By Syreeta L. McNeal, CPA, JD
Historian and writer James Truslow Adams coined the phrase "American Dream" in his 1931 book Epic of America:
"The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position."[1]
Now we are in 2008 and I have been hearing many pundits, including Fox News Contributor Lamont Hill, state that home ownership should be a constitutional right for all American citizens, especially those underserved in America. So, is homeownership a constitutional right for all American citizens, including those who are underserved in America? In my opinion, the answer is a resounding NO. Here are my reasons stated below.
As it relates to rights to real property (e.g. home ownership), an American citizen has a right to peaceable use, enjoyment, and possession of real property[2] Possession means that people have the option to lease real property or own real property outright. Each state has laws reflecting this dichotomy. The states, not the federal government, have jurisdiction over rights to real property. States allow its individual residents to enter into whatever relationship they want as it relates to real property.
One relationship that exists is the landlord-tenant relationship. In a landlord-tenant relationship, an individual (e.g. tenant) leases real property (e.g. apartment) from another person (e.g. landlord). In a lease, the landlord has actual ownership of the real property, not the tenant. In contrast, an outright sale of real property to a person or entity creates a contract where one party gives consideration (e.g. money) in exchange for getting complete ownership of real property (e.g. home). There are benefits to each relationship. But, the key point to remember is that there is no mandate for one person to have over the other.
Unfortunately, America is faced with the federal government mandating that low income and less credit worthy Americans have a right to home ownership. In 1977, Congress and President Jimmy Carter passed into law the Community Reinvestment Act (CRA).[3] The CRA is a United States federal law that requires banks and savings and loan associations to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." [4] The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.[5]
In 1977, the CRA was passed into law by the 95th United States Congress as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community.[6] The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).[7] The bill encouraged the Federal National Mortgage Association, commonly known as Fannie Mae, to enable mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers.[8] It also encouraged the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to buy mortgages on the secondary market and sell them as mortgage-backed securities on the open market.[9]
Since the passage of CRA, we have had two financial crises related to homeownership: (1) Savings and Loans (S&L) crisis of the 1980’s and 1990’s and (2) subprime mortgage crisis of 2000’s. The savings and loans crisis of 1980’s and 1990’s primarily came from unsound real estate lending.[10] In an effort to take advantage of the real estate boom (outstanding US mortgage loans: 1976 at $700 billion to 1980 at $1.2 trillion) and high interest rates of the late 1970s and early 1980s, many S&Ls lent far more money than was prudent, and to risky ventures which many S&Ls were not qualified to assess.[11]
Now with this subprime mortgage crisis coming to a head in 2008, it appears that history is repeating itself. So, it is my opinion, along with other economic experts, that the root cause of this financial mess is attributed to the 95th Congress and President Jimmy Carter’s passage of the CRA in 1977. Look, I have to tell you as a previous initial home owner who purchased my home from proceeds I received in a car accident, I am not a fan of President Jimmy Carter and the 95th Congress’s sponsored program, the CRA, at all. Socialists, communal activists and Robin Hood charlatans who want to give from the rich to the poor in the American capitalist system are not helping the matter at all when they advocate for the continuation of the CRA. Regardless of whether you like America or not, our economic system is based on capitalism. It embodies the principle of laissez faire (self-interest). Yes, I agree there needs to be some checks on this system as implemented by President Franklin D. Roosevelt in the 1930’s. But, in my view, this financial mess we are experiencing once again is a result of mixing water (capitalism) with oil (socialism) as it relates to the housing market. As oil and water don’t mix, neither does the CRA as created by President Jimmy Carter and Congress in 1977 with our capitalist run markets and option to possession for state's residents. This legislation has created two financial crises and the latest one, the subprime mortgage crisis, is the latest one the American people have to clean up.
Trust me, America will get back on track. America did so after the Great Depression of the 1920’s and 1930’s. Also, America got back on track after the Savings and Loans crisis of the 1980’s and 1990’s. Also, America got back on track after the financial collapse related to the September 11, 2001 attacks. But, I think the American people need to advocate that we need to completely remove this CRA legislation from the federal government books once and for all.
