By Anthony M. Freed
Since this article is about truth, it is therefore inherently and emphatically not about politics, so please set aside your partisanship while I attempt to clear the air on a couple of important issues regarding ACORN, the Community Reinvestment Act loan programs, and the nation‘s biggest lenders.
The Community Reinvestment Act (CRA) was a great idea gone mad. The intention of the CRA was to prod banks to lend money in the same areas they do business. It basically said to banks, “If you want to make money in a community with your bank and ATM fees, you need to do a reasonably proportionate level of lending in that same community.”
The CRA essentially outlawed red-lining, or the refusal to lend based on factors unrelated to the applicant’s specific qualifications, such as the neighborhood they live in or it’s median income level.
As an Analyst, I produced quarterly competitive pricing and program underwriting reports for national lenders which specifically measured all aspects of the available “CRA” programs offered by every major national lender as well as many of the larger regional banks, individual state bond and subsidy programs, public and private grants, the down payment assistance programs (DPA or DAP), employer based and nonprofit programs.
I could talk to you about CRA programs in the kind of detail that would make you avoid me at parties or other social gatherings; point being, I have some authority to speak on the issue of Low to Moderate Income (LMI), Government FHA/VA, and First Time Homebuyer (FTHB) mortgage programs.
Of the hodge-podge cast of CRA characters required to make these hybrid programs function, one in particular has been making news of late, the newly-infamous ACORN who has been attracting attention for their voter registration techniques and logistical problems.
This is not about that division of ACORN. This is about another ACORN missive that helps bridge the gap between lenders of all sizes and the communities that the CRA was intended to assist.
I would like to respond to a completely distorted advertisement I found online the other night that really set me off. Clear your mind for a moment, and let go of all of that anger and partisan tension you feel whenever McCain and Obama are the subject of conversation, and let me correct some of the assertions the commercial makes.
The statements in the following campaign ad are so completely false, and so completely manipulative, that it should be severely sanctioned by the Federal Elections Commission, denounced by John McCain, and promptly filed in the trash.
Whether or not you agree with the basic premises underlying the need for CRA programs in general, any reasonable person can see that the kinds of distortions employed in this partisan attack have irreparably harmed the reputation of an otherwise respected nonprofit community service group.
Respected enough that John McCain himself has made speaking appearances at ACORN sponsored events. I don’t pin this on Senator McCain; I believe it is just the result of runaway campaign rhetoric, whose authors have little regard for the truth – and even less accountability for the misrepresentations.
What particularly angered me about the spot is the completely hyperbolic description of ACORN’s mission related to affordable housing and the working poor. The statements proffered attempt to portray this shoe-string budget, grassroots community organization as if it is some national behemoth, so powerful the can make the greatest financial institutions in the world bend to their very will.
Are you kidding me? ACORN is lucky if they are able to keep the lights on month to month.
ACORN could not even begin to afford the quality of stationary that would be required to begin to threaten banks with any affect, let alone the money or political clout necessary to actually persuade the banks to act in their favor.
Banks act in their own favor unless compelled to play fair; hence, the need for the Community Reinvestment Act in the first place..
Recall the following from the video:
“What did ACORN in Chicago engage in? Bullying banks. Intimidation tactics. Disruption of business. ACORN forced banks to issue risky home loans, the same types of loans that caused the financial crisis we are in today.”
That just absolutely floors me. I am caught between feelings of rage at the implication that they think we must be so gullible as to swallow that nonsense hook line and sinker, and the impulse to just laugh hysterically until I cry at the thought that yes, we may be so stupid as to swallow that nonsense hook, line and sinker.
Already several bills have been introduced in Washington, DC to cut or eliminate funding for ACORN. That is very much what I would describe as being – using John McCain’s vocabulary from the last Presidential debate – “class warfare.”
