New information on lending to small businesses and small farms: the 1996 CRA data

As a consequence of recent revisions to the regulations that implement the Community Reinvestment Act (CRA), new information is now publicly available on the geographic distribution of small loans to businesses and farms and on community development lending. Because small businesses and small farms are more likely than larger ones to borrow small amounts, the CRA data on small loans are likely to provide a reasonable measure of the extension of credit to such businesses. Thus, the CRA data provide new opportunities to gauge the flow of credit to communities with differing economic and demographic characteristics. This article presents an initial assessment of the new CRA data on originations and purchases of small business and small farm loans during 1996. The focus of the analysis is on the broad patterns that emerge when the data are reviewed from a national perspective rather than on the lending activities of any individual institution.Small business ; Bank loans ; Agricultural credit

Regulatory incentives and consolidation: the case of commercial bank mergers and the Community Reinvestment Act

Bank regulators are required to consider a bank’s record of providing credit to low- and moderate-income neighborhoods and individuals in approving bank applications for mergers and acquisitions. We test the hypothesis that banks strategically prepare for the regulatory and public scrutiny associated with a merger or acquisition by increasing their lending to low-and moderate-income individuals in anticipation of acquiring another institution. We find evidence in favor of this hypothesis. In particular, we show that the higher the percentage of the institution’s mortgage originations in a given year that are directed to low- and moderate-income individuals or neighborhoods, the greater the probability that the institution will acquire another bank in the following year. Further investigation bolsters the view that this correlation is due to banks’ anticipation of the public and regulatory scrutiny during the merger review process. The effect cannot be explained by other bank characteristics. The relationship is observed for acquiring banks, which are the focus of public and regulatory scrutiny, but not for the banks that are being acquired. In addition, the positive effect of lending to low- and moderate-income individuals and neighborhoods on the likelihood that a bank will acquire another bank increases over the 1991 - 1995 time frame, a period when public and regulatory scrutiny of an institution’s community lending record increased. The effect of lending to low- and moderate-income individuals and neighborhoods is also largest for big banks, who face particularly intense public and regulatory scrutinyBank mergers ; Bank supervision ; Community Reinvestment Act of 1977

CRA special lending programs

The Community Reinvestment Act (CRA) of 1977 encourages federally insured banking institutions to help meet the credit needs of their communities, including those of lower-income areas, in a manner consistent with their safe and sound operation. In responding to the CRA, many banking institutions have sought to expand lending to lower-income populations through special lending programs that seek out and assist such borrowers in a variety of ways. These programs, many of which include third parties such as government agencies and nonprofit groups, are often an important element of an institution's CRA-related lending. Many institutions have conducted such programs, some for many years. Although the characteristics of these programs and their implementation vary greatly across banking institutions, little systematic information about them has been available. To further the understanding of CRA special lending programs, this article uses data from a recent Federal Reserve Board survey to provide new information on the nature of these programs, their characteristics, and how these characteristics relate to the performance (delinquency and default rates) and profitability of the loans extended through them.Community Reinvestment Act of 1977 ; Mortgages

Changes in the distribution of banking offices

The past twenty years have been marked by major structural and regulatory changes in the banking industry. This article explores the relationships between these changes and the distribution of "brick and mortar" banking offices between 1975 and 1995. The analysis explores how population shifts, deregulation, and mergers, acquisitions, and failures may have influenced changes in the number and location of banking offices. Special attention is given to changes in banking office distributions across neighborhoods grouped by the median income of their residents and their central city, suburban, or rural location.Banks and banking ; Banking structure

State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms

Subprime mortgage lending has grown rapidly in recent years and with it, so have concerns about predatory lending. In response to evidence of predatory lending, most states have enacted new laws or expanded existing laws to address abuses in the subprime home loan market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context. The results of the analysis are consistent with the view that anti-predatory lending laws influence subprime lending markets and that disaggregating the details of the overall legal framework into its component parts is essential for understanding subprime market dynamics. The restrictions, coverage, and enforcement components all have significant relationships with subprime market outcomes, with the coverage relationship found to be broadly consistent with the reverse lemons hypothesis put forward by Ho and Pennington-Cross (2007). The results also suggest that the newer mini-HOEPA laws have had an impact on the subprime market above and beyond the older preexisting laws, particularly for subprime originations. Broader coverage through these new laws is associated with higher origination likelihoods, while increased restrictions through the mini-HOEPA laws are associated with lower origination propensities

The Impact of State Anti-Predatory Lending Laws: Policy Implications and Insights

The subprime mortgage market, which consists of high-cost loans designed for borrowers with weak credit, has grown tremendously over the past ten years. Between 1993 and 2005, the subprime market experienced an average annual growth rate of 26 percent. As this market emerged, so did allegations that subprime loans contained predatory features or were the result of predatory sales practices.3 In the worst cases, brokers deceived borrowers about the meaning of loan terms or falsely promised to assist them in obtaining future refinance loans with better terms. In other situations, borrowers entered into loans with low teaser rates, not aware how high their monthly payments could go when their interest rates reset

