Analyzing CRA Lending During the Tsunami in Subprime Lending and Foreclosure in the Philadelphia MSA

Until the onset of the financial meltdown, independent mortgage companies (IMCs) had begun to originate an increasing share of subprime loans, a high proportion of which went into foreclosure. In this study, we compare and contrast the characteristics of neighborhoods that have high proportions of loans made by Community Reinvestment Act (CRA)-regulated institutions with those that have high proportions made by IMCs. We find that IMC-dominated neighborhoods are characterized by high proportions of Blacks/African-Americans, low average family incomes and low nominal average family income increases, an old housing stock with inexpensive homes, a low homeownership rate, high vacancy rates, and a high proportion of high-cost loans. Based on t-tests and regression analyses, we find that areas dominated by IMCs are different from neighborhoods dominated by CRA Lenders and that the proportion of people of color helps explain foreclosure rates.