The Effects of the GSEs, CRA, and Institutional Characteristics on Home Mortgage Lending to Underserved Markets

Richard A.Williams, University of Notre Dame
Eileen McConnell, Indiana University-Bloomington
Reynold Nesiba, Augustana College

Abstract

This study longitudinally compares the characteristics of loans made or bought by different institutions to see which types of lenders lead the mortgage finance industry in making credit available for low-and moderate-income families and which are merely following behind. Hypotheses are tested via a case study analysis of conventional home mortgage lending in Indiana for 1992-96.Results show that, although the government-sponsored enterprises (GSEs)–Fannie Mae and Freddie Mac–ade gains in underserved markets during this period, at no time were they ever leading the market. There is also no clear evidence that the Community Reinvestment Act (CRA)was a major contributor to gains made by underserved markets, perhaps because Indiana citizen groups failed to take advantage of its provisions. Contrary to some people 's fears, increasing market share for larger lenders did not appear to be detrimental to underserved markets. The results also raise the disturbing possibility that subprime lenders may have stolen away borrowers who could have gotten better deals elsewhere. Given the rapid pace of change in home mortgage lending and the recent adoption of new programs by the GSEs, the key findings of this study may soon need to be updated.

The Effects of the GSEs, CRA, and Institutional Characteristics on Home Mortgage Lending to Underserved Markets (*.pdf)