Washington Outlook

Treasury Report Finds Significant Rise In Community Reinvestment Act Lending

May 15, 2000


In April, the Treasury Department released a report, The Community Reinvestment Act After Financial Modernization: A Baseline Report. The study was mandated by the Financial Modernization Act of 1999, which also calls for a follow-up report within 2 years. The Financial Modernization Act also mandated a Federal Reserve study on profitability, default and delinquency rates for CRA-related lending. The Federal Reserve study should be released soon.

The Treasury report looked at the lending trends in 305 U.S. cities between 1993 and 1998. Some of the highlights include:

  • $467 billion in mortgage credit flowed from CRA-covered lenders to CRA-eligible borrowers.

  • The amount of home mortgage lending to low- and moderate-income borrowers, low-and moderate-income communities rose 80% during that time. In 1998 alone, these institutions made $135 billion in mortgage loans to these borrowers.

  • CRA-covered lenders and their affiliates increased mortgage lending to low- and moderate-income borrowers and communities at more than twice the rate of increase for other borrowers. The number of mortgage loans made by CRA-covered institutions and their affiliates to these borrowers and areas increased by 39 percent between 1993 and 1998, while such institutions' loans to other borrowers increased by only 17 percent.

  • Subprime lending drove growth in lending to low- and moderate-income borrowers and areas for institutions not covered by CRA.

  • CRA covered institutions increased their market share in prime mortgage lending to low- and moderate-income borrowers and areas. Lenders covered by the CRA primarily specialize in prime lending to borrowers without impaired credit. In this market, covered lenders and their affiliates increased their market share of lending. In 1993, such lenders accounted for 66 percent of prime mortgage loans to these borrowers and areas; by 1998, their market share had increased to 71 percent.

  • In 84 percent of the metropolitan areas studied, CRA-covered lenders and their affiliates increased the share of their mortgage lending going to low- and moderate-income borrowers and areas, by as much as 12 percentage points.

  • From 1996 to 1998, the first three years these data were collected, lending by CRA- covered institutions to small businesses located in low- and moderate-income communities averaged $33 billion annually. Community development lending by these institutions averaged $17 billion annually.

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