The GOP's Blame-Acorn Game

NJ.com — Wednesday, October 29, 2008

NJ Voices / John Atlas

The Republican attack on ACORN, the community organizing group, has accelerated dramatically in the last few weeks, with John McCain, Sarah Palin, conservative columnists and bloggers, and right-wing TV and radio talk show hosts all joining in the anti-ACORN chorus. Among other assaults, they have been scapegoating ACORN for Wall Street's disastrous lending spree. As Peter Dreier and I reveal in our article, "The GOP's Blame-ACORN Game," which appears in the November 10 issue of the Nation and also on-line, the accusations are completely bogus. The campaign against ACORN has gotten traction because the conservative echo chamber has been effective at injecting their views into the mainstream, especially since McCain and Palin have jumped on the anti-ACORN bandwagon.

When Congress enacted the CRA in 1977, banks regulated by the law made most of the mortgage loans. By 2006, it all changed. Companies subject to the CRA made only about 43 percent of home loans. The real culprits in the subprime scandal were not covered by the CRA. These lenders grabbed the bulk of the mortgage market away from the CRA-regulated banking industry.

These non -regulated banks and mortgage companies got their money from Wall Street investment firms — including Lehman Brothers, Goldman Sachs, Bear Stearns and Citigroup — who were not also not regulated by the CRA.

The CRA encourages federally chartered banks to examine the credit needs of the communities they serve and to lend based on these needs — for small businesses, homes and other types of loans. It does not require banks to make loans to businesses or people who can't repay them. It does not ask banks to engage in charity. It simply tells banks: don't discriminate against qualified borrowers.

The CRA actually penalizes banks for reckless, irresponsible or otherwise predatory lending. According to Ellen Seidman, director of the Treasury Department's Office of Thrift Supervision from 1997 to 2001, federal regulators warned CRA-covered institutions that "badly underwritten subprime products that ignored consumer protections were not acceptable." Lenders not subject to CRA did not receive similar warnings.

And unlike the institutions that offer unregulated predatory subprime loans, banks that make CRA loans are required by federal regulation to verify borrowers' incomes to make sure they can afford the mortgages. In 2006 the Federal Reserve reported that just 11.5 percent of mortgages made by CRA-regulated institutions were high-cost loans, compared with 33.5 percent for lenders not covered by the CRA. Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, has criticized those who blame CRA lending for the subprime crisis: "Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households."

ACORN, like the New Jersey group Citizen Action, has carried on the battle against abusive lenders on many fronts to ensure that loans in minority areas did not put borrowers in risky situations. Like New Jersey Citizen Action ACORN's homeownership counseling program for prospective borrowers is hugely successful in helping families avoid taking out loans they could not afford. Like Citizen Action less than a half percent of their loans end up in default.

ACORN joined other consumer advocates and lawyers to promote the notion of "assignee liability" — arguing that companies that buy, and profit from, loans bear responsibility for illegal acts committed when those loans were originally made. Without it, the mortgage originators, who typically hold loans briefly before they sell them, can make fraudulent or risky loans without suffering any consequences. Again and again, Wall Street argued that it was too burdensome to scrutinize the loans they were buying or to be held responsible for the original transactions.

Several of ACORN's battles were notably successful. It got some major lenders to reduce the outrageously high interest rates and fees they charged borrowers. For example, in 2001 ACORN persuaded Household Finance Corporation to abolish its practice of selling bogus credit insurance that had been costing a billion dollars a year straight out of homeowners' pockets. ACORN's activism spurred state attorneys general to sue Household Finance in 2002, forcing the firm to distribute a record $484 million to abused borrowers. In a separate suit against Household Finance, ACORN won a $150 million settlement that it put partly into a foreclosure prevention fund.

Powerful business groups and their right-wing allies will continue to attack ACORN because it exposed and battled the real culprits of the financial crisis.

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