About Acorn Housing Corporation: ACORN Housing (AHC) is the largest nonprofit (c) (3) housing counseling organization in the nation, providing one-on-one mortgage loan counseling, first-time homebuyer classes, post closure and loss mitigation services, and financial counseling for families. Since its inception, AHC has provided free, high-quality counseling services to 250,000 households across the country, more than 80,000 of which have become homeowners, generating more than $10 billion in mortgages. AHC has 39 affiliate offices located throughout the United States, with 130 full-time employees. AHC has also developed over 1,500 units of affordable single family and rental housing over the years, including more than 250 owner-occupied single-family homes, and 460 ownership units in small multi-family buildings in various cities around the United States. To date, AHC projects have leveraged over $100 million in affordable housing financing and subsidies.
Let’s pretend for a moment that every single loan ACORN helped initiate ended in foreclosure, and ultimately resulted in losses for Fannie Mae and Freddie Mac, the primary destination for most LMI loans unless portfolioed by the lender. Under this scenario, ACORN would be responsible for around $10 billion in writedowns, a figure that is absolutely dwarfed by the scale of the bailout package which starts at $700 billion and will certainly grow into the trillions before the process is completed.
The McCain camp’s assertion that ACORN may have caused or even significantly contributed to the demise of Fannie and Freddie is patently false.
Next point, the video attempts to paint ACORN as an aggressive and adversarial organization who’s mission and tactics were in opposition to those of the nation’s lenders. Nothing could be further from the truth.
I can tell you from first hand experience, lenders view CRA as a major cash-cow, even after they waive most closing costs, private mortgage insurance. And subsidize the loan’s rate and/or points. For many Tier 2 regional lenders, CRA and FHA programs make up the bulk of their loan closings.
All of the national lenders participated in ACORN sponsored programs to one degree or another, with the nation’s leader being Bank of America. In many regions and metropolitan statistical areas (MSA’s), ACORN is consistently in the top three programs utilized by Bank of America out of the nearly dozen they have to choose from.
The McCain campaign ad completely distorts the nature of the relationship between ACORN and their lender partners.
Los Angeles ACORN: Bank of America works with Association of Community Organizations for Reform Now (ACORN) Housing to provide special mortgages to potential homeowners in Los Angeles. www.acornhousing.org.
We can also see by comparing the size and reach of ACORN (above) with that of Bank of America (below) makes it highly unlikely ACORN ever intimidated or exercised any undue influence over Bank of America or any other lender for that matter.
About Bank of America: Bank of America is one of the world’s largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk-management products and services. The company provides unmatched convenience in the United States, serving more than 59 million consumer and small business relationships with more than 6,100 retail banking offices, nearly 19,000 ATMs and award-winning online banking with nearly 24 million active users. Bank of America is the No. 1 overall Small Business Administration (SBA) lender in the United States and the No. 1 SBA lender to minority-owned small businesses. The company serves clients in 175 countries and has relationships with 99 percent of the U.S. Fortune 500 companies and 83 percent of the Global Fortune 500. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.
Local Home Ownership Programs: We work with local and national organizations to bring potential homebuyers education and financial resources to obtain a mortgage.
More than that, major lenders like Bank of America actively marketed their CRA programs which were in stark contrast to Senator McCain’s campaign ad accusation that “ACORN forced banks to issue risky home loans, the same types of loans that caused the financial crisis we are in today.”
Here is a gem I plucked off a Real Estate agent’s website after I Googled “bank of america ACORN.” It’s supposed to look spontaneous, but I believe it that is just the nature of the marketing style.
08/24/2006 09:47 AM: Almost by accident, I learned about the ACORN loan program earlier this year, It sounded too good to be true for our San Diego real estate market…Bank of America Mortgage explained that a borrower could receive below-market rates and amazing terms…The benefits?
1. Below-market rate with no points.
2. No PMI (private mortgage insurance)
3. Very liberal debt-to-income ratios.
4. Very low down payment required (0-5%)
5. Underwriting will credit some “cash” income and alternative sources of credit.
Immediately after hearing about this program, a qualified client (48k per year income) came in and we located a lovely La Costa townhome ($435k) that was ideal for her roommate situation. She had sold her home in Northern California and had a reasonable down payment (not necessarily required for the ACORN loan program). She took the one-day class on home ownership required by ACORN and afterwards met with her counselor to obtain a loan certificate. She brought that to Bank of America, who processed and funded the loan. It was amazingly simple and we were able to close within 45 days.
