WASHINGTON - The Treasury Department issued a study Wednesday detailing a massive surge in lending under the Community Reinvestment Act over the past decade, prompting experts to question whether the trend could be sustained.

The issue is pivotal, because the study is the first step in a two-year effort by regulators to measure the impact of changes to the 23-year-old reinvestment law under the Gramm-Leach-Bliley Act of 1999.

"It looks like the standard has been set," said Tim Marrinan, a partner KPMG Barefoot Marrinan in Minneapolis. "I don't know that we've reached saturation … but it's a very robust standard."

According to Treasury's report, banks and thrifts made $467 billion in mortgage loans to lower income borrowers from 1993 through 1998. These mortgage loans rocketed 80%, to $135 billion during 1998.

The financial reform law amended CRA, and disputes over these changes nearly derailed the legislation last fall. As a means of judging Gramm-Leach-Bliley's impact on CRA lending, Congress asked Treasury to provide a baseline study this spring and a follow-up report by November 2001.

But using Wednesday's report to assess future CRA lending may not work, experts said. Factors beyond CRA, including a hardy economy and plenty of bank mergers, played a role in beefing up lending to lower-income borrowers during the 1990s.

"The years [the study surveyed] are an unusual period, with vigorous economic expansion, low interest rates, advances in risk management by lenders, income growth, etc.," said Paul A. Smith, senior federal administrative counsel, regulatory and trust affairs at the American Bankers Association. "All those factors would have affected mortgage numbers, so there is no way to tell what relationship they have to the CRA numbers."

Mr. Marrinan attributed some of the increase to the large number of megabank mergers, which often included 12-digit CRA pledges.

Even the study's principal author, Robert E. Litan of the Brookings Institution, acknowledged in an interview, "The CRA played some role, but we don't quantify how much of a role."

"The most important aspect of the report is that banks and thrifts covered by the CRA appear to be doing a lot better job lending money to low-income people than they were in 1993, for a combination of reasons," he said.

Mr. Litan sounded a note of caution:

"Any subsequent snapshot of where CRA lending stands would have to take into account the fact that we're already building on a substantial volume of CRA lending. If economy turns sour and the rate of increase falls off or numbers decline, it would be unfair to blame the Gramm-Leach-Bliley [law] or consolidation of the banking industry for that trend. Any subsequent analysis has to take into account the other factors."

But CRA fans credited the 1977 law for banks' move into low-income neighborhoods and increased low-income lending.

"The Treasury Department has … confirm[ed] that increases in lending to minority and working class communities were due to the Community Reinvestment Act," John Taylor, president and CEO of the National Community Reinvestment Coalition, said in a statement.

The group expects low-income lending to increase, regardless of how the Gramm-Leach-Bliley Act is implemented.

"Financial institutions have realized that CRA lending is profitable," said Josh Silver, NCRC's vice president and policy. "We look forward to even higher increases. Let's go for a 90% increase in the same time period." Treasury's report shows the increase in dollar volume is matched by an increase in number of mortgage loans to lower income borrowers; 1.7 million were made during 1998, for a 45% increase. The number of low- and moderate-income mortgages increased 39%, while such loans to higher-income borrowers increased 17%.

Only 15% of the growth in CRA mortgage loans is attributed to subprime lending. In fact, banks and thrifts lost some of the low-income loan market share, declining from 65% of the market in 1993, to 63% in 1998. Subprime mortgage loans by non-CRA institutions accounted for two-thirds of the growth in mortgage lending to low-income borrowers, but dollar figures were unavailable.

Bank and thrift lending to small businesses in low- and moderate-income areas declined slightly, from under 21% in 1996, to 20% in 1998. Those are the only years such data were collected.

The Federal Reserve Board is more than a month late on a third study required by Gramm-Leach-Bliley. Under the law, the central bank was supposed to report by March 15 on the default rates and profitability of CRA loans. Sen. Phil Gramm has argued that banks should not be forced to make these loans if they are significantly riskier than normal credits.

Under Gramm-Leach-Bliley, banks must maintain "satisfactory" or better CRA ratings to merge with securities or insurance firms. Banks and community groups also must annually disclose the terms of certain CRA-related agreements, and community groups must explain how they used the funds. The law also extended the CRA exam cycle for small banks to five years. Federal regulators are expected to propose rules to implement the law next month.

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