This is a classic Charlotte story. The protest in Uptown yesterday by the Neighborhood Assistance Corporation of America was set in motion over a decade ago by none other than Hugh McColl. Our local media either did not know this, or thought it unimportant. It is not.
Groups like NACA and ACORN are central to understanding how our financial sector blew up. They are not the sole source of the problem, but you cannot understand what happened — and what will happen — without reference to their relationships with the big banks, especially Charlotte’s.
The ostensible purpose of NACA’s protest was to complain that Fannie Mae will not re-write mortgage loans to help homeowners. Street protest is an old pressure-group tactic that embarrasses bankers and regulators. And what do you know, Washington is sure enough talking about instituting precisely the kind of federally guaranteed loan forgiveness program that NACA wants.
McColl must be particularly proud. Back in 1996 McColl directed $500 million in then-NationsBank lending power toward backing NACA programs, programs which directed no down payment, no closing cost loans to low-income borrowers. (First Union kicked in $100m.)
The goal McColl told The Charlotte Business Journal was to: “To give every American the opportunity to own a home.” Exactly. Without regard to risk. How did that turn out?
Actually, not that bad for the bankers, as the unspooling $825m. and counting bailout proves. First they bought off activist groups like NACA and ACORN with millions in lending programs, grants, commissions, and doc-prep fees in order to smooth their merger and expansion plans. Then banker execs pocket huge compensation packages for a solid decade based on the growth of their institutions via those mergers. When the house of cards finally collapsed last summer starting with Countrywide, taxpayers get stuck paying for the risky mortgages normal, historic lending standards would have never permitted. Profit indeed.
Better still, NACA is still paying dividends to the banks. Protesting against Fannie Mae and helping to agitate for further federal guarantees of bad loans helps put a floor of federal cash under BoA’s stanky Countrywide portfolio and Wachovia’s Golden West exposure. How much cash? Try another $600 billion worth of guarantees. The Washington Post reports today:
Under the program being discussed, banks or other lenders would agree to reduce the monthly payments of borrowers to a level they could afford. The payments could be reduced by lowering the interest rate, cutting the amount owed or extending the repayment period. The goal would be to help homeowners avert foreclosure.
In exchange, lenders who agree to do this would get a government guarantee that they would be compensated for a portion of any losses should borrowers default on the reconfigured loans. … One model could be the program the FDIC created after it took over IndyMac, a bank that failed after having made billions of dollars in risky mortgage loans.
IndyMac works with any borrowers who are delinquent or in default on their loans or at risk of becoming delinquent. The goal is to change mortgage terms so borrowers must pay no more than 38 percent of their income to cover their mortgage costs, including principal, interest, taxes and insurance.
To be clear then, what is being proposed is an FDIC takeover of a large segment of the mortgage industry but without the nasty pain and shame of actually putting a BofA or Wachovia or Citibank into FDIC receivership. The big winners would be NACA, ACORN, and the bankers, with a slight nod to regulators and pols who could pretend they “solved” the problem rather than created it. In reality, this latest extension of federal liability is a lie and a farce and transfers what should be private liability — the bad loans made by crazed bankers — to the backs of the taxpayers.
It is, in a word, perfectly monstrous.
Bonus Observation: A new report on the finances of ACORN makes clear that BofA was — and is — a major benefactor. ACORN Housing Corp., for example, received a $1.5 million grant from BofA’s charity.
