Community Reinvestment and Credit Risk: Evidence from an Affordable-Home-Loan Program

This study examines the performance of home purchase loans originated by a major depository institution in Philadelphia under a flexible lending program between 1988 and 1994. We examine long-term delinquency in relation to neighborhood housing market conditions, borrower credit-history scores and other factors. We find that likelihood of delinquency declines with increasing neighborhood housing market activity. Also, likelihood of delinquency is greater for borrowers with low credit-history scores and those with high ratios of housing expense to income, and when the property is unusually expensive for the neighborhood where it is located.