Now, on the website the agent is smiling, so ACORN probably was not holding a gun to the agent’s head, forcing the deal. And, given the agent’s description of the unusually hassle-free nature of the underwriting process employed by Bank of America in their consideration of such an obviously high-risk loan, it doesn’t sound like they were being coerced into this mortgage either.
The McCain campaign ad is purposefully misrepresenting the facts in a blatant attempt to win an election – the merits of which are another issue to be saved for a different discussions; that’s just politics.
The issue here may be whether or not the McCain camp has unjustly defamed ACORN, irreparably damaging their reputation and thus making their difficult job of helping working folks find affordable housing through equitable lending practices even more difficult. If they lose their Federal funding, it may well hav resulted in ACORN’s demise.
The McCain campaign ad itself is a prime example of the use of “intimidation tactics” and most definitely resulted in a “disruption of business” for ACORN.
Now, I do not mean to imply Bank of America’s relationship with ACORN is anything out of the ordinary, either. Most every lender who had a presence in a major MSA has employed ACORN programs to some extent.
The relationships have not diminished in light of the current mortgage meltdown either. As late as February of this year, lenders were actively engaging with ACORN to expand their reach and the number of loans they could help initiate.
ACORN Housing Corporation launches non-profit mortgage brokerage: February 25, 2008 – ACORN Housing Corporation launches non-profit mortgage brokerage with CitiMortgage, Bank of America, First American Title Insurance Company, and Fannie Mae to help low- and moderate-income families find safe, affordable mortgages…
ACORN Housing and CitiMortgage, Bank of America, First American Title Insurance Company, and Fannie Mae announced today the launching of a new non-profit mortgage brokerage called Acorn Housing Affordable Loans, LLC (“BUILD WEALTH THROUGH HOME OWNERSHIP” the site proclaims), to help qualified borrowers enjoy the benefits of homeownership throughout Florida. Additional offices will be launched in other states in the coming months. The new mortgage brokerage will also help homeowners faced with resetting adjustable rates that may make their current home mortgage payments unaffordable.
Central to this new initiative are the participating lenders commitment to make their fixed price and affordable mortgage products available as one of the options for borrowers working with ACORN Housing in its target cities. Key features of the fixed-rate mortgage products being offered include:
ACORN Housing offers: Low down payments, Flexible credit guidelines and income requirements including the use of non-traditional income. Competitive rates and Low fees.
Loan program details: Below market interest rates, $500 – 3% downpayment required, Flexible income, credit and savings guidelines. Based on your credit report, not your credit score. You can purchase 1-4 units homes. No Mortgage Insurance. Typically, this insurance is required for buyers who pay less than 20% downpayment.
Requirements: 2003 and 2004 year tax returns and W2s, One month of current paystubs, 3 most recent bank account statements, $20 in check or money order for a credit report, Rental history for the last 12 months: cancelled checks, receipts, landlord letter, etc.
“Over the last 12 months, we have worked diligently together to get ACORN established as a broker, provided training and support as they set up their broker operations and strategy. The launch today is a culmination of these efforts. We are proud to announce this alliance with Acorn Housing Corporation,” said Danny Gardner, National Director of Strategic Markets for CitiMortgage. “In the current climate, we feel the mortgage products we are offering through this relationship will not only help first-time homebuyers looking for a home but also may help those faced with rising mortgage payments.”
Judging by the description of the liberal underwriting standards still being made available long after they supposedly had been identified as the leading cause of the current foreclosure crisis, I have some serious doubts that is the actual case. If it were, I would not expect to see such inducements to borrow.
But, that is not the case. Neither is it the case that Fannie and Freddie were somehow victims or unwilling, uninformed participants in the acquisition of these loans.
Fannie and Freddie actively promoted and sought out these loans.
About Fannie Mae: Fannie Mae is a shareholder-owned company with a public mission. We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Our job is to help those who house America. Additional information about Fannie Mae can be found at: http://fanniemae.com.
