The Facts About ACORN, CRA Programs and the Mortgage Crisis
Three weeks until the Presidential Election and - as we would expect - the politicking is getting especially intense, which in turn means the first victim is usually the humble truth. Once the truth has been sacked, it is usually the regular folks who are next.
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.
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Comments
I'm on the end of the business where we haul the borrowers in off the street - even here in the ATL, where there were a lot of black and brown and yellow people getting subprime loans, it still wasn't the majority of the business.
Just wondering if you can point me in the right direction on this.
I'm glad to know that other people (a lot more knowledgeable than me) are asking these questions, about data. The general assertions that are floating around seem to be intended to work just by innuendo. "It's common sense that CRA is the cause of the current mortgage crisis!" But I don't think so, and I wonder if there's anything to back it up. I'd also be interested in knowing whether minority mortgages are defaulting at a rate higher than predicted by simple economic factors.
RESPA is the governing body of laws for real estate related transactions, always a good place for general info and a solid background.
RESPA makes a big point to protect the personal information of borrowers, so being able to just find demographic data is difficult.
Best place for data regarding race/ethnicity/national origin etc. would be found through an advocacy group such as ACORN.
There are CRA annual reports which can show you loans made Atlanta, etc. but you have to kind of put the pieces of data together - they do not record by race specifically - against RESPA regs - but if you know your town and zip codes, you can get a good idea of what was going on in the traditionally ethnic/racially concentrated areas.
The data is out there from in the US Census, but you have to go through so much to get so little, it would be easier to get on the web or the phone and find someone who has already done the work.
Most stats are broken up by region or MSA - Metropolitan Service Area. A big sity may have several. Each is then divided by zip code or congressional district, and into further 'tracts'.
Key words will be LMI Tract (Low to Moderate Income) or High Cost MSA (areas like LA, Seattle, Manhattan).
Data that is available but usually a year or two old can e found at HUMDA - that is the US Gov released data. FHA, HUD may have some too. HUD may at least have some links to demographic data.
As far as blaming the poor, that's an easy one. If Jamie Dimon wants to call a press conference and blame poor, inner-city, and minority borrowers for buying into the dream that the lenders and the Gov were pushing down their throats, he will get a stampede.
If poor old Mabel Johnson in Five Points calls a press conference to explain how a lender talked her into taking all the equity out of the house she has owned since the 1960's by taking out a sub prime ARM Piggyback for 100% of an inflated appraisal on her home in August of 2006, no one will show up.
Sub prime was designed to account for additional risk while allowing expanded opportunities for potential borrowers. It meant the markets were expanded for the banks, too - more profits.
the poor tend to be less educated, and have less access to the information needed to make sound financial decisions. They are more apt to depend on the advice of the very people trying to take advantage of them for lack of alternatives.
They were baited and lured into ARMs that they could never afford to bring to term. It should be a nationwide criminal investigation, but they were all benefiting from it.
Lenders began using programs to help low income or credit-challenged buyers to qualify speculators and flippers. I flipped a few houses, I was A paper, but I used several Wells Fargo sub prime mortgages because I could use Stated Income and Stated Assets, providing no 1040 and signing no 4506-T.
I will stop there.
It was uninhibited greed, and now we need a scapegoat.
People did get into houses - for a while. Banks made big bucks, spread it around DC. Everyone got dirty on this, and now it is easier to blame the disenfranchised.
I am not a numbers guy, but I am a good guesser. If you have 10 sub prime defaults on 10 houses worth $200K each, the loss is a hell of a lot less than if you have defaults on 10 houses worth $500K each.
The latter is what is happening with ALT A and Prime mortgages, which ar defaulting at nearly three time the rate they anticipated they would - this is the real problem.
Sub Prime is defaulting only slightly higher than anticipated, and they were paying a higher rate anyway - this is not where the bulk of the losses are.
Sorry to ramble - hope this points you in the right direction. If you find some good minority data, please let me know - I would like to check it out.
Fight On!
Ciao!
Anthony
HMDA (not HUMDA) - good place to start
MSA - Metro Statistical Area (not Service)
LMI Census Tract (not LMI tract, might have worked tho)
and check this out for a McCain blooper-duper:
http://www.allvoices.com/contributed-news/1560406-john-mccain