Sunday, April 12, 2009

Article Of The Week

An article, "The GOP's Blame-ACORN Game," written before the election and appearing in the November 10, 2008 edition of The Nation, is nearly as topical now as it was five months ago. Peter Dreier and John Atlas demonstrate that, contrary to the claims of right wingers (especially, but not exclusively, on talk radio) even today, the Association of Community Organizations for Reform Now played little or no role, directly or indirectly, in the housing crisis intrinsic to the financial meltdown.

Dreier and Atlas neatly dispatch the argument that ACORN somehow defrauded the federal government or the American people. The community organization paid individuals- per unit- to register voters. Many of the workers completed the registration forms themselves and passed them on to ACORN, which then alerted the authorities. Ironically, ACORN was the victim, rather than the perpetrator, of fraud, a fact seemingly lost on the political opportunists on the right.

On their way to exonerating ACORN (which shouldn't, but does, need defense) for the subprime crisis, Dreier and Atlas summarize succintly the housing disaster, explaining

Wall Street investment firms--including Lehman Brothers, Goldman Sachs, Bear Stearns and Citigroup--set up special units, provided mortgage companies with lines of credit, then purchased the subprime mortgages from the lenders, bundled them into "mortgage-backed securities" and sold them for a fat fee to wealthy investors worldwide, typically without scrutiny. By 2007 the subprime business had become a $1.5 trillion global market for investors seeking high returns. Because lenders didn't have to keep the loans on their books, they didn't worry about the risk of losses.

The hostility toward ACORN's alleged role in the subprime crisis, insofar as it ever is explained by ideologues short on facts, seems to turn on their supposed role under the 1977 Community Redevelopment Act. But the CRA is no culprit. It applies only to depository institutions, such as commercial and savings banks, rather than other lenders, especially private mortgage companies, including the likes of CitiMortgage, Household Finance and Countrywide Financial (recently bought by Bank of America). Those institutions which do make CRA loans are required by federal regulation to verify the incomes of borrowers to make sure they can afford the mortgages. Not surprisingly, only approximately 20% of subprime mortgages were issued by banks regulated by the act, the others issued by financial institutions not covered by the CRA and not subject to routine examination or supervision.

Only 10% of subprime loans went to first-time buyers with over half being refinances of existing mortgages. Many of these homeowners were persuaded to replace lengthy fixed-rate mortgages with deceptive and risky loans. The number of subprime mortgages increased greatly early in this decade, Dreier and Atlas note, "as the number of lenders regulated by the government and covered by the CRA dramatically dwindled."

But ACORN did play a role: a homeownership counseling program for pospective borrowers, whose foreclosure rate on loans was .032% in 2006; warning, unsuccessfully, of the danger of adjustable rate loans; exposing the "yield spread premium," "a kickback from lenders to brokers for selling loans that are more expensive than what borrowers qualify for;" promoting "assignee liability," which would have made "companies that buy, and profit from, loans bear responsibility for illegal acts committed when those loans were orginally made;" and persuading some major lenders to reduce the exorbitant interest rates and fees they charged borrowers.

With the record so clear and unambiguous, one can only wonder why the right has made the Community Reinvestment Act and ACORN the primary culprits in the financial crisis. Perhaps it is because ACORN is a community organizer as is our President, and the Community Reinvestment Act because it is an example of successful government. Or maybe it's simply because something is needed to divert attention from the disaster wreaked upon the economy by financial deregulation.

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