“I’ve been fighting alongside ACORN on issues you care about my entire career. Even before I was an elected official, when I ran Project Vote voter registration drive in Illinois, ACORN was smack dab in the middle of it, and we appreciate your work.” — Barack Obama, Speech to ACORN, November 2007
ACORN, the Association of Community Organizations for Reform Now, if you haven’t heard, is a radical organization that devotes itself with laser-like focus and intensity to the maxim that all politics is local. The group supposedly exists to find affordable housing and provide social services for low-income families. But when two undercover, enterprising young people equipped with a hidden camera walked into an ACORN office, posing as an over-the-top pimp and prostitute wanting to establish a brothel dealing in enslaved children from other countries, ACORN employees offered them advice: how to get on welfare; how to cheat the tax system; how to get housing from the government; how to hide the criminal profit (a tin in your backyard, natch).
In the wake of the video, the Senate — with seven notable exceptions — voted to bar new federal funding for ACORN. But beyond the outrageous seven and the video, this is an opportunity for deeper revelations still.
Federally aided counsel to a pimp and prostitute and pervasive allegations of voter fraud aren’t the worst of it. The reaction that has greeted the furor has been the most disturbing facet of the whole sorry affair. There is a place, a time, and a need for getting to the bottom of the whys and hows of social pathologies. But that time is not while watching an organization that gets federal funding offer help with the sex trafficking of children on YouTube. Yet that was the default position of some on the left on this scandal.
ACORN’s chief executive, Bertha Lewis, would eventually surrender to the demand for atonement and issue a statement saying, “We have all been deeply disturbed by what we’ve seen in some of these videos. I must say, on behalf of ACORN’s board and our advisory council, that we will go to whatever lengths necessary to reestablish the public trust.” But that was only after being on adamant defense.
And Lewis wasn’t alone in self-protection mode. When the first video dropped, a blog on National Public Radio’s website excused crimes as part and parcel of the plight of the community organizer: "It’s also important to keep in mind that ACORN's workers are coming from the same low-income neighborhoods the organization serves, with all that entails — poor schools, high crime, and the sorts of social problems that have been documented for decades.” The post continued: “So the flaws conservatives are pointing out about ACORN are not so much problems associated with that organization per se but more about the problems of being poor and minority in urban America." Don’t blame them, in other words. They can’t help themselves; they’re poor people.
And herein lies the deeper scandal — it’s not just the denial of what is right in front of your face, it’s denial of a bad mode of operating, of a sickness in policy and philosophy. For as much as the Right is attacked for being dismissive of the poor and most vulnerable, the Left clutches that which continues the plight of government dependence among so many.
ACORN is wedded to stale thinking that all too often makes people dependent and crushes responsibility, creativity, and our very natures. And the Obama administration only plans to continue to increase welfare spending, ensuring that the system that gave birth to ACORN and its inexcusable conduct will continue to thrive.
All agree that the bursting of the housing bubble caused the financial collapse of 2008. Most agree that the housing bubble started in 1997. Less well understood is that this bubble was the result of government policies that lowered mortgage-lending standards to increase home ownership. One of the key players was the controversial liberal advocacy group, Acorn.
The watershed moment was the 1992 Federal Housing Enterprises Financial Safety and Soundness Act, also known as the GSE Act. To comply with that law's "affordable housing" requirements, Fannie Mae and Freddie Mac would acquire more than $6 trillion of single-family loans over the next 16 years.
Congress's goal was to force these two government-sponsored enterprises (GSEs) to purchase loans that had been originated by banks—loans that were made under the pressure of another federal law, the 1977 Community Reinvestment Act (CRA), to increase lending in low- and moderate-income communities.
From 1977 to 1991, $9 billion in local CRA lending commitments had been announced. CRA lending by large banks increased dramatically after the affordable housing mandate was in place in 1993, growing to $6 trillion today. As Ellen Seidman, director of the federal Office of Thrift Supervision, said in a speech before the Greenlining Institute on Oct. 2, 2001, "Our record home ownership rate [increasing from 64.2% in 1994 to 68% in 2001], I'm convinced, would not have been reached without CRA and its close relative, the Fannie/Freddie requirements."
The 1992 GSE Act was the fuse, and the trillions of dollars in subsequent CRA and GSE affordable-housing loans would fuel the greatest housing bubble our nation has ever seen. But who lit the fuse?
The previous year, as Allen Fishbein, currently an adviser for consumer policy at the Federal Reserve, has noted, Acorn and other community groups were informally deputized by then House Banking Chairman Henry Gonzalez to draft statutory language setting the law's affordable-housing mandates. Interim goals were set at 30% of the single-family mortgages purchased by Fannie and Freddie, and the Department of Housing and Urban Development has increased that percentage over time. The goal of the community groups was to force Fannie and Freddie to loosen their underwriting standards, in order to facilitate the purchase of loans made under the CRA.
Thus a provision was inserted into the law whereby Congress signaled to the GSEs that they should accept down payments of 5% or less, ignore impaired credit if the blot was over one year old, and otherwise loosen their lending guidelines.
The proposals of Acorn and other affordable-housing advocacy groups were acceptable to Fannie. Fannie had been planning to use the carrot of affordable-housing lending to maintain its hold over Congress and stave off its efforts to impose a strong safety and soundness regulator to oversee the company. (It was not until 2008 that a strong regulator was created for Fannie and Freddie. A little over a month later both GSEs were placed into conservatorship; they have requested a combined $112 billion in assistance from the federal government, and much more will be needed over the next few years.)
The result of loosened credit standards and a mandate to facilitate affordable-housing loans was a tsunami of high risk lending that sank the GSEs, overwhelmed the housing finance system, and caused an expected $1 trillion in mortgage loan losses by the GSEs, banks, and other investors and guarantors, and most tragically an expected 10 million or more home foreclosures.
As a result of congressional and regulatory actions, the percentage of conventional first mortgages (not guaranteed by the Federal Housing Administration or the Veteran's Administration) used to purchase a home with the borrower putting 5% or less down tripled from 9% in 1991 to 27% in 1995, eventually reaching 29% in 2007.
Fannie and Freddie acquired $1.2 trillion of loans from banks and other lenders from 1993 to 2007. This amounted to 62% of all such conventional home purchase loans with a down payment of 5% or less that were originated nationwide over the same period.
Fannie and Freddie also acquired $2.2 trillion in subprime loans and private securities backed by subprime loans from 1997 to 2007. Acorn and the other advocacy groups succeeded at getting Congress to mandate "innovative and flexible" lending practices such as higher debt ratios and creative definitions of income. And the serious delinquency rate on Fannie and Freddie's $1.5 trillion in high-risk loans was 10.3% as of Sept. 30, 2009.
This is about seven times the delinquency rate on the GSEs' traditional loans. Fifty percent of the high-risk loans are estimated to be CRA loans, with much of the remainder useful to the GSEs in meeting their affordable-housing goals.
The flood of CRA and affordable-housing loans with loosened underwriting standards, combined with declining mortgage interest rates—to 5% in 2003 from 10% in early 1991—resulted in a massive increase in borrowing capacity and fueled a house price bubble of unprecedented magnitude over the period 1997-2006.
Now this history may repeat itself as many of the same community groups are pushing Congress to expand CRA to cover all mortgage lenders, credit unions, insurance companies and others financial industry segments. Are we about to set the stage for another catastrophe?
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