Effects of CRA on Mortgage Lending in Philadelphia market

Posted by Federal Reserve Bank of Philadelphia on August 7, 2017

Researchers: Federal Change in 2014 Has Impacted Philly Mortgage Lending

U.S. banks are increasingly being held accountable to communities where they do business, thanks to activists — and the 1977 Community Reinvestment Act (CRA). The power of the CRA is evident in new research from the Federal Reserve Bank of Philadelphia.

In CRA examinations, which federal regulators typically conduct every three to five years, banks get credit for loans made in low- and moderate-income neighborhoods. That credit helps the banks when they want the government’s OK for business changes such as expansions or mergers. If regulators don’t think a bank is adequately serving communities where it does business, they can deny its expansion or merger applications.

Consequently, the Philadelphia researchers say, banks respond quickly to changes in the way they can get CRA credit, and a 2014 tweak is causing a ripple effect in the Philadelphia area that could affect homeownership in certain neighborhoods.

That year, in the Philadelphia metropolitan division — the city of Philadelphia and neighboring Delaware County — 102 census tracts that had been eligible for CRA credit suddenly lost that status.

Read more: https://nextcity.org/daily/entry/new-research-philadelphia-mortgage-loans-affected-median-income-change

Study: https://philadelphiafed.org/-/media/research-and-data/publications/working-papers/2017/wp17-15.pdf?la=en