Those who analyze the mortgage meltdown of 2007-2008 point the finger of blame in many directions. They say the Federal Reserve’s easy-money policy under Chairman Alan Greenspan made buying houses too easy for people who couldn’t afford them. They fault the ‘Government Sponsored Enterprises’ (GSEs) Fannie Mae and Freddie Mac, which relaxed lending standards and securitized risky subprime loans, spreading financial chaos around the world when U.S. house prices fell back to Earth. And they criticize the Clinton administration and such powerful congressional Banking Committee chairmen as Sen. Christopher Dodd (D.-Conn.) and Rep. Barney Frank (D.-Mass.) for resisting attempts to rein in Fannie and Freddie.
Analysts have paid much less attention to “community organizing” groups that aggressively pressure banks to make loans to high-risk borrowers and then attack anyone who dares question their pressure tactics. The best-known of these groups is the notorious Association of Community Organizations for Reform Now (ACORN). Its secretive network of affiliates undertakes activities from “housing counseling” and fraudulent voter registration to mass demonstrations and policy advocacy.
NACA Uses Many Acorn Tactics
By comparison, the Neighborhood Assistance Corporation of America (NACA) is less well known than ACORN and, unlike ACORN, no illegal activities have been alleged against it. But its leaders and followers can be just as personally obnoxious and aggressive toward anyone they perceive as opposed to their objectives. To its credit, NACA seems to be an organization that truly assists many poor people obtain home loans. It does this by devising rigorous programs that help low-income persons in high-risk neighborhoods become responsible borrowers. But to its discredit, NACA crudely and unfairly attacks bank officials, pressuring them to make loans to other people who are likely to default on their loans.
Bruce Marks, NACA’s founder and chief executive officer, is an example of the radical activist-turned-non-profit executive. The character traits that were colorful and annoying in his youth have made him a slippery and dangerous adversary.
NACA’s national headquarters are in the Boston neighborhood of Jamaica Plain, and it has 36 branch offices across the nation from Washington, D.C., and Chicago to Dallas and Los Angeles out of which the group mobilizes its followers “to extend the reach of affordable lending and homeownership to every working person” and “to combat discrimination and exploitation of working people by lenders and financial institutions.”
Bullies Banks With CRA
NACA has combined the street tactics of protest and demonstration with public policy tools such as the Community Reinvestment Act (CRA) to pressure banks into expanding their operations in poor neighborhoods. NACA typically extracts self-serving concessions from banks, forcing them to provide it with funds that it then uses to make mortgage loans to low-income borrowers. NACA rolls the fees it earns servicing these loans back into its campaign of bullying banks.
NACA is no storefront operation. According to its most recently available IRS 990 tax form (2006), NACA had about $5.8 million in income — $5.4 million from mortgage and real estate fees and $400,000 from grants and interest on its assets of $14.8 million. As of 2007, it had obtained $10 billion in bank commitments for its own loan program.
NACA’s first target was Fleet Financial, a New England bank that had over 1,500 branches and 59,000 employees before it was sold to Bank of America in 2004. NACA subsequently went after Bank of America and Citigroup, institutions whose current financial problems are partly related to the CRA.
Origins of a Junk-Yard Dog
NACA likes to brags that it “has always taken the junk-yard dog approach — once we grab on we never let go no matter how long it takes. Once the fight was joined, NACA became these institutions’ worst nightmare, doing whatever it took for as long as it took.”
Unlike groups that disguise or moderate their public image, NACA is upfront about its tactics. The group’s website notes: “NACA has been accused of being overly aggressive and personal. NACA wears this as a badge of honor, leaving no stone unturned and often hounding CEOs from their shareholder meetings to their homes. The rationale is simple: Lenders have a personal and often devastating impact on the lives of the people who they refuse to provide affordable credit to or take advantage of through predatory loans and scams. Families who are denied access to credit live with the consequences every day, often experiencing financial devastation and/or the loss of their homes.”
To its credit, NACA has put a spotlight on shady lenders such as Resource Financial Group, and it has helped low-income workers obtain affordable home loans by requiring that they demonstrate their financial capability to handle monthly mortgage payments. The group should also be credited with issuing early warnings against letting Fannie Mae and Freddie Mac expand into the sub-prime market mortgage. Testifying before the House Financial Services Committee in 2000, NACA founder and CEO Bruce Marks warned against “the GSEs’ (Government Sponsored Enterprises) financial might to politically lobby and silence any critic they choose” which he called, “one of the most frightening aspects of their power.”
