Remember when money was easy to come by? Neighborhoods that banks long ignored were suddenly flush with cash. Loans everywhere. Properties changing hands. Bad credit, no credit, become a homeowner. The American Dream is yours.

Now that the country is deep into the quaking aftermath of that dream, turned nightmare, fingers are being pointed at ACORN and other community organizations that encouraged mortgage lending in low-income communities. The argument, much heard of late in conservative outlets such as the Wall Street Journal's editorial page, Rush Limbaugh's influential radio show, and the pages of the National Review, is that grassroots groups, empowered by the Community Reinvestment Act, bullied banks into making irresponsible loans in low-income neighborhoods. The bad loans, then divided and repackaged into forms like "mortgage-backed securities" and other more exotic financial products, ultimately circulated into the economy like Typhoid Mary, sending modern capitalism into the sick ward.

Is that how it happened? Did ACORN – the poor people's activist group Association of Community Organizations for Reform Now – bring on the subprime lending disaster by demanding that banks lend to unqualified buyers in neighborhoods formerly "redlined," or officially avoided for fear that lower-income, often minority, residents weren't worth loaning to?

That's not how fair lending advocates in NYC remember it. "I never heard anybody from the legislative side or the community side saying they wanted crappy loans," said Jim Buckley, executive director of University Neighborhood Housing Program, a nonprofit that grew out of the 1970s movement to encourage broader lending, and has been warning about the dangers of risky loans practices and Wall Street's embrace of them since the beginning of the decade.

At the same time that ACORN is being excoriated in much of the media for alleged voter-registration fraud, the organization may be happy that no less a figure than former Federal Reserve Chairman Alan Greenspan is helping to redirect the economic blame being heaped upon it. In testimony before the House Committee on Oversight and Government Reform last week, Greenspan said, according to the New York Times, "The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower."

In fact – according to a string of 1999 and 2000 reports in American Banker, a 173-year-old publication calling itself "the leading information resource serving the banking and financial services community" – ACORN was an outspoken, consistent advocate for exactly the kinds of regulations that experts across the political spectrum now agree could have prevented the global economic crisis.

On August 4, 2000, American Banker reported on ACORN protests at nationwide offices of Lehman Brothers – the investment bank that went bankrupt last month because of its investment in over-valued mortgage-backed securities:

"Acorn members said they want Lehman and other investment banks to sign a code of ethics, pledging to adhere to 'best practices' in the mortgage lending business. Though the banks are not lenders, the group argues that they provide capital and financial support to abusive lenders by buying and securitizing their loans.

'They have to look at the terms of the loans they are funding and say they won't buy or securitize loans with unconscionable terms,' said Bertha Lewis, executive director of Acorn in New York. 'These secondary market players can see what kind of loans these are. They must refuse to buy loans from predatory lenders.'"

ACORN's campaign to get investment banks to adopt best practices for the mortgages they bought was aimed at drying up the secondary market for the toxic mortgages now at the bottom of the fallen financial house of cards. If investment banks didn't buy the shady loans, predatory lenders wouldn't receive the capital to make such loans, ACORN reasoned.

Ten days later, on August 14, 2000, as banks congratulated themselves for making more loans to minorities than the previous year, American Banker reported that ACORN voiced skepticism about the meaning of Home Mortgage Disclosure Act data:

"ACORN questioned whether the reported growth in lending was due to subprime loans, which may be cause for alarm, said ACORN National President Maude Hurd. 'Not all loans are equal. We have seen too many mortgage companies prey on black and Latino homebuyers, taking advantage of their desire to share in the American dream by overcharging them. Without knowing the specific breakdown of what kind of loans people were getting, it's hard to say what these numbers really show,' she said."
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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.

In May 2000, Brooklyn ACORN member Gloria Waldron testified before a hearing on predatory lending held by the House Banking and Financial Services Committee. Seven years before terms like mortgage-backed securities, pre-payment penalties and securitization entered the vocabulary of a nation struggling to understand the financial meltdown, Waldron told Congress to adapt the Community Reinvestment Act to keep pace with the changing financial landscape. "Wall Street investment banks are not just passive financiers of abusive lending practices. In their eagerness to enjoy the large profit margins offered by subprime loans, they fueled the enormous growth of the industry," she said.