“Fannie Mae is proud to work with ACORN Housing, ” said Thomas Collins, Director, Single Family Business, and Fannie Mae. By working with ACORN and lenders like Citibank, we can support their efforts to expand homeownership opportunities for underserved communities at affordable price points achieve sustainable homeownership.”
The regulatory geniuses of the Federal Government were also far from discouraging these loans – these dangerous loans – that the McCain campaign ad attempts to foist the responsibility for onto the undeserving shoulders of a charity that aids the poor.
As late as 2007 Ben Bernanke suggested further increasing the presence of Fannie Mae and Freddie Mac in the affordable housing market in an effort to encourage banks to fulfill their CRA obligations by providing them with more opportunities to securitize CRA-related loans.
The pace of risky loan purchases by Freddie and Fannie has continued to increased as part of the bailout in spite of the regular stream of data that regulatory agencies have always been collecting related to the over all performance of the securities backed by CRA loans.
If these loans posed such a tremendous risk to world markets and our national financial health, the problem would have been identified a decade ago, changes to the underwriting standard would have been made as they are being made now, and the world would not be dancing on the precipice of a new Great Depression.
Somehow, the culpability of the lenders, the GSE’s, and the Feds in this whole fiasco somehow escapes the hateful analysis provided to the public in the McCain campaign ad.
Evaluation of CRA Performance: The CRA requires that each depository institution’s record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution’s application for deposit facilities.
CRA examinations are conducted by the federal agencies that are responsible for supervising depository institutions. Information on this page is related to depository institutions that are examined by the Federal Reserve, mainly state-chartered banks that are members of the Federal Reserve. CRA information on other depository institutions is available from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC).
CRA is one of the most regulated and monitored loan programs in existence. They received more scrutiny than did a conventional conforming loan, as well as most Jumbos. Although alternative income types and flexible credit analysis were employed, there were none of the most toxic loan products available, like Stated Income/Stated Asset (Liar Loans) or Pay Option ARMs (Negative Amortization Loans).
The accusations and gross misrepresentations in the McCain campaign ad regarding ACORN, their relationship to the our nation’s lenders, and their role in the present financial crisis are extremely unfortunate, are definitely beneath the character and stature of Senator John McCain, and may prove to be part of McCain’s legacy after this election cycle has completed.
It was a low blow and now ACORN and the American people are the real losers.
Your Mortgage or Your Life... 
AS AN FHA APPRAISER I HAVE HAD FIRST HAND EXPERIENCE WITH ACORN. IN REDEVELOPMENT PROJECT IN THE SOUTH PHOENIX AREA FOR AFFORDABLE HOUSING I HAVE WATCHED AS ACORN BULLIED NOT ONLY MAJOR LENDERS WITH REDLINING LITIGATION BUT HAVE TURNED IN EVERY APPRAISER THAT DID NOT COME UP TO THE VALUE TO THE APPRAISAL BOARD AS DISCRIMINATORY. THIS HAS COST ME AND MY COMPANY TENS OF THOUSANDS OF DOLLARS PER YEAR. I HAVE ALSO WATCHED AS ACORN INFLATED HOUSING PRICES THOUGH ASSOCIATED COMPANIES TO MAKE A HIGHER PROFIT PER HOUSE. MONEY GOING INTO THE POCKETS OF DEVELOPERS WITH SEVERE CONFLICT OF INTEREST. I WOULD SEND YOU HARD DATA BUT THE CONFIDENTIALITY CLAUSE OF USPAP LEGALLY PREVENTS ME FROM DOING SO. SO GET YOUR HEAD OUT OF THE SAND AND SMELL THE COFFEE. ALSO DID YOU KNOW THAT ACORN WHO YOU SAY CAN BARELY KEEP THE LIGHTS TURNED ON HAS TWO PRIME LOTS IN CENTRAL PHOENIX WHICH THEY PUR4CHASED AT PENNIES ON THE DOLLAR AND PAY NO PROPERTY TAX ON. YOU CAN VERIFY THIS AT THE MARICOPA COUNTY ASSESSORS OFFICE. WHAT FRYS ME THE MOST IS THEY TAKE ADVANTAGE OF THOSE WHO CAN LEAST AFFORD TO BE TAKEN ADVANTAGE OF AND CALL IT REFORM.
