Memorandum to the Chairman
Committee on Banking, Housing, and Urban Affairs
United States Senate

From: John E. Silvia, Chief Economist
Linda Lord, Chief Counsel
Wayne Leighton, Senior Economist
Dina Ellis, Counsel

July 19, 2000

Federal Reserve Report on
The Performance and Profitability of CRA-Related Lending

Section 713 of the Gramm-Leach-Bliley Act (P.L. 106-102) requires the Federal Reserve Board to conduct a comprehensive study of the Community Reinvestment Act of 1977 focusing on 1) default rates; 2) delinquency rates; and 3) the profitability of CRA-related loans. That report was released by the Federal Reserve on July 17, 2000. Despite the acknowledged limitations of the report and its methodology (discussed below), several results are clear.

Summary of the Report

Methodology of the Report

Although better than anecdotal information, the report falls short of being a rigorous, data-based scientific study. In its favor, it may be described as an initial exploratory effort, pointing toward a more comprehensive effort. Among the report's deficiencies:

Each of these limitations tend to bias the report toward results favorable to CRA.

CRA Lending for Home Purchase and Refinancing, Home Improvement,
Small Business, and Community Development

Respondents provided $570 billion in home purchase and refinance loans in 1999, of which 10 percent were CRA-related; $12 billion in home improvement loans, of which 18 percent were CRA-related; $117 billion in small business loans, of which 50 percent were CRA-related; and $13 billion in community development loans. As described below, when compared to non-CRA loans, CRA-related loans were less profitable in all categories.

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