More on CRA and ACORN

West Bronx resident and freelance journalist Eileen Markey goes in depth with ACORN on their relationship with CRA and subprime lending over the last decade in a piece in City Limits Weekly. Read about how they were one of many community groups fighting predatory lending and pushing for quality lending, not the toxic stuff that ended up blanketing low and moderate income communities of color.

But ACORN and other proponents of the Community Reinvestment Act – the 1977 law requiring banks to lend in all communities from which they receive deposits – did promote a fairly nuanced message. They lobbied for more quality lending in low-income and minority communities while also calling for more stringent regulation of the kind of non-bank lenders like Countrywide that fueled the mortgage crisis. Campaigns by ACORN and like-minded groups including the Chicago-based Neighborhood Training and Information Center sought to shrink the risky-mortgage business by pressuring investment banks not to buy the debt, and also pushed for changes in the way banks measured creditworthiness so that people with lower credit scores could be eligible for decent mortgages from real banks.

"A lot of this did not have to happen, and there were groups out there including ACORN that were sounding the alarm," said Ismene Speliotis, executive director of NY ACORN Housing, in an interview last week. But many investment banks, busy making oodles by investing in the sub-prime mortgages, didn't heed the warning.

Riverdale Press Documents CRA's Place in Bronx History

In a recent editorial, the Riverdale Press reminds us all of the context that the Community Reinvestment Act emerged out of in the Bronx. In recent weeks, the 1977 legislation has come under repeated attack by conservative commentators for our recent financial woes. Fortunately, publication after publication have come out in defense of CRA as a tool to end the practice of redlining, where banks refused to make loans in certain neighborhoods, usually on the basis of race or class.

The Riverdale Press editorial forcefully documents the context here in the northwest Bronx in the years leading up to CRA by quoting Jill Jonnes:

• In 1965, banks wrote 298 new mortgages in the Northwest Bronx; 10 years later the total was 44.
• Eastern Savings Bank granted 59 new mortgages and refinanced 63 in 1965; 10 years later, it made one new mortgage and refinanced two.
• North Side Savings, headquartered at West 231st Street and Broadway and holding $200 million in deposits from the Northwest Bronx, granted only a single mortgage in its own community in 1975.

The Washington Independent adds to the discussion that Alan Greenspan, in his recent testimony on our financial collapse, does not even mention the Community Reinvestment Act as a potential source of blame. And if you'd like to read an informative in-depth piece on CRA and ACORN, check out this piece on AlterNet.

In Defense of CRA

Opinion by Gregory Lobo Jost
It's getting a little ridiculous, to tell you the truth. According to the New York Times, an Iowa Representative has introduced legislation to repeal the 1977 watershed legislation that helped save neighborhoods across the country, including the those in the Bronx. Maybe it should come as no surprise that certain deregulation-minded conservatives who have been battling the Community Reinvestment Act for years (following the lead of former Senator Phil Gramm) would take the opportunity of a financial meltdown to once again go on the attack against CRA.

Fortunately, the Times editorial board has taken a stand today in support of CRA:

The charges do not hold up. First, how could a 30-plus-year-old law be responsible for a crisis that has occurred only in recent years? Then there’s the fact that the regulatory guidance issued under the reinvestment act and other banking laws actually impose restraints on the riskiest kinds of subprime lending.

In addition, subprime lending was not driven by banks, which are covered by the act. Rather, most subprime lending was driven by independent mortgage lending companies, which the act does not cover, and, to a lesser extent, by bank affiliates and subsidiaries that are not fully covered by the act. By some estimates, nonbank lenders and bank affiliates and subsidiaries may have originated 75 percent or more of the riskiest subprime loans.

The Times also cites a report by the Center for Community Capital at UNC Chapel Hill that shows much lower default rates in CRA loans than in subprime. A separate January 2008 study showed that banks who were subject to CRA, "were less likely to make a high cost loan, charged less for the high cost loans that were made, and were substantially more likely to eschew the secondary market and hold high cost and other loans in portfolio." In other words, they had better lending practices.

The real problem was from lenders not regulated by CRA (thanks in part to Phil Gramm) who went wild with their products. Often they didn't care if the loans were affordable because they were going to sell them off to be packaged into securities and sold to investors around the world, who were in turn duped by the ratings agencies. Plenty of people made a lot of money along the way without any real accountability. Since CRA-regulated banks are more likely to keep their loans on their own books, they actually lent with the intention of being repaid.

The lack of accountability inherent to the mortgage securitization process is what fueled the housing bubble and has brought us to this disastrous economic moment. The weakening of CRA in 1999 might be a better place to look to place a good chunk of the blame. The timing suggests it warrants a closer look.

Housing Articles from the NY Times

On Saturday Jim Dwyer of the Times had a piece on the overfinancing of apartment buildings in the Bronx and how community groups never pushed for this scenario. UNHP's Jim Buckley is quoted extensively defending the role of the Community Reinvestment Act (CRA), a 1977 law that aimed to end redlining but has now come under attack from the Right for fueling the current housing implosion.

Charles Bagli follows this up with an article today on the financial trouble many private equity landlords are experiencing as they realize they can't drive rents up quite as fast as they had planned. While most of the properties featured in the article are located in upper Manhattan, there are a lot of private equity buildings in west Bronx.