31 October 2008

Talk Back: ACORN versus the Nuts

A few days back I noted the campaign that ACORN has mounted to fight back against the ridiculous charges right-wing nuts have leveled at them regarding alleged voter registration fraud. In this nice essay in The Nation this week Peter Dreier & Jon Atlas expand the counterattack to deflate right wing efforts to lay the blame for our financial crisis at the doorstep of .... you guessed it, ACORN. The nutty line of reasoning here - and I use the term 'reasoning' loosely - is that ACORN not only supported the Community Reinvestment Act (which the right, implausibly, have been pointing to as the source of our travails) but threatened and intimidated bankers into making ill-advised loans to poor applicants. If that sounds pretty lame, you are not as stupid as the folks at FOX and The Wall Street Journal Editorial Page think you are. Dreier and Atlas explain why.
"The right-wing case against the CRA is entirely bogus--a diversionary tactic to take the heat off the financial services industry and its allies, like McCain. The CRA applies only to depository institutions, like commercial and savings banks, but thanks to Congress's deregulation mania, there are now many other lenders, including private mortgage companies like CitiMortgage, Household Finance and Countrywide Financial (which was recently bought out by Bank of America). These outfits, which exist in a shadow world without government oversight, account for most of the predatory loans in trouble today.

When Congress enacted the CRA in 1977, the vast majority of all mortgage loans were made by lenders regulated by the law. In 2006 only about 43 percent of home loans were made by companies subject to the CRA. Indeed, the main culprits in the subprime scandal--the nonbank mortgage companies, which successfully grabbed the bulk of the mortgage market away from the CRA-regulated banking industry--were not covered by the CRA.

[. . .]

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."

While the CRA helped boost the nation's homeownership rate, particularly among black and Latino borrowers, subprime and other exotic mortgages had very little impact on homeownership. Most subprime loans were refinances of existing mortgages. From 1998 through 2005, more than half of all subprime mortgages were for refinancing, while less than 10 percent of subprime loans went to first-time home buyers. Moreover, a significant number of borrowers who took out subprime loans could have qualified for conventional, prime-rate mortgages with much better terms. Even the Wall Street Journal acknowledges that "plenty of people with seemingly good credit are also caught in the subprime trap." Brokers and lenders misled many of these homeowners, replacing safe thirty-year fixed-rate mortgages with deceptive, risky loans."

They proceed to describe how ACORN and other organizations sought to use the CRA to press banks to end discriminatory lending policies while also maintaining responsible lending practices. Once again the right wing nuts are just that.

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