Is the CRA Still Relevant to Mortgage Lending?

Abstract

Market share of conforming-size, home purchase mortgage originations has steadily and substantially shifted from banking institutions to nonbank lenders over recent years. In 2017, nonbanks originated more than 1.8 million conventional and FHA purchase mortgages (53% of the market), as compared to 1.4 million by banks. In contrast, nonbanks originated 30% of purchase-money mortgages (by volume) in 2000 and 24% in 2007. Does the declining role of banking institutions imply that the Community Reinvestment Act (CRA) is becoming less relevant to mortgage lending, since only they are subject to the requirements of the CRA? We address this question by exploring the changing composition of home purchase mortgage originations since 2000. We focus on the share of FHA and conforming-sized conventional loans to low- or moderate income households or to finance properties in low- or moderate-income neighborhoods, and provide a more detailed examination of the shifts in market composition than previous studies. Our analysis points to a conclusion that the CRA continues to be relevant to maintaining broad access to mortgage credit. We find that the overall share of loans to low-or moderate-income borrowers has decreased compared to pre-2004, which we view as a reasonable benchmark period. However, this decrease has mostly been offset by an increased share to borrowers (broadly distributed by income) purchasing properties in low- or moderate-income neighborhoods.