Discussion Papers
The following discussion papers examine issues of affordable housing, community and economic development, financial education, and consumer credit and payments that affect low- and moderate-income people and communities.
Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas
(17 MB, 68 pages)
We study the local effects of new market-rate housing in low-income areas using microdata on large apartment buildings, rents, and migration. New buildings decrease nearby rents by 5 to 7 percent relative to locations slightly farther away or developed later, and they increase in-migration from low-income areas. Results are driven by a large supply effect — we show that new buildings absorb many high-income households — that overwhelms any offsetting endogenous amenity effect. The latter may be small because most new buildings go into already-changing areas. Contrary to common concerns, new buildings slow local rent increases rather than initiate or accelerate them.
The Community Reinvestment Act (CRA) and Bank Branching Patterns
(713 KB, 34 pages)
This paper examines the relationship between the Community Reinvestment Act (CRA) and bank branching patterns, measured by the risk of branch closure and the net loss of branches at the neighborhood level, in the aftermath of Great Recession. Between 2009 and 2017, there was a larger decline in the number of bank branches in lower-income neighborhoods than in more affluent ones, raising concerns about access to mainstream financial services. However, once we control for supply and demand factors that influence bank branching decisions, we find generally consistent evidence that the CRA is associated with a lower risk of branch closure, and the effects are stronger for neighborhoods with fewer branches, for larger banks, and for major metro areas. The CRA also reduces the risk of net bank losses in lower-income neighborhoods. The evidence from our analysis is consistent with the notion that the CRA helps banks meet the credit needs of underserved communities and populations by ensuring the continued presence of brick-and-mortar branches.
Effects of the Community Reinvestment Act (CRA) on Small
Business Lending
(624 KB, 41 pages)
This study provides new evidence on the effectiveness of the Community Reinvestment Act (CRA) on small business lending by focusing on a sample of neighborhoods with changed CRA eligibility status across the country because of an exogenous policy shock in 2013. The results of difference-in-differences analysis provide consistent evidence that the CRA promotes small business lending, especially in terms of number of loan originations, in lower-income neighborhoods. The generally positive effects of the CRA are sensitive to the types of CRA treatment. Losing CRA eligibility status has a relatively larger effect on small business lending activities, while the effects of newly gaining CRA eligibility are less pronounced. The results are fairly robust when alternative sample periods and control groups are used.
Community Reinvestment Act
This discussion paper provides evidence on the effects of the Community Reinvestment Act (CRA) on the mortgage market in the aftermath of the Great Recession. The study is accompanied by a practitioner’s summary, which provides applied findings for the community development practitioner audience.“Don't Know What You Got Till It’s Gone” — The Community Reinvestment Act in a Changing Financial Landscape
(817 KB, 33 pages)
This study provides new evidence on the impact of the Community Reinvestment Act (CRA) on mortgage lending by taking advantage of an exogenous policy shock in 2014, which caused significant changes in neighborhoods’ CRA eligibility in the Philadelphia market. The loss of CRA coverage leads to an over 10 percent decrease in purchase originations by CRA-regulated lenders. While nondepository institutions replace approximately half, but not all, of the decreased lending, their increased market share was accompanied by a greater involvement in riskier and more costly FHA lending. This study demonstrates how different lenders respond to the incentive of CRA credit.
A Practitioner’s Summary: The Effects
of the Community Reinvestment Act (CRA) on Mortgage Lending in the Philadelphia Market
(9.37 MB, 20 pages)
This report summarizes major findings from the discussion paper “Don't Know What You Got Till It’s Gone” — The Effects of the Community Reinvestment Act (CRA) on Mortgage Lending in the Philadelphia Market for a community development practitioner audience.
Borrower Credit Access and Credit Performance After Loan
Modifications
(625 KB, 46 pages)
While the preventive effect of loan modifications on mortgage default has been well-documented, evidence on the broad consequences of modifications has been fairly limited. Based on two unique loan-level data sets with borrower credit profiles, this study reports novel empirical evidence on how homeowners manage their credit before and after receiving modifications. The paper has several main findings. First, loan modifications improve borrowers’ overall credit standing and access to credit. Modifications that provide principal reduction, rate reduction, or greater payment relief, as well as those received by borrowers not in financial catastrophe, lead to a larger improvement in borrowers’ credit rating than others. Second, loan modifications lead to a slight increase in borrowers’ debts, primarily on home equity line of credit (HELOC) accounts and auto loans. Third, borrowers’ performance on nonmortgage accounts, however, has not been negatively impacted by modifications. This study demonstrates that interventions designed to improve household balance sheets could have a direct and sizable impact on borrower financial outcomes.
