9/26/08

ACORN's role in mortgage ripoff revealed

More ACORN stories: hereVoter-fraud stories: here

Union-backed voter fraud group championed reckless social policy

"It was reckless deregulation and lack of oversight that's a big part of the problem on Wall Street right now," said Barack Obama at a rally in Fort Lauderdale, Fla.

Blame for the current financial crisis has been leveled at Wall Street greed, deregulation, and the free-market system. However, government policies - formulated and promoted more than 30 years ago by community organizations like those affiliated with Barack Obama - are the root cause of the problem.

Economists and financial experts interviewed pointed especially to the Community Reinvestment Act of 1977 (CRA) and the Associated Community Organizations for Reform Now (ACORN) as major culprits.

Thomas DiLorenzo, Ph.D., an economics professor at Loyola College in Maryland, who specializes in housing finance, said, "I think they [ACORN and the CRA] were very major contributors to the current crisis. For 30 years they compelled banks to make loans to unqualified people.

"Groups like ACORN were getting money from the federal government for promoting these activities," he continued, "They essentially engaged in legalized extortion of banks. Any bank that plans a merger or expansion can be challenged in court about their compliance with the CRA. It must first prove to regulators that it has made 'enough' loans to the government's preferred borrowers. ACORN would threaten these plans by prolonging the process in the courts. The banks routinely buy off ACORN and other "community groups" by giving them millions of dollars as well as promising to make even more dubious loans."

According to Mr. DiLorenzo, the federal government has been paying ACORN to enforce the CRA, which is "all about making loans to unqualified buyers." Further, Fannie Mae and Freddie Mac, by a 1992 law, were devoted to subsidizing these loans by securitizing them. (Securitization means the mortgages purchased by Fannie Mae and Freddie Mac were sold to private investors.)

The 1992 law was the Federal Housing Enterprises Financial Safety and Soundness Act that mandated an increase in primary-market loans made to lower income borrowers by Fannie Mae and Freddie Mac. Fannie Mae increased its commitment to this market to $1 trillion because of this mandate.

William N. Goetzmann, Ph.D., Professor of Finance and Management Studies at Yale University took a slightly different path. He blamed the culture that is determined to have low-income people own a house.

"A principle factor was stimulating the desire of everyone to own their own home. The good intentions of the last four or five presidents, from Carter to this current administration, to make sure everyone owned a house was misguided. The CRA was just one of the mechanisms used for this," he said.

Yet, Mr. Goetzmann also laid much of the blame at the feet of Fannie Mae and Freddie Mac. "The commitment by the government to give them funding makes the United States unique in the world. We have these giant home mortgage insurers that no other country has."

This spread the risk but also created a financial structure that imploded once the housing market tanked.

However, all this was unnecessary as far as he was concerned. "Personally I feel that low-income people may not be well served by home ownership. There are a lot of accompanying costs associated with home ownership that low income people cannot afford, such as maintenance and insurance," Goetzmann said.

Stan Liebowitz, Ph.D., an economics professor at the University of Texas at Dallas dedicates a chapter on the subject of the culpability of community groups and the mortgage debacle in his forthcoming book, Housing America: Building out of a Crisis.

"The relaxed mortgage standards that everyone in the government promoted and mandated resulted in people getting loans who could not repay them," he wrote.

Mr. Liebowitz reached the conclusion that policymakers are correct to ask what caused the crisis, however, their answer thus far - that it is the fault of "unscrupulous lenders ... taking advantage of poorly informed borrowers" - is not correct.

He postulated that authorities ignore the proof that practices like zero down payments or mortgage applications "where the applicant was allowed to make up an income number" are the real transgressors. These policies were "heralded" and fostered by "the political housing establishment," i.e. regulators, politicians, academics and community groups.

He also said that while the housing establishment is proud of these practices, because they increased homeownership, they do not want to take responsibility for the mortgage meltdown they caused.

Yet, the CRA has many defenders such as Wharton professor Kenneth Thomas, who noted that since the 1990's that not one bank failure has resulted from the legislation.

- Michael P. Tremoglie

(thebulletin.us)

1 comment:

Cavalor Epthith said...

This is a right wing deception. The truth is here.

Qu'ul cuda praedex nihil!

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