170The Twenty-Fifth Anniversary
did little to make the CRA conform to the realities of thefinancial services marketplace. Although the CRA continues toprovide significant benefits to lower income households andcommunities, reform is needed for the act to encouragefinancial services providers to meet the continuing needs of thecommunities they serve.
1.1Summary of Key Findings
This paper draws on a more extensive Joint Center for HousingStudies assessment of the CRA, funded by the FordFoundation. The larger study not only assesses the impact of the CRA on home purchase and home refinance lending, it alsopresents commentary on the CRA’s impact on small-businessand multifamily lending, as well as on the provision of financialservices more generally. In addition, the Ford Foundationstudy presents qualitative findings concerning the CRA’simpact on the operation of banks and mortgage lenders as wellas the impact on the relationship between mortgage lendersand community-based advocacy organizations.Our paper focuses on the regulatory and legislativechallenges that confront the act at age twenty-five. Inaddition to providing a brief review of the evolution of CRAregulations, we document the impact that the CRA has hadon home mortgage lending to lower income people andcommunities and assess changes in industry structure. Weconclude with a discussion of current legislative andregulatory challenges.
The CRA Has Expanded Access to Mortgage Capital
Working in combination with the Home Mortgage DisclosureAct (HMDA) and the closely related Fair Housing and FairLending Legislation, the CRA continues to expand access tocapital for CRA-eligible borrowers. Here, CRA-eligibleborrowers include those with an income of less than80 percent of the area median income and/or those living incensus tracts with a median income of less than 80 percent of the area median. CRA-regulated lenders refer to federally regulated banks and thrifts as well as their mortgage company and finance company affiliates.•In both 1993 and 2000, CRA-regulated lenders operatingin their assessment areas (areas where they maintaindeposit-taking operations) had shares of conventional,conforming prime home purchase loans to CRA-eligibleborrowers that exceeded the equivalent shares for out-of-area lenders or noncovered organizations.•The CRA-eligible share of conventional prime lending toblacks is as much as 20 percentage points higher forCRA-regulated lenders operating in their assessmentareas than for independent mortgage companies. ForHispanics, the equivalent gap is 16 percentage points.
The Changing Mortgage Industry Structure Reducesthe CRA’s Impact
Dramatic changes in the structure of the financial servicesindustry—and particularly in mortgage banking—havecombined to weaken the link between mortgage lending andthe branch-based deposit gathering on which the CRA wasbased. Consequently, this may also be reducing the CRA’seffect on the mortgage market.•In 2000, the twenty-five largest lenders each mademore than 25,000 home purchase loans and accountedfor 52 percent of all home purchase loans made that year. In contrast, only fourteen organizations mademore than 25,000 loans in 1993 and accounted for only 23.5 percent of all home purchase lending.•Banking organizations operating out of their assessmentareas have expanded rapidly and today constitute thefastest growing segment of the residential mortgagemarket. As a result, between 1993 and 2000, thenumber of home purchase loans made by CRA-regulated institutions in their assessment areas as ashare of all home purchase loans fell from 36.1 percentto 29.5 percent.•Assessment-area lending varies from one market areato the next. Of the 301 metropolitan areas examined inthis study, the assessment-area share of lending variesfrom 6 percent in Denver, Colorado, to 74 percent inDubuque, Iowa.
The CRA Fails to Keep Pace with the Changing Industry Structure
The changing industry structure, along with the fact that overtime the CRA may have expanded the capacity of all industry players to serve lower income borrowers, has eroded CRA-regulated entities’ lead in the conventional prime homepurchase market. When Congress modernized financialservices through the GLBA, it did little to bring the CRA intoconformance with the rapidly evolving world of financialservices. Reform could follow one or both of two distinctpathways:
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