Implications of risk-based pricing for affordable homeownership and community reinvestment goals

This dissertation examines the community reinvestment lending activities of prime lenders during the period of subprime industry growth. For the purposes of this dissertation, community reinvestment lending is defined to encompass the lending programs and products used by regulated lenders to meet their obligations under the Community Reinvestment Act (CRA). While a substantial and growing literature scrutinizes the subprime market, far less attention has been given to the development of community reinvestment lending by prime institutions. Each of the essays in this dissertation explores a different aspect of the interaction of community reinvestment lending with the subprime market. The first essay examines borrowers' substitution of community reinvestment mortgages for FHA and subprime products during the period 1998-2006. The second essay examines the role of equity extraction in community reinvestment borrowers' refinancing behavior, showing that the desire to extract equity combines with income constraints to create an economic rationale for subprime refinancing among a small set of borrowers. Lastly, the third essay documents the role of mortgage brokers in the refinancing decisions of community reinvestment .mortgage borrowers, concluding that origination through a mortgage broker increases the likelihood of a transition into a higher-cost refinancing product.