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Why is a sworn foe of predatory lending holding hands with an accused predatory lender?
Photograph by Steven Sunshine
There are countless unscrupulous mortgage lenders out there, critics allege, exploiting poor and unsophisticated homeowners. But most agree on who’s the worst of the bunch, says Ira Rheingold, head of the National Association of Consumer Advocates: Illinois-based Household International.
Household is the nation’s biggest supplier of high-cost “subprime” loans to borrowers who have imperfect or nonexistent credit. Its practices—which allegedly include deceptive sales tactics, hidden fees, and exorbitant penalties—have made it the favorite target of housing reformers and regulators fighting “predatory lending.”
The Association of Community Organizations for Reform Now (ACORN), one of the nation’s largest community activist groups, has targeted Household in an aggressive campaign—filing lawsuits against the company in three states, lobbying public agencies to drop Household stock, and demonstrating on the lawns of its executives. Washington state’s attorney general has launched an investigation of Household, and the state’s financial institutions department has produced a critical report the company has thus far suppressed by court injunction.
Even Forbes magazine—aka “capitalist tool”—has taken a hard swipe at the mega-lender, with an article in its Sept. 2 issue titled “Home Wrecker.”
But Household is not completely friendless. Last summer, Household thanked the D.C.-based National Community Reinvestment Coalition (NCRC) for its guidance as the company phased out one of its most criticized fees, a costly loan-insurance add-on. And NCRC, a trade association of some 800 groups that crusade for inner-city investment, praised Household in return.
“We have been working with Household for some time and are pleased with the leadership position they are taking,” said Larry Broadwell, acting NCRC president, in a press release distributed by Household. “This step is a good demonstration of Household’s commitment to responsible lending.”
This didn’t go over well in some quarters. “There really are responsible lenders out there,” says Mike Shea, executive director of ACORN’s housing arm, “and it really doesn’t do any good to call the devil a responsible lender. Household is as close to the devil it gets.”
Under its president and CEO, John Taylor, the NCRC has won a reputation as a crusader on behalf of neglected neighborhoods. The group’s traditional focus has been on policy matters—monitoring legislation, conducting statistical studies of lending patterns, and working with banks to make credit more available in low-income communities.
The NCRC at times espouses a cooperative and incremental approach to reform. And so, even as community activists and attorneys general go shark-hunting for Household, some accuse the NCRC of swimming with the enemy. The group gives its public blessing and encouragement while Household attempts to clean up its act. Household, meanwhile, spends millions funding NCRC programs that educate potential borrowers and refinance bad loans on better terms.
The relationship is cozy enough that when Taylor briefly left the NCRC in 2001 to run for Congress in his native Massachusetts, he received thousands of dollars in political donations from Household sources.
At the same time, the NCRC was collecting a $250,000 grant from the U.S. Department of Housing and Urban Development (HUD) to “challenge” predatory practices in Washington, Baltimore, and four other cities. It was the first such grant that the group had gotten in at least eight years, and it put the group in a position of having to enforce the law against lenders, potentially including Household.
Shanna Smith, who heads the National Fair Housing Alliance, the umbrella organization for groups that fight housing discrimination and abusive mortgage lending, is upset that the NCRC got the grant. “They’re really not a national enforcement agency,” she says.
But the NCRC gained some enforcement experience with David Berenbaum, whom Taylor hired last year as director of civil rights and who has since become senior vice president of policy. Berenbaum—praised by present and past colleagues as a creative strategist—led the Equal Rights Center, D.C.’s leading fair-housing nonprofit, to prominence as its chief executive. But he also led it into disastrous debt, according to the president of its board, the Rev. James Macdonell—a financial mess the group is now recovering from. That’s the other reason Smith is angry at seeing the NCRC win the enforcement grant; she says the Equal Rights Center owes her organization $250,000 because of Berenbaum’s mismanagement.
“I accept my share of responsibility,” says Berenbaum. But he argues that “a lot of the issues were agency issues.”
Berenbaum, who will be overseeing the HUD enforcement grant, says there is nothing in the NCRC’s relationship with Household that would get in the way of punishing the lender if necessary. “If there is ever evidence of discrimination in a testing effort or rampant consumer fraud…” he says, “there’s no question in my mind that the board of directors would file an enforcement action and terminate the relationship with Household.”
Taylor says that what critics see as coddling is actually tough love. In private, he says, the NCRC has taken a hard line with Household all along. When discussions with the company began in 2001, he says, “we were ready to sue.” Only when Household agreed to change its lending rules did the organization drop the threat.
In the end, Household committed toward a pilot program, run by NCRC, to rescue people victimized by predatory loans.
The first public fruit of the negotiations between Household and the NCRC was the lender’s July 11, 2001, announcement that it was phasing out its offering, described by critics as deceptive and costly, of short-term insurance to pay off mortgages in the event of death or disability. That was when Broadwell commended Household for its good behavior.
Taylor, who had left two weeks before to run for Congress, says those warm comments don’t reflect his or the NCRC’s views about Household.
Yet Broadwell was hardly alone in endorsing the lender. In October 2001, NCRC board Chair Pete Garcia announced, “Our partnership with Household will do much to further [our] mission” of helping low-income communities. In February of this year, when Household announced a new set of lending practices, the company quoted Taylor: “[Household] has demonstrated a pattern of positive policy improvements and I challenge other lenders to follow suit. These steps are important initiatives that ensure borrowers are treated fairly. We look forward to working with Household to initiate further lending improvements.”