Gentrification and Residential Mobility:
The department has released a series of discussion papers on gentrification and residential mobility. Detailed descriptions and the full studies are available below:The Effects of Gentrification on the
Well-Being and Opportunity of Original Resident Adults and Children, (3.4 MB, 57 pages)
We use new longitudinal census microdata to provide the first causal evidence of how gentrification affects a broad set of outcomes for original resident adults and children. Gentrification modestly increases out-migration, though movers are not made observably worse off and neighborhood change is driven primarily by changes to in-migration. At the same time, many original resident adults stay and benefit from declining poverty exposure and rising house values. Children benefit from increased exposure to higher-opportunity neighborhoods, and some are more likely to attend and complete college. Our results suggest that accommodative policies, such as increasing the supply of housing in high-demand urban areas, could increase the opportunity benefits we find, reduce out-migration pressure, and promote long-term affordability.
The Consequences of Gentrification: A Focus
on Residents’ Financial Health in Philadelphia (597 KB, 40 pages)
There have been considerable debate and controversy about the effects of gentrification on neighborhoods and the people residing in them. This paper draws on a unique large-scale consumer credit database to examine the relationship between gentrification and the credit scores of residents in the City of Philadelphia from 2002 to 2014. The authors find that gentrification is positively associated with changes in residents’ credit scores on average for those who stay, and this relationship is stronger for residents in neighborhoods in the more advanced stages of gentrification. Gentrification is also positively associated with credit score changes for less advantaged residents (low credit score, older, or longer term residents, and those without mortgages) if they do not move, though the magnitude of this positive association is smaller than for their more advantaged counterparts. Nonetheless, moving from gentrifying neighborhoods is negatively associated with credit score changes for less advantaged residents, residents who move to lower-income neighborhoods, and residents who move to any other neighborhoods within the city (instead of outside the city) relative to those who stay. The results demonstrate how the association between gentrification and residents’ financial health is uneven, especially for less advantaged residents.
What Have We Learned About the Causes of
Recent Gentrification? (678KB, 24 pages)
Since 2000, strengthening gentrification in an expanding section of cities and neighborhoods has renewed interest from policymakers, researchers, and the public in the causes of gentrification. The identification of causal factors can help inform analyses of welfare, policy responses, and forecasts of future neighborhood change. The authors highlight some features of recent gentrification that popular understandings often do not emphasize, and they review progress on identifying some causal factors. However, a complete account of the relative contribution of many factors is still elusive. The authors suggest questions and opportunities for future research.
Gentrification and
Residential Mobility in Philadelphia (610 KB, 50 pages)
Gentrification has provoked considerable controversy surrounding its effects on residential displacement. Using a unique individual-level, longitudinal data set, this study examines mobility rates and residential destinations of residents in gentrifying neighborhoods during the recent housing boom and bust in Philadelphia for various strata of residents and different types of gentrification. We find that vulnerable residents, those with low credit scores and without mortgages, are generally no more likely to move from gentrifying neighborhoods compared with their counterparts in nongentrifying neighborhoods. When they do move, however, they are more likely to move to lower-income neighborhoods. Residents in gentrifying neighborhoods at the aggregate level have slightly higher mobility rates, but these rates are largely driven by more advantaged residents. These findings shed new light on the heterogeneity in mobility patterns across residents in gentrifying neighborhoods and suggest that researchers should focus more attention on the quality of residential moves and nonmoves for less advantaged residents, rather than mobility rates alone.
A Practitioner's Summary:
Gentrification and Residential Mobility in Philadelphia (3.0 MB, 28 pages)
This summary of the report Gentrification and Residential Mobility in Philadelphia provides applied findings appropriate for a community development practitioner audience.