Now, I know most socialists will be very upset that I am advocating this position. But, state law, not the federal government, allows American citizens to either rent or buy a home. That is a choice, not a mandate. If you can’t afford a home, the American government should not give you one with no down payment and high interest payments that you can’t afford financially. That is not the American Dream as outlined in 1931. Financial accountability comes from making long term plans such as savings to purchase a home that you can afford if you are unable to have an unexpected event (e.g. gift from a family member, proceeds from a car accident) to give you the money to make a down payment for a home to make it affordable for you to keep in the long run. Maybe you don’t need to purchase that mink coat or Mercedes outright to impress people that you're living the American Dream. You have choices. Maybe instead of trying to impress people by what you wear or drive which depreciate in value, it is more appropriate to invest in purchasing something that you can afford that will always create value.
What the CRA has done is create an American nightmare for all Americans because we are mixing two systems (capitalism and socialism) that do not mix as it relates to home ownership. Homes have always been perceived as assets that can appreciate in value. With the CRA, it has shown through two financial crises that it has created a cancer on the American economic system as it relates to home ownership. How many financial crises do we have to endure to finally realize that the CRA has created the cancer and we need to remove it completely before we continue to have more financial crises ruin the American economy as a whole? Band aids as was implemented after the S&L crisis in the 1980’s and 1990’s is not the answer. Complete removal of the cancer, the CRA, is the only solution to the American economics regarding home ownership. Therefore, the federal government needs to repeal the CRA after it addresses the financial crisis in 2008.
Legal Disclaimer: This site provides information about the law designed to keep readers informed of pertinent legal matters affecting the African-American community. But legal information is not the same as legal advice -- the application of law to an individual's specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer in your specific location if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.
"The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position."[1]
Now we are in 2008 and I have been hearing many pundits, including Fox News Contributor Lamont Hill, state that home ownership should be a constitutional right for all American citizens, especially those underserved in America. So, is homeownership a constitutional right for all American citizens, including those who are underserved in America? In my opinion, the answer is a resounding NO. Here are my reasons stated below.
As it relates to rights to real property (e.g. home ownership), an American citizen has a right to peaceable use, enjoyment, and possession of real property[2] Possession means that people have the option to lease real property or own real property outright. Each state has laws reflecting this dichotomy. The states, not the federal government, have jurisdiction over rights to real property. States allow its individual residents to enter into whatever relationship they want as it relates to real property.
One relationship that exists is the landlord-tenant relationship. In a landlord-tenant relationship, an individual (e.g. tenant) leases real property (e.g. apartment) from another person (e.g. landlord). In a lease, the landlord has actual ownership of the real property, not the tenant. In contrast, an outright sale of real property to a person or entity creates a contract where one party gives consideration (e.g. money) in exchange for getting complete ownership of real property (e.g. home). There are benefits to each relationship. But, the key point to remember is that there is no mandate for one person to have over the other.
Unfortunately, America is faced with the federal government mandating that low income and less credit worthy Americans have a right to home ownership. In 1977, Congress and President Jimmy Carter passed into law the Community Reinvestment Act (CRA).[3] The CRA is a United States federal law that requires banks and savings and loan associations to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." [4] The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.[5]
In 1977, the CRA was passed into law by the 95th United States Congress as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community.[6] The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).[7] The bill encouraged the Federal National Mortgage Association, commonly known as Fannie Mae, to enable mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers.[8] It also encouraged the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to buy mortgages on the secondary market and sell them as mortgage-backed securities on the open market.[9]
Since the passage of CRA, we have had two financial crises related to homeownership: (1) Savings and Loans (S&L) crisis of the 1980’s and 1990’s and (2) subprime mortgage crisis of 2000’s. The savings and loans crisis of 1980’s and 1990’s primarily came from unsound real estate lending.[10] In an effort to take advantage of the real estate boom (outstanding US mortgage loans: 1976 at $700 billion to 1980 at $1.2 trillion) and high interest rates of the late 1970s and early 1980s, many S&Ls lent far more money than was prudent, and to risky ventures which many S&Ls were not qualified to assess.[11]
Now with this subprime mortgage crisis coming to a head in 2008, it appears that history is repeating itself. So, it is my opinion, along with other economic experts, that the root cause of this financial mess is attributed to the 95th Congress and President Jimmy Carter’s passage of the CRA in 1977. Look, I have to tell you as a previous initial home owner who purchased my home from proceeds I received in a car accident, I am not a fan of President Jimmy Carter and the 95th Congress’s sponsored program, the CRA, at all. Socialists, communal activists and Robin Hood charlatans who want to give from the rich to the poor in the American capitalist system are not helping the matter at all when they advocate for the continuation of the CRA. Regardless of whether you like America or not, our economic system is based on capitalism. It embodies the principle of laissez faire (self-interest). Yes, I agree there needs to be some checks on this system as implemented by President Franklin D. Roosevelt in the 1930’s. But, in my view, this financial mess we are experiencing once again is a result of mixing water (capitalism) with oil (socialism) as it relates to the housing market. As oil and water don’t mix, neither does the CRA as created by President Jimmy Carter and Congress in 1977 with our capitalist run markets and option to possession for state's residents. This legislation has created two financial crises and the latest one, the subprime mortgage crisis, is the latest one the American people have to clean up.
