The CRA Scam and its Defenders (ACORN's role in the subprime crisis)

Ludwig von MIses Institute ^ | April 30, 2008 | Thomas J. DiLorenzo

[E Rocc]

When the CRA was created during the Carter administration, the administration also funded with tax dollars numerous "community groups" that have helped the Fed, the Comptroller of the Currency, and other federal regulatory agencies to enforce the act. Under the CRA, if a bank wants to make virtually any change in its business operations — merging, opening up a new branch, getting into a new line of business — it must first prove to regulators that it has made "enough" loans to the government's preferred borrowers. The (partially) tax-funded "community groups" like ACORN (Association of Community Organizations for Reform Now) can file petitions with regulators that stop the bank's activities in their tracks, perhaps defeating them altogether. The banks routinely buy off ACORN and other "community groups" by giving them millions of dollars as well as promising to make even more dubious loans.

[E Rocc]

Now which candidate had what role in this mess?

[frithguild]

When I was young, jobs grown-ups had were doctors, plumbers, lawyers, dentists, stock brokers and so on. I had never heard of “Community Organizer” until this Presidential season. How does a Community Organizer get paid? How is this work relevant to current financial conditions?

The present subprime financial strains have as its genesis the policies promoted in the Community Reinvestment Act (CRA), compliance with which is a prerequisite for financial institution innovation. The CRA requires the “[A]ppropriate Federal financial supervisory agency” to assess a financial institution’s record of “[m]eeting the credit needs of its entire community, including low- and moderate-income neighborhoods…” 12 U.S.C. § 2903. The supervising agency then, “[S]hall prepare a written evaluation of the institution’s record of meeting the credit needs of its entire community, including low-and moderate-income neighborhoods. 12 U.S.C. § 2906(a)(1). In this report, it assigns a rating of: “outstanding”; “satisfactory”; “needs to improve”; or “substantial noncompliance.” 12 U.S.C. 2906(b)(2).

Under the regulatory scheme, the FDIC assesses the CRA performance of a bank based upon lending, investment, and service tests. 12 CFR § 345.24(a)(1). The FDIC evaluates the performance of a bank in predetermined “assessment areas.” 12 C.F.R. § 345.41. The FDIC takes into account any views expressed by “interested parties” in considering CRA performance. 12 C.F.R. § 345.29(c).

Alternatively, financial institutions may submit a “strategic plan.” 12 C.F.R. § 345.27. As part of this submission, “[A] bank shall … [i]nformally seek suggestions from members of the public in its assessment area(s) covered by the plan while developing the plan.” 12 C.F.R. § 345.27(d)(1).

Gramm-Leach-Bliley Financial Services Modernization Act, passed in 1999, makes the CRA ratings assigned by a supervising authority of critical importance to financial institutions. One of the reforms under Gramm-Leach-Bliley is the repeal of the depression era Glass-Steagall Act , which prohibited combining insurance and securities companies. However, under Gramm-Leach-Bliley, regulators may withhold authorization for a financial institution to enter into new lines of business, based upon its CRA ratings.

Thus, multi-billion dollar transactions may rise or fall based upon the input of “community organizations.” For example, Bruce Marks of the Neighborhood Assistance Corporation of America won loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group in one city - Boston.

To move from the abstract to the concrete, we can look to, for example, a Sept. 20, 2004 press release, “Citigroup and ACORN Sign Groundbreaking Agreement to Expand Access to Financial Services in Communities Around the Country”. There Citibank touted that it and Association of Community Organizations for Reform Now (ACORN) agreed to collaborate on several initiatives, including:

— Form an affordable mortgage-lending program between Citigroup and ACORN Housing Corp. (AHC) to develop a specialized mortgage product for all AHC’s homeownership centers, and make mortgages available to immigrants who have previously been shut out of credit markets. *** — Focus on community development lending to increase affordable housing in areas where the Citibank Community Development and ACORN footprints coincide. — Provide borrowers with access to the best combination of loan product, price, service, and attributes. — Establish a net-benefit test for real estate secured loans.

We now call real estate secured loans issued in compliance with these programs, “Subprime.”

