Source: http://www.investors.com/NewsAndAnalysis/Article.aspx?id=510298
10/26/2009
The Community Reinvestment Act has increasingly been at the core of controversy, most recently for its role in the financial meltdown that began in 2008.
Many economists have long questioned whether the CRA's mandates, which encouraged subpar lending standards, harmed the housing market.
Now we have news of a new controversy that brings the CRA together with the infamous Acorn, which has been a prime beneficiary of the act's mandates.
Acorn has earned a reputation with the public for persistently unethical behavior and repeated disregard for voter registration and other federal and state laws.
Recent videos showing Acorn employees giving advice on how to set up a prostitution ring as a legal enterprise by violating tax and immigration laws and abusing government housing grants have demonstrated Acorn's flagrant abuse of the public trust and complete disrespect for the law.
Abundant evidence shows that this is more than a case of a few bad apples; the organizational structure promotes and nurtures this behavior.
Since 1994, Acorn has received $53 million in direct federal funds. In addition, state tax dollars regularly flow to Acorn.
Now we know that banks have been funneling money to Acorn in order to comply with the federal mandates of the CRA.
Originally unveiled in 1977, the CRA was meant to ensure that low-income individuals and minorities were receiving fair and equal access to credit. But over the years it was distorted, shifting its focus from process to outcomes. This shift forced banks to loosen lending standards and make mortgages that wouldn't have otherwise passed muster.
For banks that wanted to protect themselves from regulators, they saw an alternative: donate or partner with groups, such as Acorn, that gave financial advice to the communities singled out by the CRA.
The Federal Financial Institutions Examination Council Web site, which links to CRA ratings and evaluations conducted by banking examiners, shows that many banks have donated to or partnered with Acorn to comply with CRA mandates.
Acorn's name is employed like a code word used to convey to federal regulators with a wink and a nod that these banks are serious about meeting CRA mandates. Indeed, Acorn Housing's Web site proclaims that it "provides one-on-one mortgage loan counseling, first-time homebuyer classes, and helps clients obtain affordable mortgages through unique lending partnerships."
For example, Citizens Bank of Massachusetts "offers an affordable mortgage program through Acorn for low- and moderate-income homebuyers with below market rates, expanded ratios and a low down-payment requirement."
Northeast Bank in Minnesota "donated $2,000 to Acorn." Independence Community Bank "provided grants to the New York City Office of the Acorn Housing Corp." And New York Community Bank "participated as a co-sponsor of the Bank Fair hosted by New Jersey Acorn."
The smaller banks aren't alone in boasting of their Acorn ties to meet federal regulators' standards. JPMorgan Chase, Bank of America and other big names have given millions as well.
BofA, which was one of Acorn's biggest corporate sponsors — giving $2 million to Acorn Housing Corp. in Chicago — has ended donations to Acorn in the wake of the most recent scandalous headlines.
Government must re-examine the rules that encourage the relationships that banks have with Acorn. Acorn employees are clearly incapable of offering reliable, let alone legal, financial counseling, as illustrated by the undercover videos in Acorn offices. We can surely find better ways of meeting the CRA's stated goals of fair and equal access to credit.
I have urged the FDIC and FFIEC chairman, Sheila Bair, to conduct a thorough examination of Acorn's role in helping banks satisfy their CRA obligations and to issue clear guidance that prohibits banks from receiving CRA credit for donating to or partnering with Acorn.
If the CRA is about ensuring fair and equal access to credit, banks should be judged on whether they provide such access and not on whether they have paid protection money to a politically favored group.
It is disturbing that in addition to mandating subpar lending standards, the CRA is guilty of promoting borderline extortion by an organization that has demonstrated a pervasive culture of corruption.
For years, Democrats have ignored the consequences the CRA has had on the housing market and our financial infrastructure.
The time to pay attention is now. Congress is considering additional, overreaching financial regulatory legislation.
Americans should look at the CRA's example and be wary of new government mandates on our nation's private companies.
• Bachmann, a Republican, represents Minnesota's 6th Congressional District and is a member of the House Financial Services Committee.
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