I appreciate your candor, and I understand the confidentiality agreements – I am in the same position.
Your experience is probably accurate of a lot of peoples on the local level. I was addressing the group and their mission on a national level.
I worked for the major lenders’ product development teams, and there was never any hint of undue influence from ACORN.
They actively courted ACORN and made a ton of money off of them.
Everyone was acting like a jerk during the bubble, especially in AZ, CA, FL, NV, OH, MI. judging by the condition of their markets.
I am awake and caffeinated!
I will agree with you about the over the top by McCain as it relates to the pressures of ACORN. There are many things this Republican can skewer them for but the mortgage meltdown is not one of them.
But I would say, The CRA is a good idea that has had some unforeseen consequences and that unintended consequence was the explosion of subprime. No one forced these companies to embrace subprime, these companies like Countrywide saw an opportunity to make a buck and also providing needed capital for homebuying in underserved communities. Problem became subprime became so successful by 2002 that Fannie and Freddie wanted in on the gravy train.
The CRA was never used as a bludgeon and ACORN was never much of a boogeyman. Hell, ACORN was warning as far back as 2004 that there was too much subprime and too many “predatory” lenders in the market. I worked for a big lender and I can assure you the CRA was hardly or ever mentioned when expanding access.
Want someone to blame for the Democrats, blame Frank and Dodd and Frank Raines for turning a blind eye too Fannie/Freddie excesses and also blame guys like Richard Baker who was Chair of the committee at the time and held hearings but never went anywhere beyond it and allowed himself to be rolled by Frank and Waters, etc.
Every time I hear CRA and ACORN mentioned with this mess I laugh so hard it hurts.
But, hey it’s a campaign and like you said the truth is usually the first victim. You have Republicans talking this trash and you have Democrats changing terms, it is no longer a welfare payment, it is called a refundable tax credit
Thanks for a great comment – I tried to keep the post apolitical. Boy, i could write onr to skewer the Dems easily on this issue – SNL beat me to it.
The problem ws uninhibited greed. The LO’s could game LP/DU (and I am a fan of LO’s and Brokers – (only talking about the bad ones – small percentage); lenders abandoned risk abatement; Feds abandoned regulation.
A bad mix given human nature.
But the idea that the poor took out $10BB in subprime loans and brought the world to it’s knees is ridiculous.
BTW – ALT A and Prime are defaulting at rates similar to those of Sub Prime. There are more Prime and ALT A loans (together) than Sub Prime – as you know. The average loan amount is considerably higher too.
The damage will be greater. At least Sub Prime rates were adjusted for some risk, so in an analysis they are not underperforming as badly as Prime and ALT A is compared to projections.
But if the story was about Prime, we would not have the luxury of the voiceless poor to blame this mess on.
Lastly – the lenders bastardized what were good Sub Prime products and used them for flippers, SIVA/SISA/NINA/NIVA and (MY FAVORITE) NINJA loans.
These were marketed to increase originations volume – and profits – with no regard to the underlying deficiencies inherent in the loan.
If everyone had played by the rules, we would have no problem.
appraisser,loan officer,real estate agents,banks,lenders and wall street pigs your all BS! this is a ponzi scheme you guys screwed the middle poor or middle class people in this country for your own greed just to make quick bucks. you guys are in cahoots giving people loan that they could not afford making them believe you could have a piece of american dream BS! because of that YSP loan officer want his commision if he could give toxic ARMS evendo some people could qulifiy to traditional loan they give the the toxic ARMS ’cause they where pressure by the baks or lenders and lenders where pressure by the wall street pigs to do frauds. BS! i hope all you from the real este market burn in hell the federal reserve too now we see they are on the side of big corporate greed and wall street pigs burn all you in hell mutha fucker!
Wow! Aren’t you glad you got that off your chest.
First, I hope you were not including me in there – I am just a researcher, and I did not make jack.