Radical Marks’ Background
Marks is by all accounts a superb organizer and shrewd negotiator. He has glibly described himself as an “urban terrorist” and “banking terrorist.” Like many radicals, Marks’s politics can be traced back to an unhappy childhood. Marks grew up in the wealthy neighborhoods of Scarsdale, N.Y., and Greenwich, Conn.
After graduating from the University of Connecticut with a degree in economics and NYU with an M.B.A. in finance, Marks found his calling in the early 1980s in Boston, where he took a job as an organizer for the Hotel Workers Union Local 26. In dealing with hotel managements, Marks and local union president Domenic Bozotto would reach agreements to set up a housing trust fund giving hotel workers help with home mortgage down payments so that they might live as well as work in Boston.
By 1988 Marks founded NACA (originally called the Union Neighborhood Assistance Corporation of America) to provide mortgages to low-income borrowers. (His current annual salary is a reported $150,000.) But Marks would not merely ask banks to help NACA. He would hound them into helping.
Playing Tough With Banks
The first big bank to find itself in Marks’ crosshairs was Fleet Financial Group of New England. At that time, activists like Marks were claiming that many banks were still redlining — avoiding making loans in low-income areas that were populated by minorities. Without major banks making loans in those areas, so-called predatory subprime lenders filled the vacuum, preying on low-income borrowers.
In 1991, Marks claimed Fleet was extending credit to private mortgage companies to offer mortgages to minorities at “loan-shark rates.” NACA collected research on lending patterns in Boston and gave it to the Boston Globe. The newspaper began publishing stories critical of Fleet, and followed up with more stories about Fleet practices in Georgia and Illinois, which prompted investigations by Georgia’s attorney general.
The most damaging revelation NACA made was that Fleet extended a line of credit to Resource Financial Group, which made loans to minorities at interest rates in excess of 18%. The press coverage prompted Massachusetts Atty. Gen. Scott Harshbarger to file suit against Resource Financial Group for deceptive sales practices. Fleet stopped doing business with Resource Financial Group.
Shaking Down Fleet
NACA’s 1991 campaign against Fleet was a preview of the tactics Marks would successfully use to achieve his ends. Marks earlier had informed Fleet officials that he would drop his anti-Fleet campaign if they gave his organization $20 million. “Up until now, you have dealt with community activists,” Marks said, according to the Wall Street Journal. “We are urban terrorists.” In retrospect, Fleet should have jumped at the offer.
It became commonplace for Marks and his shock troops, often dressed in yellow shirts, to disrupt speeches and analysts’ meetings, and to vocally protest Fleet press conferences. Marks would steer supposed victims of Fleet loans toward reporters, who often ran heart-wrenching stories about them. Marks’ biggest media coup was his appearance in a “60 Minutes” television profile of Fleet.
The culmination of the anti-Fleet campaign came in 1995 when NACA activists disrupted a Harvard Business School event at which Fleet CEO Terrence Murray was supposed to speak. Murray agreed to meet with Marks four days later. In an agreement following the meeting, Fleet agreed to settle all the suits against it for $350 million. NACA would receive $140 million of that money to fund its own loan program. Fleet agreed to initiate an $8 billion loan program for inner-city, low-income neighborhoods. In exchange, Marks agreed to halt the attacks on Fleet and destroy a database NACA used to generate lawsuits against it.
The $140 million cash infusion let NACA move its anti-bank crusade to the national stage, where it turned its attention to First Union Bank of North Carolina. First Union was headed by CEO Edward Crutchfield, whom NACA dubbed “Fast Eddie” because “he sped by working people to obtain high-income customers.” NACA tried to crash a First Union shareholders meeting and invaded Crutchfield’s personal life.
The NACA website boasts: “NACA hounded Fast Eddie at every turn. Thousands of post cards were sent to his home and neighbors, informing them of First Union’s practices. NACA drafted the “Fast Eddie Report,” which contained Crutchfield’s personal information, and sent it to all of his neighbors and the neighbors of First Union’s directors and top officers. NACA wanted Crutchfield to understand that he had a personal impact on people’s lives by denying them credit, and thus his personal life would be affected as well.”
The news was spread that Crutchfield was having an affair with a subordinate and that NACA was sending protesters to the school Crutchfield’s child attended. In the Boston Globe Magazine Marks defended such tactics: “What you do is who you are. It’s all personal.” In May 1996, Crutchfield and First Union settled with NACA, agreeing to fund its loan program to the tune of $150 million.