Barak Obama has had an intimate and long-term association with ACORN. Acorn’s Madeleine Talbot first drew Mr. Obama into his alliance with ACORN. Toni Foulkes, a Chicago Acorn leader, has described that it specifically sought out Mr. Obama’s representation in a case it filed seeking to force the State of Illinois to comply with motor voter requirements. Mr. Foulkes likewise makes it clear that Mr. Obama’s post-law school role organizing “Project VOTE” in 1992 was undertaken in direct partnership with ACORN. Likewise, Mr. Obama’s volunteered his services yearly a key figure in Acorn’s leadership-training seminars. Furthermore, Obama’s service on the boards of Woods Fund and the Joyce Foundation allowed him to help direct tens of millions of dollars in grants to various liberal organizations, including Chicago Acorn, whose endorsement Obama sought and won in his State Senate race.

So, the “Community Reinvestment Act” seeks input from “Community Organizers” like ACORN in rating financial institutions on their compliance in issuing subprime loans. Without satisfying “Community Organizers,” financial institutions cannot escape depression era restrictions on innovation. What is the price of this satisfaction? Today it seems to be the federal bailout of Fannie Mae and Freddie Mac, at the cost of billions of taxpayer dollars.

[Rippin]

Newt was the only R leader in the past 20 years who had the Left totally pegged. He was onto all this.

[CarryingOn]

The CRA, since its inception, has been used by opportunist to extort money from the large financial institutions. The Federal government handed a loaded gun into the hands of these “community organizers” to hold to the head of the banks.

The banks had to pay off in millions, in cash and future commitments, in order for them to “permit” the Federal Reserve to consider the bank's mergers, acquisitions or plans for growth. Barack Obama and other Chicago personalities have done quite well, to put it mildly, from the housing and community investment racket (see Rezko, et. al.)

[unspun]

And why would ACORN, their counsel Barack Obama, and half of the Democrats be concerned at that time (esp. during the Clinton administration) seeing that it could lead to our crisis today?

After all, they want government takeover of banking. They’re socialists.

[JMJJR]

bump for later

[freekitty]

When are they going to put ACORN out of business?

[HighlyOpinionated]

Is this collusion and thereby makes Obama ineligible to be POTUS?

Just askin’ for clarification.

[tiki]

Community organizers are the old hippies. They graduated from college and blackmailed big business into funding them because there was always the threat of what they’d do if denied. Jesse Jackson and his ilk just copied them and used the new affirmative action laws and blackmail to get money from everyone. It is just another form of welfare.

[PGR88]

Damn - the Carter Administration is like a one night stand with Herpes. We had him once for a brief time, 30 years ago, and we are still having outbreaks of the disease he gave us.

[billmor]

“When are they going to put ACORN out of business?”

Good...

Another point...when are they going to repeal the CRA?, or at least remane it the Community Extortion Act or CEA ?

[freekitty]

Exactly

[fatrat]

just rename it the community ripoff act and they won’t need to change their initials

[ashtanga]

I used to think that man’s problems stemmed from breaking the ten commandments, but now I see that almost all evil arises from envy. Get those “greedy” speculators, big tobacco, big oil, Bush, Rove, Wal-Mart. Hey, both parties are here to help bring them down...and then we’ll replace them with squalor, disease and ignorance. Why, it will usher in the worker’s paradise or some such tripe...don’t worry about the details; we will handle that.

[antonia]

At $5 trillion plus interest we could see an average tax liability of $100,000 to $200,000 or more per tax paying person or household.

[antonia]

The myth that the CRA would not be harmful to bank-industry profits was hidden for years by the Fed-created housing bubble, which allowed for easy refinancing of all the bad debt. "[The] CRA increased lending and homeownership in poor communities without undermining banks' profitability," Robert Gordon proudly proclaims. But now that the bubble has burst, all those unqualified borrowers whom the government calls "subprime," as though their credit ratings are only a tiny, tiny smidgen below "prime" borrowers with the very best credit ratings are defaulting on their mortgages in droves.

Bank profitability has been extremely "undermined," to put it mildly. The bursting of the Fed-generated housing bubble is the reason why the CRA scam was not exposed until now, despite having been in operation for some thirty years. Read more here.

[antisocial]

Bookmark

[Avoiding_Sulla]

I did a google search [envy’s role CRA] and you came up as number 3.

My search was prompted by the news a few minutes ago that the House of Representatives had passed the bail-out bill.

Unless the role of envy and its exploitation are made an issue of as much as the MSM has made an issue of greed, we are never going to solve the problem.

Since it appears that you already suspect the role of envy in bringing this crisis about, maybe you want to join me locating all links on the subject and then help flushing the envy, jealousy, coveting element out into the open?

-Av