Before Subprime There Was ACORN

Association of Community Organizations for Reform Now, known as “ACORN,” is in the news again and conservative politicians are going for the jugular vein. They smell blood and sense an opportunity to keep the ultraliberal, left-wing “scoundrels” at bay. That is because of a now infamous videotape depicting a prostitute and her pimp allegedly receiving counseling from an ACORN representative about how to break the law.

Even liberals, progressives and independents are appalled. Accordingly, politicians on both sides of the aisle are scampering to denounce the grassroots, community group and cut off its federal funding.

ACORN has offices in 110 cities and is the largest neighborhood-based, antipoverty group in the country. I had an opportunity to observe ACORN close up and personal in the late 1980s. At the time I was a volunteer advisory council member for the Atlanta Mortgage Consortium. I was the only mortgage banker on the council.

The consortium was formed in reaction to a series of articles in the Atlanta Journal-Constitution depicting intentional redlining by mortgage lenders in the African-American neighborhoods. The newspaper published statistical evidence, alleging that banks systematically eliminated minority, mostly African-American, families from obtaining home loans.

Reacting to claims of discrimination, a group of Georgia banks formed and funded the consortium that specifically targeted the African-American districts of Atlanta. Its objective was to make low-interest loans in the minority areas of Atlanta. Most applicants had little savings, tainted credit and salaries below the mean income level. They were previously renters and sought to buy modestly priced homes.

Those of us with credit-underwriting experience, were willing to accept relaxed underwriting standards to get disadvantaged applicants into homes and atone for the sins of discrimination that was prevalent in Atlanta's banking community at the time. But ACORN and the other community groups were also represented on the advisory council and pushed for more lenient benchmarks that would include all applicants. Their contention was that everyone deserves to own a home regardless of their income level or credit history. Moreover, they said that low-income families lacked the opportunity to compile savings and should receive down-payment help.

The groups chipped away at the underwriting standards and got most applicants qualified. They counseled new homeowners about their responsibility to make timely payments, maintain their homes and understand how homeownership was different than a rental arrangement. They even intervened when payments were missed and tried to get the homeowners back on track.

But borrowers had difficulty making the payments and defaults began to mount. Nevertheless, the banks were willing to accept double-digit foreclosures for the greater good of the program. Then the unexpected occurred — subprime lending.

The consortium was unable to compete with low documentation loans, no documentation loans, stated and unverified-income loans, and loan applicants that were buying homes much larger than they could possibly afford. Consequently, the consortium was no longer needed and shut its doors.

Although ACORN and the community groups pushed hard to further their own agenda, I never saw them alter documents, misrepresent loan applicants’ income or do anything illegal. Rather, they believed that the means, albeit loud and aggressive, justified the end.

And while many of its detractors would like to see ACORN disbanded, the organization has championed liberal causes for almost 40 years. They are a voice for those without a voice and take to the streets when no other avenue of recourse is available to them.

So before politicians rush to judgment, it is important to allow ACORN to investigate the misdeeds depicted in the video clip. Bertha Lewis, its CEO says, "We have all been deeply disturbed by what we've seen in some of these videos.”

Hence, it is appointing an independent auditor to investigate the situation.

“We will go to whatever lengths necessary to reestablish the public trust,” Lewis says. And furthermore, “We must get this process right, so the good work can go forward.”

Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA’s 2006 national “Journalist of the Year” award winner, tenonline.org/sref/jc1bio.html. He is a former entrepreneur, commercial mortgage banker and business lender.

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