According to CNN, Bruce Marks is “a crusader who has become a fierce advocate for struggling homeowners.” As executive director of the Neighborhood Assistance Corporation of America (NACA), Marks has been campaigning to protect homeowners in arrears with their mortgages from foreclosures. Marks told a CNN reporter, “These mortgages of the last ten years were structured to fail.”
You would think that, had Marks been around in the mid 1990s, he would have opposed the tidal wave of bank mergers that occurred at the time and publicly denounced the mortgage products that violated “back-to-basics” principles of prudent lending. The truth is just the opposite. Bruce Marks and NACA actively assisted some of those very institutions in amassing their power and size, and they did so with the explicit aim of getting them to issue mortgages that were “structured to fail.”
For example, when NationsBank sought approval from the Federal Reserve Board to acquire the Bank of America in 1998, creating the largest bank in the United States, Bruce Marks sent a letter to the Fed, stating that: “They [NationsBank and Bank of America] need to be applauded and supported. The regulators need to approve the application immediately . . . ” George Butts, the President of ACORN Housing Corporation, a subsidiary of the Association of Community Organizations for Reform Now (yes, that ACORN), also sent a letter and offered testimony to the Fed in support of the merger. The irony of the situation appears not to have been lost on Butts, who noted: “It’s not the usual role for ACORN Housing Corporation to testify to the Federal Reserve Bank in favor of the merger of banks. This is a different role for us.” Six years later, when Bank of America acquired FleetBoston, Marks and Butts were there again, testifying on behalf of the merger. In that same year, when JP Morgan Chase acquired Bank One, ACORN activists again offered testimony in favor of the merger.
Why would populist groups like ACORN and NACA, whose stated goal is to help low-income Americans, actively support the creation of some of the biggest banks on the planet? You do not have to read very far into the transcripts of the Fed hearings to figure out what was going on: Activist groups were supporting megamergers because the resulting megabanks allowed the activist groups to award their constituents with billions of dollars in subsidized mortgage credit provided by the banks. The banks were, in effect, agreeing to share with the activists some of the economic benefits that they obtained from growing massively large.
The terms of the mortgages granted to ACORN and NACA constituents appeared, to use NACA’s phrase, “too good to be true.” In the case of NACA, borrowers received a one-size-fits-all mortgage with a fixed-rate, 30-year term, no down payment, no closing costs, no fees, no credit check, and no mortgage insurance premium. Testimony by Marks before the House Committee on Financial Services in 2000 indicates that NACA’s terms attracted borrowers with very low credit ratings: 65 percent of NACA homeowners had a credit score that would categorize them as high-risk borrowers (a FICO score of less than 620), while nearly 50 percent had a score that would characterize them as very high-risk borrowers (a score of less than 580). Mortgages directed through ACORN Housing had similarly generous terms, including the right to count food stamps as income.
These arrangements with NACA and ACORN were just the tip of the iceberg. An accounting conducted by an activist umbrella group, the National Community Reinvestment Coalition, estimated that America’s banks contractually committed $858 billion in 187 agreements with activist groups between 1992 and 2007. As large as this number is, it represents a lower-bound estimate of the total amount of credit directed through activist groups. The NCRC data indicate that banks committed an additional $3.7 trillion over that same period in “voluntary” lending programs to low-income or urban homeowners, and a comparison of that data and public statements by activist groups indicates that some of those funds were channeled through the activists. Banks also provided support to activist groups in the form of origination fees for administering the directed-credit programs, or philanthropic contributions, to those groups. A 2010 investigation by the Committee on Oversight and Government Reform of the U.S. House of Representatives found that between 1993 and 2008, ACORN alone received $13.5 million from the Bank of America, $9.5 million from JPMorgan Chase, $8.1 million from Citibank, $7.4 million from HSBC, and $1.4 million from Capital One.
To understand how and why populists and financiers decided to become partners, we have to go back to the early 1970s, to trace the transformation of the U.S. banking system that began at that time, and to understand the economic and political opportunities that transformation created. Circa 1970, it was illegal for banks to branch across state lines, and the vast majority of states (38 out of 50, to be exact) limited the ability of banks to open branches even within the state. Some states, such as Texas, outlawed branches entirely: All banks were single-office “unit banks.”
As the result of a variety of influences, the limits on bank branching became increasingly unsustainable in the 1980s. By the mid 1990s, subject to approval by regulators, American banks were free for the first time in their history to merge and branch wherever they liked.