sourceOur analysis examining the type of lenders extending credit to LMI census tracts found no evidence that tracts with proportionally more lending by CRA-covered lenders experienced worse outcomes, whether measured by delinquency rates, high-PTI loans, or higher-priced lending. In fact, the evidence suggests that loan outcomes may have been marginally better in tracts that were served by more CRA-covered lenders than in similar tracts where CRA-covered institutions had less of a footprint. Loan purchases by CRA-covered lenders also do not appear to have been associated with riskier lending. Additionally, this analysis found no evidence that either the CRA or the GSE goals contributed to house prices appreciation during the 2001-2006 subprime buildup.
Our regression discontinuity tests, which focus on lending and loan performance around the income levels used to determine whether loans are favored by the CRA and GSE goals, finds little evidence of an effect for either regulation, except for an increase in loan purchases by CRA-covered depositories in their assessment areas. Both loan quality and performance are clearly related to census tract income with both improving as income rises. However, these relationships are evident for both favored and not-favored loans and there is no evidence of a discontinuity at the threshold points. Data on loan volumes also fail to find evidence of a regulatory threshold effect; indeed, the share of loans originated by CRA-covered lenders in their assessment areas and the share of loans sold to the GSEs are higher in the tracts not favored by the regulations than in favored tracts. Though loan purchases by CRA-covered lenders appear to have been sensitive to the definition of a CRA-favored loan, there is no evidence that this affected the overall quality of loans originated.
Since our tests are indirect, it would be inappropriate to conclude that the test results prove that the CRA or GSE goals did not cause or contribute to the crisis. The existence of "special CRA" programs and "targeted affordable" loans in the GSE portfolios suggests that both regulations led to some loans being underwritten with different prices or terms than might otherwise have taken place. The question is, were such actions enough to materially affect market prices and standards? We do not see evidence of this in our indirect tests. However, direct evidence is potentially available by focusing on the performance of loans originated through these programs. To date, the data to conduct such analysis is not publicly available, and until it is, we may be unable to draw definitive conclusions on the role that the CRA and GSE affordable housing goals played in the subprime crisis.
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