Trends in Home Purchase Lending: Consolidation and the Community Reinvestment Act

Abstract

Consolidation among banking institutions has substantially changed the structure of the banking industry. Between 1975 and 1997, the number of commercial banks and savings associations declined more than 40 percent. Over the same broad period, the market for home mortgage lending has also changed substantially. Notably, home mortgage lending is no longer primarily the province of banking institutions operating in the communities in which they have banking offices. In recent decades, mortgage and finance companies and banking organizations operating outside their local communities have gained a significant share of the mortgage market. These changes have fueled debate regarding their effects on the provision of home mortgage loans. One particular concern is that, as a consequence of these changes, lower-income and minority borrowers and borrowers in lower-income and minority neighborhoods may face reduced access to mortgage credit. This article examines the relationship between consolidation among banking organizations in local markets and changes in home purchase lending over the 1993-97 period, both in terms of total lending and lending to lower-income and minority borrowers and neighborhoods. Because credit availability is believed to be essential to the economic health and vitality of neighborhoods, the article also examines the relationship between consolidation and changes in home purchase lending by institutions in those areas where they have responsibilities under the Community Reinvestment Act.