‐term delinquency in relation to neighborhood housing market conditions, borrower credit‐history scores and other factors. We find that likelihood of delinquency declines with increasing neighborhood housing market activity. Also, likelihood of delinquency is greater for borrowers with low credit‐history scores and those with high ratios of housing expense to income, and when the property is unusually expensive for the neighborhood where it is located.

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  • Paul S. Calem & Susan M. Wachter, 1999. "Community Reinvestment and Credit Risk: Evidence from an Affordable‐Home‐Loan Program," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(1), pages 105-134, March.
    • Handle: RePEc:bla:reesec:v:27:y:1999:i:1:p:105-134
    DOI: 10.1111/1540-6229.00768
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    Cited by:

    1. Dror Parnes, 2023. "Typical States and Their Risks for Mortgage Loans," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(2), pages 395-415, June.
    2. Harrison, David M., 2001. "The Importance of Lender Heterogeneity in Mortgage Lending," Journal of Urban Economics, Elsevier, vol. 49(2), pages 285-309, March.
    3. Yaseen Ghulam & Sophie Hill, 2017. "Distinguishing between Good and Bad Subprime Auto Loans Borrowers: The Role of Demographic, Region and Loan Characteristics," Review of Economics & Finance, Better Advances Press, Canada, vol. 10, pages 49-62, November.
    4. Bandyopadhyay, Arindam & Saha, Asish, 2009. "Factors Driving Demand and Default Risk in Residential Housing Loans: Indian Evidence," MPRA Paper 14352, University Library of Munich, Germany.
    5. Michelle A. Danis & Anthony Pennington-Cross, 2005. "A dynamic look at subprime loan performance," Working Papers 2005-029, Federal Reserve Bank of St. Louis.
    6. James A Kahn & Benjamin S Kay, 2020. "The impact of credit risk mispricing on mortgage lending during the subprime boom," BIS Working Papers 875, Bank for International Settlements.
    7. Bandyopadhyay, Arindam & Kuvalekar, S V & Basu, Sanjay & Baid, Shilpa & Saha, Asish, 2008. "A Study of Residential Housing Demand in India," MPRA Paper 9339, University Library of Munich, Germany.
    8. Danis, Michelle A. & Pennington-Cross, Anthony, 2008. "The delinquency of subprime mortgages," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 67-90.
    9. James A. Kahn & Benjamin S. Kay, 2019. "The Impact of Credit Risk Mispricing on Mortgage Lending during the Subprime Boom," Finance and Economics Discussion Series 2019-046, Board of Governors of the Federal Reserve System (U.S.).
    10. Neil Bhutta, 2011. "The Community Reinvestment Act and Mortgage Lending to Lower Income Borrowers and Neighborhoods," Journal of Law and Economics, University of Chicago Press, vol. 54(4), pages 953-983.
    11. Neil Bhutta, 2008. "Giving credit where credit is due? the Community Reinvestment Act and mortgage lending in lower-income neighborhoods," Finance and Economics Discussion Series 2008-61, Board of Governors of the Federal Reserve System (U.S.).

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