Gentrification Measure 
This Excel file provides data for our gentrification measure for the city of Philadelphia based on the Census 2000 tract definition, which identifies the tracts that were gentrifiable in 2000 and their various gentrification categories during the 2000-2013 period.
Home Mortgage Appraisals
The department has released a series of discussion papers on home mortgage appraisals. The first paper of the series, released in June 2014, focuses on the pattern of appraisal bias in the Third Federal Reserve District. The second paper, released in August 2014, focuses on the impact of the Home Valuation Code of Conduct on appraisal and mortgage outcomes nationally. Detailed descriptions and the full studies are available below:
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The Impact of the Home Valuation Code of Conduct on Appraisal and Mortgage Outcomes
The accuracy of appraisals came into scrutiny during the housing crisis, and a set of policies and regulations was adopted to address the conflict-of-interest issues in the appraisal practices. In response to an investigation by the New York State Attorney General’s office, the Home Valuation Code of Conduct (HVCC) was agreed to by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. Using unique data sets that contain both approved and nonapproved mortgage applications, this study provides an empirical examination of the impact of the HVCC on appraisal and mortgage outcomes. The results suggest that the HVCC has led to a reduction in the probability of inflated valuations, although valuations remained inflated on average, and induced a significant increase in the incidence of low appraisals. The well-intentioned HVCC rule made it more difficult to obtain mortgages to purchase homes during the housing price crash, possibly exacerbating the fall in prices. (708 KB, 36 pages) 
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The Pattern of Appraisal Bias in the Third District During the Housing Crisis
Appraisers have often been criticized for the inflated home values that were more prevalent during the housing boom, as well as overly conservative valuations during the housing bust. However, little research has been done to help understand how appraisal valuations respond to rapidly changing local market conditions and regulatory environments. This study provides an empirical examination of the pattern of appraisal bias during the housing crisis in the Third Federal Reserve District. Based on a unique transaction-level appraisal data set, this study evaluates how the lack of market activity, the concentration of foreclosures, and the increased use of appraisal management companies, as well as other factors, impact the incidence of low appraisals during the crisis. This study further examines the possible challenges created by low appraisals on the access to mortgage credit. (569 KB, 28 pages)
Residential Migration, Entry,
and Exit as Seen Through the Lens of Credit Bureau Data (426 KB, 36 pages)
We analyze a large, nationally representative anonymized data set of consumers with a credit report from 2002 to 2010. This is a period that encompasses a boom and bust in consumer credit. Using census data, we classify consumers into four categories of relative neighborhood income and find that, over time, the number and proportion of consumers with a credit report fell in low- and moderate-income neighborhoods and rose in higher-income neighborhoods. Population trends evident from census data explain only a portion of these changes in the location of the credit bureau population. In most instances, the primary driver reflects residential migration from relatively poorer neighborhoods to ones with relatively higher incomes. Patterns of entry into or exit from the credit bureau population were correlated with the credit cycle, as well as with relative neighborhood income, resulting in slower sample growth in low- and moderate-income neighborhoods during periods of credit contraction. These results are interesting in themselves, but they are also important for interpreting empirical results estimated from credit bureau data.
FHA Lending: Recent Trends
and Their Implications for the Future (9.08 MB, 62
pages)
This paper examines borrower characteristics over the course of the previous decade, a period in which the FHA experienced both a sharp decline in its market share and lending volume as the subprime segment expanded and a subsequent reversal of fortune as it emerged as one of the major supports of the housing market in the wake of the subprime collapse. The report provides information on trends in borrower cohorts along such dimensions as first-time homebuyer status, income, and FICO score; examines variations across regions in overall lending trends and borrower characteristics; considers what borrower patterns in post-subprime years may suggest about the nature of the FHA borrower pool going forward; and draws on the paper’s empirical findings to identify factors that policymakers might consider in evaluating how different proposals for the evolution of the housing finance sector might affect the nature of FHA lending.
Building Sustainable
Ownership: Rethinking Public Policy Toward Lower-Income Homeownership (568 KB, 35
pages)
Based on a review and assessment of the literature on the costs and benefits of homeownership, provides a framework for public policy toward lower-income homeownership through an analysis of how those costs and benefits are affected by the homebuyer's income. Makes the case that public policy and resources should be directed less toward maximizing the number of lower-income homeowners and more toward maximizing the quality and stability of the homeownership experience for lower-income owners; offers a series of specific policy recommendations to that end.
