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Journal Article
Performance & profitability of CRA-related lending
Three Federal Reserve Board economists overview their study on a much-questioned but little-researched topic. Commentary on the study is also included with this article.
Journal Article
The performance and profitability of CRA-related lending
In November 1999, the U.S. Congress asked the Board of Governors of the Federal Reserve System to conduct a comprehensive study of loans made under the Community Reinvestment Act of 1977. The Board?s study focused on the loans? delinquency and default rates?their performance?as well as their profitability. This Commentary reports the results of the study.
Journal Article
Consumer experiences with credit insurance: some new evidence
Working Paper
The Community Reinvestment Act and the profitability of mortgage-oriented banks
The Community Reinvestment Act (CRA) requires lenders "to help meet the credit needs of the local communities in which they are chartered, consistent with the safe and sound operation of such institutions.'' For proponents of efficient markets, the CRA is a threat to lender profitability. For others, the CRA has the potential to increase profitability. We examine the relative profitability of commercial banks that specialize in mortgage lending in lower-income neighborhoods or to lower-income borrowers using three different techniques, and find that lenders active in lower-income ...
Working Paper
Does credit scoring produce a disparate impact?
The widespread use of credit scoring in the underwriting and pricing of mortgage and consumer credit has raised concerns that the use of these scores may unfairly disadvantage minority populations. A specific concern has been that the independent variables that comprise these models may have a disparate impact on these demographic groups. By "disparate impact" we mean that a variable's predictive power might arise not from its ability to predict future performance within any demographic group, but rather from acting as a surrogate for group membership. Using a unique source of data that ...
Working Paper
The Community Reinvestment Act and the Profitability of Mortgage-Oriented Banks
The Community Reinvestment Act (CRA) requires lenders ``to help meet the credit needs of the local communities in which they are chartered, consistent with the safe and sound operation of such institutions.'' For proponents of efficient markets, the CRA is a threat to lender profitability. For others, the CRA has the potential to increase profitability. We examine the relative profitability of commercial banks that specialize in mortgage lending in lower-income neighborhoods or to lower-income borrowers using three different techniques, and find that lenders active in lower-income ...
Working Paper
Credit where none is due? Authorized user account status and \"piggybacking credit\"
An "authorized user" is a person who is permitted by a revolving account holder to use an account without being legally liable for any charges incurred. The Federal Reserve's Regulation B, which implements the 1974 Equal Credit Opportunity Act, requires that information on spousal authorized user accounts be reported to the credit bureaus and considered when lenders evaluate credit history. Since creditors generally furnish to the credit bureaus information on all authorized user accounts, without indicating which are spouses and which are not, credit scoring modelers cannot distinguish ...
Working Paper
Does the Community Reinvestment Act (CRA) cause banks to provide a subsidy to some mortgage borrowers?
The Community Reinvestment Act (CRA) encourages lenders to make mortgage loans to certain classes of borrowers. However, the law does not apply to all lenders, and lenders do not necessarily receive credit for all loans made to borrowers of a particular class. We use this variation to test whether or not CRA-affected lenders cut interest rates to CRA-eligible borrowers; in other words, we test for the presence of a regulation-driven subsidy. Our theory suggests that loans made by commercial banks and savings associations (``relationship lenders'') and mortgage companies (``transaction ...
Journal Article
Household sector borrowing and the burden of debt
Journal Article
The effects of recent mortgage refinancing
Rising home prices and generally falling interest rates in recent years, together with a desire to convert the accumulated equity in their homes into spendable funds, have prompted many homeowners to refinance their mortgages. In the spring of 1999, the Federal Reserve surveyed consumers to determine the extent of refinancing, the extent to which refinancing homeowners "cashed-out" some of their equity when they refinanced, how much equity they took out, and how they spent the funds. Survey results suggest that cash-out refinancings in 1998 and early 1999 likely boosted consumption spending a ...