A year earlier, Marks had received a $500 million commitment from another North Carolina-based bank, NationsBank. But there were consequences to agreeing to NACA’s unrealistic demands, and they became obvious as the mortgage crisis unfolded in 2007. In 1998 NationsBank merged with Bank of America, which in 2004 purchased Fleet, absorbing Fleet’s $8 billion commitment to low-income neighborhoods. Bank of America also committed to providing further large sums to NACA, including $3 billion in 1999 and another $3 billion in 2003.
NACA also targeted Citigroup. In 2003, it organized 300 Citigroup borrowers to attend the corporation’s annual meeting. Shortly thereafter, Citigroup also ponied up a 10-year $3 billion commitment to provide mortgage loans to moderate- and low-income borrowers screened by NACA.
Surrender Without a Fight
NACA’s well-earned reputation for extremism works. Banks now surrender without a fight. In 2007, NACA targeted Countrywide Bank, which quickly agreed to NACA demands that it restructure its borrowers’ troubled loans. And who can blame it? The “Predator Watch” section of NACA’s website encourages people who believe they are victimized by lenders to report their grievances to NACA. It urges the “victim” to “identify the lender and person that did this to you. Please attach any pictures you may have or can obtain of the person, the company or anything else that would expose them.”
Marks tends to divide the world into two groups: victims of bad mortgages and “loan sharks” that prey on them. NACA’s website hypes the “huge subprime and predatory lending industry” that aims to entice “the elderly, lower-income and minority individuals” to agree to bad loans. “We believe all banks are evil — out to maximize profits at the expense of working people,” Marks has said.
Marks once showed up at a congressional hearing with a picture of Fleet CEO Terrence Murray on his shirt with the words, “Wanted. Loan Shark.” By contrast, his sympathy for borrowers runs deep. “It’s tough to save money, isn’t it?” Marks said in 1996. “You can’t pay your bills on time. You don’t have perfect credit. That shouldn’t prevent us from being homeowners.”
In 2007, Marks said about subprime lenders, “They incentivized brokers and lenders to throw money at people knowing they couldn’t afford these loans… These homeowners were never qualified correctly and they deserve modification [of the loan].” According to Marks, subprime lenders are at fault for encouraging borrowers to overstate their incomes to qualify for loans they couldn’t afford. But what about the borrowers who agreed to overstate their incomes?
NACA’s homeowner program offers loans that even Marks has admitted “may sound too good to be true.” NACA offers fixed-rate 30-year mortgages with no down payments, no closing costs, and no fees. No private mortgage insurance is placed on the loans. High-risk borrowers can and do qualify. Even if a candidate has filed for bankruptcy or been late on four credit card payments in the previous year, he can still get a NACA mortgage.
In testimony before Congress, Marks stated that 65% of NACA homeowners had a credit score of less than 620, and nearly 50% have less than 580. (A credit score of 850 is perfect, and anything below 620 is generally considered high-risk.)
But is NACA’s program a magnet for delinquencies and foreclosures? Apparently not. Marks has claimed his program had only one foreclosure in its first four years. And according to a 2007 profile in the Boston Globe Magazine, the NACA program had a 90-day delinquency rate of 1.15%, compared to a national rate of 2.95%.
What explains NACA’s success in getting high-risk borrowers to pay their mortgages on time? Borrowers are required to complete a lengthy and demanding application process to qualify for NACA’s support for their bank loan application.
l NACA has required prospective borrowers to complete assigned tasks that can take anywhere from one month to one year before they qualify for NACA support.
- Consumers with poor credit must submit budgets to NACA showing that they are changing their spending patterns and have begun to repay delinquent loans.
- They may be required to demonstrate over three months that they are able to save the difference between their current rent and their desired mortgage.
- They may be required to pay $50 monthly into a NACA fund that could be used to help them should they become delinquent on their loan.
- Those who qualify for a loan are asked to participate in five NACA activities annually. These could range from helping NACA staff stuff envelopes for a mailing to joining a protest demonstration.
How long the process takes depends on the borrowers. NACA says potential borrowers who have few credit troubles can be quickly approved. Those with a history of financial difficulty will face more scrutiny. So the rigorous NACA program seems to refute Marks who likes to say that being unable to pay your bills on time should not prevent you from becoming a homeowner. It requires that potential borrowers show they can pay their bills on time before they can qualify for a NACA mortgage. If only some of the mortgage-lending banks were as diligent.