Subprime Lending Over Time:
The Role of Race (971 KB, 26 pages)
Analyzes the racial gap in subprime mortgages over time. The study estimates a portion of the gap that cannot be attributed to such characteristics as income, credit score, loan amount, degree of documentation, denial rate, residence in a minority tract, and debt-to-income ratio. It concludes that the unexplained portion suggests that bias in mortgage lending cannot be ruled out.
Economic and Social Impact of
Introducing Casino Gambling: A Review and Assessment of the Literature (661 KB, 34
pages)
Reviews and assesses the existing literature on the potential economic impact of introducing casino gambling into a community or region, first by discussing the casinos’ effect on economic activity and growth within a community or region, and then by exploring their effect on government revenues. Also discusses the literature related to the economic impact of social costs widely associated with gambling, such as increases in crime, bankruptcy, and problem gambling.
Affordability and Availability of Rental Housing in Pennsylvania
Can be found in the Special Reports section of the website.
Alternative Financial Service
Providers and the Spatial Void Hypothesis (3.8 MB, 33
pages)
Examines the use of alternative financial service providers (AFSPs) such as check-cashing outlets and pawnshops in Philadelphia, Montgomery, Delaware, and Allegheny counties. Also explores whether these providers are disproportionately serving minority and low-income areas.
Alternative Financial Service
Providers and the Spatial Void Hypothesis: The Case of New Jersey and Delaware (936 KB, 18
pages)
Continues the use of the spatial void hypothesis methodology to analyze the location of alternative financial service providers, such as check cashing outlets and pawn shops, in New Castle County, Delaware, and Atlantic, Mercer, Monmouth, and Passaic counties in New Jersey. Also explores whether these providers are disproportionately serving minority and low-income areas.
Alternative Financial
Vehicles: Rotating Savings and Credit Associations (ROSCAs)
(749 KB, 31 pages)
Describes how ROSCAs work and discusses the benefits that accrue to ROSCA participants and some of the costs they incur. Of particular interest is the introduction of a partial data set collected from a local ROSCA, which offers a glimpse of the capital costs ROSCA participants face and which could ultimately be contrasted with the capital costs faced by borrowers at mainstream financial institutions.
Financial Resources for the
Environment: The Unsuccessful Attempt to Create a Private Financing Intermediary for Brownfield Redevelopment
Projects (2.06 MB, 38 pages)
Analyzes an unsuccessful attempt to establish a financing intermediary for the development of environmentally contaminated property (commonly known as brownfields) in Pennsylvania. The proposed intermediary was called Financial Resources for the Environment.
Home Ownership Education and
Counseling: Issues in Research and Definition
(109 KB, 31 pages)
Assesses existing research on the effectiveness of home-ownership education and counseling and opportunities for future research.
How to Spend $3.92 Billion:
Stabilizing Neighborhoods by Addressing Foreclosed and Abandoned Properties (326 KB, 27
pages)
Gives guidance on the best use of funds appropriated by the Housing and Economic Recovery Act of 2008 for the purpose of assisting states, counties, and cities in their efforts to stablize hard-hit neighborhoods. The discussion paper was written by Alan Mallach, visiting scholar at the Bank.
The Impact of Housing
Rehabilitation on Local Neighborhoods: The Case of the St. Joseph's Carpenter Society (2.92 MB,
25 pages)
Presents the results of a Philadelphia Fed study that analyzes whether the community development efforts of a nonprofit in Camden, NJ, have an effect on local neighborhoods.
Preserving Multifamily Rental
Housing: Improving Financing Options in New Jersey (645 KB, 44
pages)
Summarizes the obstacles to financing small multifamily rental properties in New Jersey and makes recommendations for policies to address this credit need.
Preserving Multifamily Rental
Housing: Noteworthy Multifamily Assistance Programs (289 KB, 34
pages)
Describes noteworthy multifamily-assistance programs around the country, including mortgage-insurance, secondary-market, technical-assistance, and tax-abatement programs. Produced by the Federal Reserve Banks of New York and Philadelphia.
