The Facts About ACORN, CRA Programs and the Mortgage Crisis

This post is contributed by Anthony Freed, from over at YourMortgageOrYourLife.com.

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 [artisan tension you feel whenever McCain and Obama are the subject of conversation, and let me correct some of the ascertains 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 missive related to affordable housing and the working poor. The statements proffered attempt to portray this shoe-string budget, grassroots community organization sound like 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 service 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, a 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 is 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 out 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 (Neg Am 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.