Rep. Steve King Falsely Claimed ACORN Helped Cause The Mortgage Crisis

Rep. Steve King Continues His Anti-ACORN Crusade

Rep. Steve King:

These are the things, some of the things that ACORN has done. They've contributed to the toxic mortgage situation that brought about the economic meltdown, just a year ago.  And, they've done so by shaking down lenders, by demanding contributions from lenders.  What large, major investment bank has not written at least one fat check to ACORN?

Rep. King claims ACORN caused the economic collapse "by shaking down lenders, by demanding contributions from lenders.  What large, major investment bank has not written at least one fat check to ACORN?"

It's unclear what he's talking about. 

If the congressman is claiming that ACORN's fundraising appeals caused the mortgage crisis, it lacks the logical coherence to provoke a fact check.

Demanded Contributions From Investment Banks?

If Rep. King is claiming that ACORN forced investment banks to provide home loans to low-income Americans, he is obviously unfamiliar with what investment banks are.  They do not offer home loans to individuals.

U.S. News:

First Of All, What Is An Investment Bank?
Think of it as a bank for the big guys: corporate and institutional clients, governments, and financial intermediaries. Investment banks offer a range of services for these clients, such as buying and trading securities, assistance in raising capital, advice on mergers and acquisitions, and asset management. Leading investment banks include Merrill Lynch, Goldman Sachs, Morgan Stanley, and Lehman Brothers. Bear Stearns is the fifth-largest U.S. investment bank. [U.S. News, 3/17/09]

Rep. Steve King In Just Plain Wrong

If King is following the other anti-ACORN Republicans by insisting the organization is to blame for the mortgage crisis because it helped low-income Americans receive home loans by way of the Community Reinvestment Act (CRA), that is just not the case.

"In The Current Mortgage Meltdown, Did Lenders Approve Bad Loans To Comply With CRA, Or To Make Money?"

The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households." [American Prospect, 4/7/08]

Gramm-Leach-Bliley Act Is Blamed For The Current Financial Crisis. According to the Washington Post, "[Phil]Gramm's aggressive efforts when he was chairman of the Senate Banking Committee to deregulate the banking and financial services industry.  That culminated in passage in 1999 of a sweeping financial services law that tore down the Depression-era Glass-Steagall wall separating regulated commercial banks from largely unregulated investment banks.  And little regulation was put in place to replace it... Gramm's efforts set the stage for the current crisis.  Lending by noncommercial banks has soared, to about 70 percent of total lending.  Investment banks, including Bear Stearns, grew too large to be allowed to fail." [Washington Post, 4/2/08]

Republicans Dropped The Ball On Housing

In 12 Years, Republicans Never Passed A Law To Provide Consumer Protection In Mortgages.  According the House Financial Services Committee, "The last law enacted to provide consumer protection in mortgages was in 1994 - when the Democrats controlled the House and Senate. That law, the Home Ownership and Equity Protection Act (HOEPA), included a host of consumer protections against high-cost and other exotic mortgage products and specifically required that the Federal Reserve write rules that would stop abusive lending practices." [House Financial Services Committee, accessed 4/15/09]

• Home Ownership And Equity Protection Act Required "New Disclosures And Clamp New Restrictions On Lenders Of High-Cost Consumer Loans." According to the Boston Globe, "When regulations are written and put into effect next October, the law will require new disclosures and clamp new restrictions on lenders of high-cost consumer loans secured by residential mortgages... The federal law is aimed at independent mortgage brokers and lenders who practice 'reverse redlining,' which occurs when lenders target poor and minority communities to make loans with unfair terms. The federal law is triggered when lenders make high-cost consumer loans in which the equity in a person's house is used as collateral." [Boston Globe, 10/16/94]

In 12 Years, Republicans Never Reformed Fannie Mae Or Freddie Mac.  According the House Financial Services Committee, "Before this Congress, the last law enacted to reform the regulation of Fannie Mae and Freddie Mac was in 1992 - when the Democrats controlled the House and Senate. In 12 years of Republican control, Congress enacted no legislation addressing the GSE's safety and soundness and there was active resistance from the Bush Administration on the bills the House did consider. When Former House Financial Services Chairman Mike Oxley attempted to pass responsible legislation through the House, he met with White House opposition and indifference from the Republican Senate." [House Financial Services Committee, accessed 4/15/09; emphasis original]