Journal Article

Community Reinvestment Act lending : is it profitable?

Abstract: In 1977, Congress passed the Community Reinvestment Act (CRA) to encourage federally insured depository institutions to lend in low- to moderate-income neighborhoods and to low- to moderate-income people. Since then, the profitability of the many special lending programs designed to achieve these goals has been questioned on both theoretical and practical grounds. ; The study examines the CRA loan profitability issue in the context of home mortgage lending. We surveyed 97 large institutions to explore profitability differences between their CRA and conventional home mortgage lending. ; Twenty-four percent of those answering the survey said their CRA lending was as profitable as their conventional lending. We found these lenders were more likely to treat their CRA lending like they did their conventional lending. Further, they managed to keep origination and servicing costs for their CRA loans similar to those for their conventional loans. These findings have important implications for lenders, community groups, government enhancement providers, and banking regulators as they seek wider markets for CRA loans.

Keywords: Community Reinvestment Act of 1977;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Financial Industry Perspectives

Publication Date: 1996

Issue: Dec

Pages: 13-35