ACORN versus Predator
The American mortgage crisis and recent collapse has left the world questioning how to reform our institutions. I spoke to Wade Rathke—founder of ACORN, Association of Community Organizations for Reform Now, and long time champion for low-income folks in the U.S.—about his new book Citizen Wealth, predatory practices, how the American system needs to reform, and lessons Canada should learn from our neighbour's mistakes.
Amy: Prior to the mortgage crash was ACORN working on subprime lending for its members?
Wade: We were trying to stop predatory practices in subprime lending. We did not say that there should not be any subprime lending, because frankly some of our people, whether it’s in Canada or here, have challenging credit circumstances. So, sometimes for them to be credit-worthy a subprime lender is the only alternative, and it’s when it gets to be predatory then it’s a problem. It helps people that have a little damage in their credit. But what happened that went so wrong about subprime lending in the U.S. was not only did it become predatory, but the loans were not based on affordability. So they were just trying to push loans onto people, in some cases people who did not even need to be in subprime instruments but could have qualified for regular mortgages. Too many of these loans were based on stated income, income you can’t document from Canada Revenue. In some cases you need a stated income loan, if you’re a tipped employee or self-employed and don’t have employment records in the same way that you might have from the magazine. That whole market now is dried up because the subprime selling system credit doesn’t exist in the same way.
Amy: How is ACORN dealing with this fallout from this outsourced lending and from foreclosures?
Wade: Well, for years we tried to negotiate modification programs. The problem has been that the level of the modifications has not kept up with the extent of foreclosures, so as many of the modification programs as we negotiated in 2007 and early 2008, they’ve had huge impact but have not been able to really dent the acceleration. Now, because of this collapse, regular mortgages, prime mortgages, adjustable rate mortgages, subprime mortgages, top-of-the-line, all-day mortgages, whatever, all of them have foreclosure and delinquency rates because the value of homes has now sunk an average of 25 per cent across the country, putting a lot of homes—in the colourful expression of New Orleans—underwater, so that you owe more than the price of the house, what the house is worth. With every other situation where you owe more than what the house is worth, you’re going to be tempted to walk away from that. The last time a similar crisis happened in the U.S., there were a whole lot of people who just mailed their keys to the bank. And although you don’t read about that much yet, my sense is it is going to be happening or is happening now. Part of the problem is a lot of the servicers and mortgage brokers or mortgage companies are just converting the existing owners into renters because they know they can’t sell the house. It’s just a terrible situation.
So to answer your question, a huge amount has been done, there’s a huge infrastructure that ACORN and others built to handle modifications, but the modification process by banks and mortgage servicers has still been so slow that it has had impact for millions of people but there’s still millions of others who are being fast-tracked to lose their homes.
Amy: And how do you think that in the future, when you’re trying to negotiate mortgages for low-income borrowers, what sort of challenges do you think you’re going to be facing as a result from the financial institutions?
Wade: My fear is that the baby will end up being thrown out with the bathwater, that financial institutions that were never in love with CRA down here. With making mortgage loans available to lower income families, they will use this financial crisis as an excuse to curtail that even though, as near as we can determine, there’s no significant difference in the foreclosure rate from our neighbourhoods and areas elsewhere at this point. In some cases, it’s less in our communities than it is in some of these design-built suburban areas that were virtually financed by all subprime loans.