Trust me, America will get back on track. America did so after the Great Depression of the 1920’s and 1930’s. Also, America got back on track after the Savings and Loans crisis of the 1980’s and 1990’s. Also, America got back on track after the financial collapse related to the September 11, 2001 attacks. But, I think the American people need to advocate that we need to completely remove this CRA legislation from the federal government books once and for all.
Now, I know most socialists will be very upset that I am advocating this position. But, state law, not the federal government, allows American citizens to either rent or buy a home. That is a choice, not a mandate. If you can’t afford a home, the American government should not give you one with no down payment and high interest payments that you can’t afford financially. That is not the American Dream as outlined in 1931. Financial accountability comes from making long term plans such as savings to purchase a home that you can afford if you are unable to have an unexpected event (e.g. gift from a family member, proceeds from a car accident) to give you the money to make a down payment for a home to make it affordable for you to keep in the long run. Maybe you don’t need to purchase that mink coat or Mercedes outright to impress people that you're living the American Dream. You have choices. Maybe instead of trying to impress people by what you wear or drive which depreciate in value, it is more appropriate to invest in purchasing something that you can afford that will always create value.
What the CRA has done is create an American nightmare for all Americans because we are mixing two systems (capitalism and socialism) that do not mix as it relates to home ownership. Homes have always been perceived as assets that can appreciate in value. With the CRA, it has shown through two financial crises that it has created a cancer on the American economic system as it relates to home ownership. How many financial crises do we have to endure to finally realize that the CRA has created the cancer and we need to remove it completely before we continue to have more financial crises ruin the American economy as a whole? Band aids as was implemented after the S&L crisis in the 1980’s and 1990’s is not the answer. Complete removal of the cancer, the CRA, is the only solution to the American economics regarding home ownership. Therefore, the federal government needs to repeal the CRA after it addresses the financial crisis in 2008.
Legal Disclaimer: This site provides information about the law designed to keep readers informed of pertinent legal matters affecting the African-American community. But legal information is not the same as legal advice -- the application of law to an individual's specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer in your specific location if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.
[1] http://memory.loc.gov/learn/lessons/97/dream/thedream.html
[2] Farm Credit Bank of St. Paul v. Brakke, 483 N.W.2d 167 (N.D. 1992). See also Gregory v. Sanders, 635 P.2d 795 (Wyo. 1981).
[3] http://en.wikipedia.org/wiki/Community_Reinvestment_Act
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] http://en.wikipedia.org/wiki/Savings_and_Loan_crisis
[11] Id.
2 comments:
Here's a very well-written article from eight years ago, that gives some insight into the players in the CRA mess.
1980's and 1990's only delt with S&L's
in 2000's the people using these Section 8 style home purchases were affected by banks, s&l's and other financial hedging companies
Regardless of if Carter, Reagan, Bush Sr., Clinton, Bush Jr. had to deal with it, the CRA is the cancer that needs to be removed.
You can't put oil with water and expect it to mix. That is what President Carter and Congress did with the CRA. The CRA has made a socialism (or not for profit tactics) part of capitalism (profit and free market trade). It can't work.
CRA should report solely to the federal government and allow it to be a not for profit entity (like a 501c3 entity). Let foundations, churches and other non-profit entities (Salvation Army, United Way) subsidize poor people and less credit worthy people in housing just like the state governments do with Section 8 housing initiatives. Don't let any trading of these mortgage loans be put into the free trade market (e.g. Wall Street). That is the best way to remove the Cancer from the markets.
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