Research Paper

The Community Reinvestment Act: What Do We Know, and What Do We Need to Know?

September 27, 2019

Authors Laurie Goodman Jun Zhu John Walsh

Current Themes

The Community Reinvestment Act: What Do We Know, and What Do We Need to Know? -- title page

Overview

This policy brief explores the current state of the Community Reinvestment Act (CRA) and identifies areas for further research and improvement. The CRA was enacted in 1977 to encourage depository institutions to meet the credit needs of their communities, particularly in low- and moderate-income (LMI) neighborhoods. This paper analyzes CRA lending data to assess what is known about CRA's effectiveness and what additional data and transparency could enhance its impact.

Key Message

The analysis reveals that while banks are crucial in providing multifamily lending to LMI areas, nonbanks are more active in single-family LMI lending. A critical insight is the disparity in FHA lending between banks and nonbanks, with banks pulling back due to reputational and financial risks. This shift has implications for CRA effectiveness, highlighting the need for modernization to better serve LMI communities. The findings underscore the importance of updating CRA regulations to enhance transparency, incorporate more comprehensive data, and adapt to the changing landscape of mortgage lending.