In 2001, Speliotis recalls, representatives from ACORN and the state and city comptrollers' offices which manage New York's massive investment portfolio met with investment banks operating in the secondary market. The advocates and regulators urged the banks not to invest in subprime mortgages from companies like Countrywide. "We begged them to sign on to best practices, to really do due diligence. We begged them. They basically said we were crying wolf," Speliotis said. "They weren't looking back to see what they were buying in detail."

In 2002 ACORN was an enthusiastic supporter of New York state's anti-predatory lending law, which the Center for Responsible Lending praised as ahead of the curve in recognizing the dangers of securitization. The law went into effect on April 1, 2003. But a ruling by the Office of the Comptroller of the Currency four months later exempted national banks from compliance with state predatory lending laws. Then-Attorney General Eliot Spitzer, along with members of New York's Congressional delegation, ACORN, the Neighborhood Economic Development Advocacy Project (NEDAP) and the New York Public Interest Research Group (NYPIRG) condemned the exemption and urged the federal regulator to reconsider. It did not.

So, says Chris Kukla, spokesman for the Center for Responsible Lending in Durham, N.C., the argument that ACORN or other groups pressured banks into making risky loans is baseless. "That's like saying a community that asks for more police presence was asking to get mugged," Kukla said.

Lending to the less-well-off didn't cause the financial meltdown, he said. Lending to them through rotten mortgage products did.

To him, if the Community Reinvestment Act is implicated in the meltdown in any way, it's tangential. "CRA helped people understand that lending money in low-income communities was profitable," Kukla said. Far from requiring banks to make risky loans to unqualified buyers, the CRA strictly regulates the quality of loans banks make in the targeted communities. The problem was that in the 30 years since CRA went into effect, the mortgage industry evolved and CRA regulation didn't keep pace. That's why Brooklynite Gloria Waldron was telling the House Banking Committee it had to update CRA to take into account the third-party lenders – unregulated mortgage companies – that were spreading the toxic loans and then selling them to the investment banks.

"CRA applies only to banks and savings and loans, not finance companies," said Kukla. "CRA specifically says you have to keep safe and sound banking practices in effect."
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A January 2008 study by Traiger & Hinckley, a New York law firm specializing in CRA compliance issues, found banks covered by CRA that lent to poor people in formerly redlined neighborhoods "were substantially less likely than other lenders to make the kinds of risky home purchase loans that helped fuel the foreclosure crisis." The study used Home Mortgage Disclosure Act data from 2006 to compare CRA banks' performance with that of other lenders in the nation's 15 largest metropolitan areas.

NY ACORN Housing had similar results in the mortgages it helped procure for low-income New Yorkers. "Banks that stuck to their fixed-rate, prime loans – they are not experiencing foreclosure at the same rate," said Speliotis. It's not that ACORN didn't push banks to lend in low-income areas. They did, aggressively – but they pushed lenders for quality, fixed-rate loans based on documentation of what borrowers really could pay, she said. NY ACORN Housing counsels 2,000 potential homebuyers a year. In marked contrast to the unregulated mortgage companies and brokers who approved risky loans, Speliotis' group only ends up putting 200 of those potential buyers into home mortgages – 1 in 10 applicants.

"We beg people, basically: Be patient. We don't want to see you in default counseling a year from now," said Speliotis. "The banks used to accuse us of holding people back, keeping them from the American dream. Now we're accused of selling them on bad loans," she said ruefully. After negotiating mortgages with CRA-regulated banks, NY ACORN Housing stays with new homeowners to track their performance. Through intense homebuyer education, loan counseling and follow-up support, NY ACORN Housing says it has a record it is proud of.

"Our default rate in New York is zero," Speliotis said. "Zero."

- Eileen Markey