Homeownership and Nontraditional and Subprime Mortgages

This article documents the growth and geographic distribution of nontraditional mortgages (NTMs) and subprime mortgages during 2000-2006, and examines the association between these products and homeownership at the county level between 2000 and 2012. It finds a significant relationship between the origination of NTM and subprime mortgages during the boom and changes in the number of homeowners (positive during the 2000-2006 period and negative during the 2006-2012 period) but no significant relationship with the change in the homeownership rate. Looking at specific categories of the population, the results indicate a positive relationship between the presence of NTMs and subprime mortgages and increased numbers of homeowners for young households as well as for low income and minority households, but the relationship is smaller than for the general population. Overall, the relationship between NTMs and homeownership is stronger than the relationship between subprime mortgages and homeownership during the boom and it is less negative during the bust

Effect of New Rail Transit Stations on Income Distribution of Nearby Residential Moves

This project brief summarizes findings from a project aimed at addressing the question of "Is new rail transit associated with displacement of low-income residents in near-rail neighborhoods?" To address this question, the researchers used annual data on household locations and incomes from 1994 to 2012 to examine neighborhood income distributions and the pattern of residential moves by income in Los Angeles rail transit neighborhoods. The Los Angeles metropolitan area presents an ideal study area for analyzing transit-oriented development (TOD) and potential displacement. Since 1990, the Los Angeles Metropolitan Transit Authority (Metro) has opened 93 new rail-transit stations. An additional 17 are under construction.View the NCST Project Webpag

The Impact of Predatory Lending Laws: Policy Implications and Insights

Over half the states and several localities have enacted statutes and ordinances to regulate abuses in the residential mortgage market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context. We created a legal index of laws governing mortgage lending terms and practices, giving each state an overall score for the strength of its laws. In addition, we disaggregated the index to create sub-indices along three dimensions: (1) the scope of loans covered by the laws; (2) the prohibited loan terms and practices; and (3) the strength of the legal enforcement mechanisms. We use these indices to determine the effect of anti-predatory lending laws-- using both total index scores and the scores using the sub-indices-- on loan applications, originations and rejections. To control for variations within state borders, we employ a geographic sampling approach that focuses on lending activity along state borders, including only loans that were originated in a county that is geographically along a state border and if at least one of the two abutting states has an anti-predatory lending law. We find that the extent of coverage, restrictions, and enforcement embodied in a state\u27s legal framework is associated with significant changes in the probability that a subprime application is rejected and a subprime loan is originated. Coverage is associated with lower subprime rejection probabilities. Restrictions tend to increase the likelihood of rejection and hence retard originations in the subprime market. Finally, the key result in the analysis of enforcement is that stronger enforcement mechanisms reduce subprime rejection probabilities. We conclude the paper by discussing the possible implications of these findings, including how anti-predatory lending laws may have shaped borrower and lender behavior and how our results can help inform shape future lending regulations. This paper makes a timely contribution given the current crisis in subprime lending and the call for increased scrutiny of lenders and the loans they originate

Access to Opportunity Project: Final Report

This project’s goal is to lift up promising approaches, suggest new strategies and encourage honest conversations that result in public policy solutions to income and racial segregation and poverty. The overarching question that motivates this work is: What are effective policies and strategies that promote access to high-opportunity amenities for low-income families? As a first step, the researchers surveyed efforts on the ground in the metropolitan areas encompassing Seattle, Washington; Portland, Oregon; and San Diego, California, to determine whether there were any candidates for deeper study. We selected these three metropolitan areas for several reasons. First, prior interaction revealed that attention had been given to this question and that parties in each had embarked on purposeful efforts to make progress. Second, they represent a diverse array of communities that vary in significant ways, including along key economic, demographic, and social dimensions, and in some regards are bellwethers for changes beginning to take place in many parts of the country. As a consequence, experiences and successes in these places could potentially be applied to a diverse set of other urban areas across the United States. The three regions are among the largest in the United States, with Seattle and Portland being the largest in their respective states and San Diego third in California (behind Los Angeles and the Bay Area). Despite their size, they differ in important ways that result in different social and political dynamics prevailing in each location. In considering access to opportunity, one must understand the opportunities that are available in order to tailor skill-building efforts and investments in “connective infrastructure,” such as mass transit and suburban affordable housing, so that they are maximally effective. From an economic perspective, the three regions are quite different, which means that the approaches observed across the regions will potentially vary in measurable ways. In each metropolitan area, we sought the counsel of key governmental, practitioner, academic, and philanthropic players. During the course of our initial visits to each region, we met with and interviewed almost 80 people—28 in Seattle, 26 in Portland, and 24 in San Diego. Through these conversations, we identified 27 projects—nine in each metropolitan area—as being promising examples of cases where lower-income families may have achieved increased access to high-opportunity amenities. Given time, available funding, and the presence of partners willing to support our research effort by providing access to program data and program participants, we chose three projects for examination: • The San Diego Housing Commission’s Achievement Academy • Seattle/King County’s A Regional Coalition for Housing (ARCH) • Humboldt Gardens in Northeast Portlan