King, who organized the protests, argued that ACORN had warned policy makers years ago about the approaching meltdown.
Even if this is true, it misses the point because ACORN helped to create the housing bubble that popped leading to the mortgage industry’s meltdown.
For years ACORN has supported the Community Reinvestment Act (CRA), a kind of financial affirmative action program that required banks to lend to borrowers in supposedly under-served neighborhoods. CRA helped to change the way U.S. financial institutions operated. Even though it didn’t cover all mortgages, the law opened the door for community organizers to weaken lending standards.
Banks have to be evaluated and given CRA report cards that are drawn up by government examiners. The law had nebulous criteria originally but this changed when the Clinton administration promulgated a 1995 regulation requiring those assessing a bank’s CRA compliance to seek out the opinions of housing and consumer advocates.
This regulatory change allowed the community organizers of ACORN to pressure banks to lend money to their constituencies whether they were creditworthy or not. Instead of taking a principled stance banks caved in and wrote loans they shouldn’t have while paying out millions of dollars in protection money to ACORN as the cost of doing business.
Around the same time that banks began to ramp up their risky subprime lending, Fannie Mae and Freddie Mac, under intense political pressure to service the subprime market, created a new investment vehicle in the secondary market known as the mortgage-backed security (MBS). Banks were less choosy about borrowers because they knew they could offload their risky loans on MBS investors.
So, ACORN helped to cause the mortgage bubble by strongarming banks into making loans they shouldn’t have. And cheering them on was ACORN’s lawyer, Barack Obama, who contributed to the increasingly hostile environment for banks when he represented plaintiffs in the 1995 class action lawsuit Buycks-Roberson v. Citibank. The suit demanded that Citibank grant mortgages to an equal percentage of minority and non-minority mortgage applicants. The bank settled the case three years later and reportedly agreed to beef up its lending to unqualified applicants.
ACORN refuses to acknowledge the role that it and the CRA played in the current crisis on Wall Street, and now President Obama supports stronger enforcement of the disastrous law.
That’s ACORN’s involvement in the subprime mortgage crisis in a nutshell.