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Chapel Hill, N.C. — Homeownership by low- and moderate-income homeowners does not diminish other investment activities or lead to excessive borrowing against home equity, according to findings by researchers at the UNC Center for Community Capital.

A new study, “Portfolio Adjustment to Home Equity Accumulation among CRA Borrowers,” reports on research that investigated claims by some critics of Community Reinvestment Act (CRA) mortgage lending that the accumulation of home equity among low- and moderate-income homeowners limits other investment activities and leads to excessive borrowing.

The center’s research found no basis for such claims.

“There is very little evidence that either alternative investments and/or savings are reduced as a result of equity accumulation or that debt is incurred at levels that offset equity-based gains in net worth,” center senior research associate Allison Freeman and research assistant Bruce Demaris said of the study report. “Rather, the results from the empirical analysis provide strong support for the claim that CRA lending acts as a strong forced-savings tool.”

The center’s findings come as U.S. policymakers consider reforms to housing finance policies and regulation, including those that pertain to CRA lending. Many view CRA as a policy that clearly enhances opportunities for wealth-building among low- and moderate-income families. Some critics point to potential drawbacks of reliance upon homeownership as a wealth-building tool, claiming that because the scale of the investment is comparatively inflexible, it tends to tie up resources, which leads to under-diversification of the portfolio, and that homeowners draw down the added value of home equity by borrowing against the home.

The center’s research contradicts those claims using a unique panel study of CRA-financed homeowners and a matched sample of renters that allows researchers to estimate the relationships between equity accumulation and major components of households’ financial portfolios.

“It appears that CRA lending serves as an effective means for promoting stable wealth-building for low- and moderate-income households through the forced-savings mechanism of equity accumulation,” center researchers concluded.

Mortgage finance is a key area of study at the UNC Center for Community Capital, the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. Part of the College of Arts and Sciences at the University of North Carolina at Chapel Hill, the center offers data and analysis that helps policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people more effectively. For more information, visit or call (919) 843-2140.

Topics(s): Affordable Homeownership, Mortgage Finance
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