Taylor insists that he’s not afraid to speak ill of Household. But pressed for an example, he comes up with damnation so faint it could be mistaken for praise: In February, he told the Daily Herald, a suburban Chicago paper, that the company “clearly purchased predatory loans in the past. Some of its history is catching up to it, but now it’s moving away from that to become a more fair and open lender.”
ACORN leaders react to such statements with unvarnished disgust. When the NCRC lends its name to Household’s reform efforts, ACORN charges, it takes public pressure off the company to make further improvements—and it undermines the ongoing efforts of other groups. ACORN’s Shea says his group tried its own discussions with Household but got nowhere, because the lender had concluded that the NCRC “would provide the PR they needed.”
Household spokesperson Megan Hayden says that ACORN was too confrontational to achieve “constructive dialogue” with the lender. “There were a number of meetings,” Hayden says. “But at the end of the day, we had lawsuits on our hands and negative articles and sometimes untrue information and statements being shared about our company.”
Taylor says that praise and persuasion, coupled with aggressive behind-the-scenes negotiations, helped the NCRC nudge Household toward better behavior. Litigation, he says, may not help the victims of predatory lenders—at least, not soon enough to keep them from losing their homes.
But he takes pains to say that there’s a place for ACORN’s brand of confrontation alongside the NCRC’s cooperative approach. The set of people tackling predatory lenders is so small, he says, that there’s room for both strategies: “Truth is, we need more players, and the last thing we need to do is bad-mouth people in the field.”
Close relationships with lenders aren’t exclusive to the NCRC. ACORN has a long history of developing its own lucrative working agreements with financial institutions. “ACORN looks out for ACORN,” says Irvin Henderson, a member of the NCRC executive committee.
In 2000, ACORN reached a settlement with Ameriquest, another major subprime lender—including a commitment to give out $360 million in loans at fair rates. Shea bristles at the suggestion that the deal is anything like Household’s.
“[W]e had a partnership that created the best, most consumer-friendly subprime lending product available in the United States as a result of a very aggressive campaign against Ameriquest that forced them to change,” he says. “We just didn’t have lunch and shake hands in private like John Taylor did with Household.”
Rheingold, the consumer advocate, is reluctant to condemn either the NCRC or ACORN for making deals. “I don’t think we live in a world of moral absolutes,” he says. “Is it better to be bankrupt and be pure, or is better to have the financial resources to fight an important battle? It’s not a bright line.”
There is one ethical matter, though, that Rheingold won’t address: the campaign
On Memorial Day 2001, U.S. Rep. Joe Moakley of Massachusetts died. Taylor, who lives in the Boston area, decided to join six other Democratic candidates running for the open House seat. Playing catch-up against opponents with greater name recognition and financial clout, he dipped into his own 401(k) for a $33,800 campaign loan. Then, he says, he handed his Rolodex to professional fundraisers, who called each and every name in it: community activist colleagues, longtime friends—and the major lending institutions he’d battled for much of his professional life.
“When I said, ‘Do we have to raise money from [the lenders]?’ they said, ‘You have to raise money from everybody, every legal avenue you can pursue,’” says Taylor. “‘If you don’t, you simply won’t be relevant in this race.’”
On July 11, the day after he officially filed to run, Taylor’s campaign received $4,500 in contributions from Household executives. That was the same day that Broadwell, Taylor’s acting replacement at the NCRC, hailed Household as a responsible lender.
Taylor says the timing was pure coincidence. “I had no knowledge of [the announcement] and started to campaign,” he says. “I really left by that point….You’re connecting my campaign with NCRC, but there was no connection.”
All told, the campaign received $7,500 from Household executives and a $5,000 donation from Household’s political action committee. That $12,500 worth of donations represented nearly one-fifth of the money Taylor raised from sources other than himself.
By the standards of the Capitol cash machine, it was a tiny amount. But for a small campaign—one that aimed, Taylor says, to inject progressive issues into the race—it was a notable sum. And it was joined by $8,000 more from other mortgage-industry sources.
While every year lenders flood the political marketplace with millions in contributions hoping to halt anti-predatory-lending legislation, this time they were giving to a candidate who never even had a chance of winning. Taylor finished sixth in the Sept. 11 primary, with 1 percent of the vote.
“I think a part of me regrets it, yeah,” says Taylor of the donations. “The part I regret is that you have to ask.” He supports clean elections and says he would be the “first in line” to prohibit corporate contributions or promote caps on campaign spending. Otherwise, he says, progressive candidates like him can never hope to climb the Hill.
The contributions, he says, “[don’t] represent what I stand for.”
“This is why I left Washington,” he continues. “Here I am talking to a reporter, feeling like I need to defend myself when I have a 25-year history [of advocacy] and the people who know me best wouldn’t for a second ever question my integrity or commitment. People in this city do this sort of thing all the time, have these kind of conversations, and step about people and backbite and so on, and they are never called into question. Unfortunately, those are some of the people who have been talking to you.” CP
Art accompanying story in the printed newspaper is not available in this archive: Photograph by Steven Sunshine.