CHICAGO - the revised Community Reinvestment Act is more complicated than it first appears. Fed economists Wayne Passmore and Glenn B. Canner wrote that lending in the right neighborhoods and to low-income people is no guarantee of reaching the poor people the law is meant to help. Relying on income and address alone can produce misleading results, they wrote, because some low-income people have substantial assets and some higher-income people buy homes in low-income communities. "You need more information to make sure loan programs for low- and moderate-income individuals are not misdirected to people who might be better off," Mr. Passmore said during a brief interview. Their study was one of more than a dozen released last week at the Chicago Fed's annual bank structures conference. Other studies examined the effectiveness of community development banks, the efficiency of bank branches, and the lessons from financial crises. In the Fed study, the two economists found that most borrowers in low- income neighborhoods had high incomes. "In 1993, only 23% of the borrowers in low-income neighborhoods had low incomes, whereas more than 46% had middle or upper incomes," the economists wrote. They also discovered that 71% of low-income and 83% of moderate-income borrowers shunned poorer neighborhoods in favor of middle-income areas. "The new CRA regulations' focus on the income of the borrowers may overstate the degree to which borrowers who actually have limited financial resources are provided credit," they wrote. "This concern is supported by the large numbers of low- and moderate-income borrowers purchasing homes in middle- and upper-income neighborhoods." The two offered several explanations for why lower-income borrowers buy houses in wealthier areas. First, they said, the government collects data on income alone, not wealth. So, a retiree with a high net worth - but a low income - would qualify as a low-income borrower. Also, they said the data don't account for potential future income. Banks often are willing to extend credit to young professionals on the assumption that they will earn more throughout their careers. "Such lower-income borrowers may constitute a significant portion of all lower-income borrowers," they wrote. The economists, while urging banks to look beyond income, still said the measure is important. It allows banks located in wealthier areas to target low-income residents in their community for CRA loans.

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