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The Community Reinvestment Act and Targeted Mortgage Lending

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  • DREW DAHL
  • DOUGLAS D. EVANOFF
  • MICHAEL F. SPIVEY

Abstract

We analyze residential mortgage lending by banks in periods surrounding upgrades or downgrades in their ratings under the Community Reinvestment Act (CRA). Empirical results indicate that upgraded banks had higher relative levels of lending than did downgraded banks prior to ratings changes. Additionally, both downgraded and upgraded banks increased lending following implementation of reforms to the CRA in the 1990s, which were intended to more closely align rating assessment with lending outcomes. Little support is provided, on the other hand, for a hypothesis that banks respond to downgrades by increasing lending (despite apparent incentives for them to do so).

Suggested Citation

  • Drew Dahl & Douglas D. Evanoff & Michael F. Spivey, 2010. "The Community Reinvestment Act and Targeted Mortgage Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1351-1372, October.
    • Handle: RePEc:wly:jmoncb:v:42:y:2010:i:7:p:1351-1372
    DOI: 10.1111/j.1538-4616.2010.00344.x
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    References listed on IDEAS

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    1. Michael H. Schill & Susan M. Wachter, 1994. "Borrower and neighborhood racial and income characteristics and financial institution mortgage application screening," Proceedings, Federal Reserve Bank of Philadelphia, pages 223-243.
    2. Griffith L. Garwood & Dolores S. Smith, 1993. "The Community Reinvestment Act: evolution and current issues," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 251-267.
    3. Drew Dahl & Douglas Evanoff & Michael Spivey, 2003. "The Timing and Persistence of CRA Compliance Ratings," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(2), pages 113-132, April.
    4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    5. Douglas Evanoff & Lewis Segal, 1997. "Strategic Responses to Bank Regulation: Evidence From HMDA Data," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 69-93, February.
    6. Drew Dahl & Douglas D. Evanoff & Michael F. Spivey, 2002. "Community Reinvestment Act Enforcement and Changes in Targeted Lending," International Regional Science Review, , vol. 25(3), pages 307-322, July.
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    Cited by:

    1. Sumit Agarwal & Gene Amromin & Itzhak Ben-David & Douglas D. Evanoff, 2016. "Loan Product Steering in Mortgage Markets," NBER Working Papers 22696, National Bureau of Economic Research, Inc.
    2. Panagiotis Avramidis & George Pennacchi & Konstantinos Serfes & Kejia Wu, 2022. "The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(8), pages 2301-2340, December.

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