A Practitioner’s Summary: The Effects of the CRA on Mortgage Lending in the Philadelphia Market

The Community Reinvestment Act (CRA) of 1977 encourages federally regulated depository institutions to meet the credit needs of low- and moderate-income (LMI) people and communities. A depository institution is rated based on its record of providing residential mortgages and other financial services to LMI people and neighborhoods, and bank examiners consider the institution’s CRA rating before approving bank mergers, acquisitions, and branch openings. As a result, CRA has the potential to increase the supply and alter the sources of mortgage credit in targeted areas (Appendix 1).

The 2013 revision of the metropolitan statistical area/ metropolitan division (MSA/MD) definitions by the Office of Management and Budget (OMB) has had unintended consequences for the income designations of a large number of neighborhoods in the previous five-county Philadelphia MD and for CRA lending in these communities. One in three previously CRA-eligible LMI neighborhoods in the Philadelphia MD became newly ineligible for CRA credit after 2014, while the number of LMI tracts that were CRA eligible tripled in three suburban counties. The exogenous policy change, which had caused the changes in the income levels for many lower-income neighborhoods, provided a unique opportunity to examine the impact of CRA on mortgage lending in LMI neighborhoods.