Stanley Kurtz takes a look at how the Community Reinvestment Act was used by activist groups to pressure banks into lending money to high-risk applicants, and how “community organizers” like ACORN played a front-line role. ACORN insinuated itself into the process by using CRA to block bank sales and mergers and force lending institutions to lower standards for applicants. They also championed the sale of these loans to Fannie Mae as a key program that would alleviate the lenders of any risk in lending:
CRA was meant to encourage banks to make loans to high-risk borrowers, often minorities living in unstable neighborhoods. That has provided an opening to radical groups like ACORN (the Association of Community Organizations for Reform Now) to abuse the law by forcing banks to make hundreds of millions of dollars in “subprime” loans to often uncreditworthy poor and minority customers.
Any bank that wants to expand or merge with another has to show it has complied with CRA – and approval can be held up by complaints filed by groups like ACORN.
In fact, intimidation tactics, public charges of racism and threats to use CRA to block business expansion have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America’s financial institutions.
Banks already overexposed by these shaky loans were pushed still further in the wrong direction when government-sponsored Fannie Mae and Freddie Mac began buying up their bad loans and offering them for sale on world markets.
Fannie and Freddie acted in response to Clinton administration pressure to boost homeownership rates among minorities and the poor. However compassionate the motive, the result of this systematic disregard for normal credit standards has been financial disaster.
I wrote about this last week from the fascinating perspective of 1999, when this effort got mainstream media notice for its supposed success. Now, however, no one wants to talk about the “community organizers” of ACORN, La Raza, and the Urban League, and how they used identity politics to distort the lending market. This closes a loop from that post in describing exactly how the CRA got used to extort shaky loans. The government relied on ACORN and other “community organizers” to file nuisance complaints in order to force the bad lending practices that created this mess.
Where was Congress in protecting the market? Why, they were funding these same “community organizers”. Over the last seven years, Congress gave earmarked grants worth millions of dollars to ACORN, explicitly for their assistance in low-income housing. The original Dodd proposal for the bailout would have made millions more available to ACORN through the Housing Trust Fund, a slush fund Democrats established this year to support even more “community organizing” along these lines.
Of course, Congress did more than just that. They pressed Fannie Mae and Freddie Mac into buying up all that bad paper and turning them into investment products. Supposedly this spread the risk, but what it really did was create an artificial demand for loans under any conditions. The lenders could not lose; they made a short-term profit on every loan whether or not the borrower made payments, thanks to Fannie and Freddie, and that set off a frenzy of credit sales that paid little attention to fundamentals. Fannie Mae’s board was too busy getting personal sweetheart deals from lenders like Countrywide to worry about whether the paper was good or not.
Kurtz takes special pains to note Barack Obama’s ties to ACORN. Madeline Talbott served as director of Chicago’s ACORN office and led high-profile protests for living wage laws and looser lending practices. Talbott had Obama train her staff, hired him for legal work, and eventually received funding through the Woods Fund when Obama and William Ayers served on the board. In their report, the Woods Fund noted the difficulty that ACORN has in raising money from traditional sources, thanks to their controversial activities, and that their award gave ACORN more political cover:
Indeed, the report brags about pulling the wool over the public’s eye. The Woods Fund’s claim to be “nonideological,” it says, has “enabled the Trustees to make grants to organizations that use confrontational tactics against the business and government ‘establishments’ without undue risk of being criticized for partisanship.”
Obama understood what ACORN does very, very well. He had started off as a “community organizer” from the same tradition, and he remains committed to that tradition — as his $800,000 campaign payment for ACORN’s services showed.
Just a few weeks ago, the media scoffed at critics who wanted a better explanation of “community organizing”. It’s no laughing matter now.