With so many hoops to jump through, how many people qualify for a NACA loan? In a 2001 San Antonio Express-News article, NACA regional director Pam Brooks acknowledged that only about one in four per- sons completed NACA’s mortgage program after signing up for it. A National Mortgage News article from 1998 noted that while NACA had bank commitments of $1.3 billion over a four-year period, the banks had made only $250 million in mortgages to NACA qualified borrowers.
Apparently, NACA does train previously high-risk borrowers who are ready to become financially responsible. After all, what type of person would be willing to wait up to a year for a loan approval, accumulate several months of savings, repay delinquent loans, and participate in NACA’s program of political activism? By weeding out irresponsible borrowers, NACA can claim that its “track record of helping people who have credit problems become homeowners or refinance out of a predatory loan debunks the myth that high rates and fees are necessary to compensate for their ‘credit risk.’ ”
The irony is that NACA should be commended for its systematic and exacting efforts to help low-income people become homeowners. But Bruce Marks’s responsibility toward the poor is more than matched by his irresponsible attacks on banks. He stalks and demonizes and harasses bank officials into making mortgage loans to the sorts of negligent low-income people he would throw out of his own program.
Should We Blame CRA?
NACA could not operate as it has without the Community Reinvestment Act. The CRA is a federal law, enacted in 1977, that banned the real estate practice of “red-lining” communities, singling out geographical areas where a bank would make no loans. To comply with the CRA, banks had to show that they did not discriminate in making loans in poor and black neighborhoods.
At first it was easy to comply with the CRA. Most banks simply showed that they were making a good-faith effort to serve low-income and minority communities. But, starting in 1995, the Clinton administration put the CRA on steroids. Regulators lost their discretion and banks were forced to statistically demonstrate that they had made their quota of loans in low-income neighborhoods.
Under the new rules, CRA now allowed community activist groups to file complaints against banks that could affect a bank’s CRA rating. A bad CRA rating could affect whether the Federal Reserve would approve a bank’s proposed merger with another bank, and this let groups like NACA legally extort huge sums from financial institutions, sometimes by merely threatening to file a complaint. In response, financial institutions began allocating more funds to low-income, high-risk borrowers.
Did the CRA contribute to the mortgage meltdown? The Federal Reserve and Fannie Mae and Freddie Mac should be held responsible for the easy money, relaxed lending standards and subprime lending policies that torched the country’s financial system. But it is increasingly apparent that the CRA added fuel to the fire.
As for Bank of America and Citigroup, the two institutions that were NACA’s biggest targets — until they made multi-billion-dollar loan commitments to NACA and became its closest partners — their fate suggests that a CRA portfolio is no source of strength. Bank of America had to take a $20 billion bailout from the federal government and their recent woes relate primarily to its unwise acquisition of Merrill Lynch last September. But its CRA commitments have not helped it weather the storm.
In the first quarter of 2008, Bank of America told the Securities and Exchange Commission that it had added $1 billion to its nonperforming loans and leases. The troubled loans were driven by “the weakening housing market as well as seasoning of portfolio growth and to a lesser extent the Community Reinvestment Act portfolio, which represented about 8% of the residential mortgage portfolio at March 31, 2008.” By the middle of the year, Bank of America reported to the SEC that its CRA portfolio “represented approximately 35% of the net increase in nonperforming loans.”
The mortgage meltdown offers NACA new opportunities to promote its peculiar and successful formula: Help responsible borrowers get bank loans and then attack the banks until they agree to make loans to irresponsible borrowers.
In April 2007, NACA announced a $1 billion program to rescue “subprime victims.” To qualify, borrowers must go through a careful process similar to the one NACA employs for homebuyers. Borrowers must attend NACA workshops and counseling sessions and provide ample documentation on their financial situation. They also are invited to join NACA “community organizing” and strident activism.
NACA siphons off the subprime victims who are ready to be financially responsible — and it leaves the rest to badger the banks and appeal to the politicians. NACA can be counted on to bully banks that won’t readjust their subprime mortgages. The homepage of NACA’s website now features an “Accountability Campaign” aimed at bank CEOs. It targets bank executives that “have amassed huge fortunes on the backs of hardworking American families … [and live] in their many luxurious homes,” and it singles out those that “have refused to restructure mortgages that would allow families to stay in their homes.”
NACA then presents photos of Chase’s Jamie Dimon and GMAC’s Stephen Feinberg, who have refused to make agreements with NACA on reducing the cost of subprime loans. Will bank CEOs denounce advocacy group pressure tactics like NACA’s and stand up to Marks and his minions? Don’t bank on it.