Community Reinvestment Lending in a Changing Context: Evidence of Interaction with FHA and Subprime Originations

Publication Date

January 2009

Author(s)

Jonathan Spader

Client/Funder

Ford Foundation

Abstract

While a substantial and growing body of literature scrutinizes the subprime market, far less attention has been given to the contiguous development of community reinvestment lending by prime institutions.

This article uses a unique demonstration program to examine the role of community reinvestment loans in meeting the credit needs of underserved borrowers. The analysis examines borrowers’ substitution of community reinvestment loans for FHA and subprime mortgage products.

In the years prior to the expansion of the subprime market, a small portion of community reinvestment loans are found to substitute for FHA originations. Conversely, a much larger substitution effect is found with respect to high-cost originations during the years of the subprime industry‟s growth.