The cats I worked for on the other hand were SVP’s and such, and they made bank. If it makes you feel any better, they lived miserable lives – outside of the cash – and were under constant fear of getting sacked.
They often sounded desperate on the phone.
Secondly, there are a lot of good people who work in the business. Nice family people who did their business the same way they did 20 years ago, did not get rich, and now may be out of a job.
Lastly, YSP’s are usually a compensation for brokers, not loan officers, if that helps you rant better.
Ciao!
these is how the big greedy corporate or wall street pigs screwed up the economy in this country. what a beautiful AMERICA!
doesnt matter man they all the same they screwed the economy for there own greed and now the tax payers have to shoulder or to pay for there mess. so the Federal reserve are not on the side on the main street there on the wall street pigs and greedy corporation.
I agree man, but mostly at the top. I feel bad for the nice LO I would call in KY 1x a week to grab some rates.
She, like dozens of other really nice people I would talk to every week just showed up for work everyday like they had for years. People came in and they worked hard to get them a good rate, they depended on repeat business and word of mouth.
Then came the Mozilo/Counntrywide style sweatshops that ruined the business.
This gal’s bank did not make bad loans, but they did get caught up in the bubble. When the shit storm started their investors – the people who set the rates and price and buy the loans from the banks – they all dried up.
It became increasingly hard to close a lone on 30 days – 60 day locks and less closings was the result.
She didn’t do anything wrong, she’s just a 50 something grandma paying bills too.
You have to just make that distinction for these folks who are really getting screwed just like we are.
There is a big difference.
But the executives? Have at them – they are the crooks.
The politicians – oh ya.
Speculators and liars and cheats – no matter what their position – OK.
But please give the working woman and man a break – he and she is us.
Peace.
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Wow, I’m just floored that anyone would think putting a person with a $48K salary into a $435K condo is a good idea. I wonder how high her HOA is; I’d bet it’s at least $500/mo. La Costa ain’t cheap.
Roommate, schroommate, I know of very few roommate situations that lasted longer than 6 months to a year. How is that borrower going to cover the bills on her own when there is that inevitable vacancy?
I’d bet a dollar this “homeowner” is already in default.
Approving someone who makes 48k a year for a 435,000 house is insanity and is precisely why so many people can’t afford their homes now. they bought way above their head. The CRA is social engineering which has no place in determining if someone can buy a home.
As for Acorn, taxpayers should be outraged that since 1998 $31 million of their tax dollars went to such a partisan organization which is committing mass voter fraud.
Sorry Art –
ACORN did not underwrite that stupid loan, Bank of America did.
ACORN is an advocacy group – they want to help people own homes, and they are not-for-profit.
The lenders had the responsibility to do the due diligence on the terms of the mortgage, not ACORN.
The lenders set the criteria – which those numbers fit – not ACORN. The lender determines how much a borrower may obtain, what property is adequate for collateral on the loan, how much down payment is required, the rate and price (points at closing) of the loan, whether PMI (private mortgage insurance) is required, and whether the borrower has provided them with documentation sufficient to secure the loan.
ACORN’s job is to explain what rates and points are, closing costs, taxes and insurance – little details that help people not get ripped off as easily.
In fact, what ACORN was doing by requiring their clients to take the one day homeownership class was doing the education aspect of the lenders jobs – because the lenders were not doing it.
ACORN protected thousands from predatory lending and lack fiduciary responsibility on the part of lenders, and they lobbied Capital Hill heavily to pass anti-predatory lending laws – which would have reduced the current crisis.
They advocated loans only be made when the borrower can prove an ability to repay based on the terms of the loan.
Lenders were qualifying people at temporary ‘teaser rates’ so the borrower could buy more house and afford higher payments.
ACORN fought this and other practices that preyed on the poor and undereducated.
You sir have drank the Kool-Aid, and too much for sure.
BTW – ACORN and anyone else who is registering voters are required by law to turn in every registration form for examination, even if the registration is blatantly invalid.
That means they have to turn in Tony Romo and Scooby Doo no matter what, or they would be destroying government documents, a felony.
You need to watch less Faux News and actually do some research for yourself.
Think for yourself.