Saturday, September 27, 2008

Repeal the Community Reinvestment Act, a Cancer on the American Economic System for Home Ownership

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.

[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).
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[11] Id.

Tuesday, September 23, 2008

CNN: U.S. Supreme Court stays Georgia execution

JACKSON, Georgia (CNN) -- The U.S. Supreme Court granted a last-minute reprieve to a Georgia man fewer than two hours before he was to be executed for the 1989 slaying of an off-duty police officer.

Troy Anthony Davis learned that his execution had been stayed when he saw it on television, he told CNN via telephone in his first interview after the stay was announced.
He said he was "thankful to God" for the news that came during an emergency session the U.S. Supreme Court convened.

Davis said "everyone should pray" for the slain officer's family.

The 39-year-old also said that he is "very grateful for everything that everyone is doing" for him and that he would "accept" whatever decision the Supreme Court rendered in the coming days about his case.

At the Diagnostic and Classification Prison in Jackson, a crowd of Davis' supporters, led by the Rev. Al Sharpton, erupted in cheers when Sharpton announced the stay. Some shouted "Hallelujah!"

For more information, view the following link:

Thursday, September 18, 2008

The Democratic “Do-Nothing” Congress’s Answer to the Financial Market Crisis: Nothing!

By Syreeta L. McNeal, CPA, JD

United States Senate Majority Leader Harry Reid stated that “No one (in Congress) knows what to do” regarding the financial market crisis caused by the subprime mortgage debacle.[1] So since the Democratic led Congress has no clue what to do, they believe that they should adjourn and leave the crisis to the Department of Treasury and other federal agencies.

Let me get this straight, our elected officials of both parties in Congress don’t believe they can hold congressional hearings to discover the root of the problem and then allow financial experts to give solutions, on the record, so the American public will see that their tax payer’s dollars are being used effectively?

Something is fishy with Congress’s lack of trying to be proactive and address the financial issue at hand. This should not be a partisan issue between two warring parties. This is a financial crisis where people should not be going on vacation. Leaders should proactively address the issue before them and give a variety of solutions to have people act on them and pass legislation that will minize the crisis. Congress should have congressional hearings to actively have people testify about the root of the financial problem. Congress can use the power of subpoena to investigate and get solutions, on the public record. This will show that Congress is working for the American people and not just wasting our tax payer’s dollars.

Congress can have the Securities Exchange Commission (SEC) and other federal agencies crack down on these issues and hold the accounting firms auditing these companies like Fannie Mae, Freddie Mac, American International Group, Merrill Lynch, Lehman Brothers, Washington Mutual, and others accountable. From various news reports, it looks like the subprime mortgage debacle is actually a fraudulent pyramid scheme that needed oversight and regulation by the federal government agencies and Congress. But, when you have congressional members such as Senator Chris Dodd, Senator Barack Obama, and Senator John Kerry who were the top three largest beneficiaries of financial donations from Fannie Mae and Freddie Mac, I understand why the Democratic led Congress does not want to hold hearings. Most of the congressional members will have to recuse themselves from participating in the hearings because of their own conflict of interest with these companies. As a result, it would probably be impossible for enough congressional members to hold a hearing.

So, the Democratic version of the Do-Nothing Congress is still in effect. This is not leadership at all. This is not what people elected this Congress in 2006 to do. The ones who are suffering ultimately are the American people. May God help us all.

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.

Sunday, September 14, 2008

Its the Statement of Cash Flows, Stupid!

By Syreeta L. McNeal, CPA, JD

Should the United States federal government bailout companies like Freddie Mac, Fannie Mae, Lehman Brothers, Merrill Lynch, and American International Group (AIG) or should some level of responsibility be given to the executive leadership of these companies?

Every time I view the latest news on our federal government's bailout of these companies, I wonder what mess is our government covering up on how they failed to regulate unethical business practices.

It appears that the Enron, Worldcom and Arthur Andersen saga of 2000 is happening all over again. In response to this prior fiasco, the federal government passed The Sarbanes-Oxley Act of 2002. This legislation was intended to establish standards for all U. S. public companies' board, management, and public accounting firms. The caveat is that this legislation does not apply to privately held companies. The legislation established the Public Company Accounting Oversight Board (PCAOB) overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies.

As recent news reports show that Balance Sheet manipulation occurred with the growing list of companies seeking bailout from federal government, bankruptcy protection or for companies to acquire them to stave off financial ruin, it is time for the federal government to finally advocate emphasis on a company's Statement of Cash Flows as the basis for investment and financial strength for companies.

Most accountants know that analysis of a company's Statement of Cash Flows is the only way to ensure financial stability. However, most companies and investment analysts want to emphasize the amount of revenue generated on the company's Income Statement or the amount and value of assets they have listed on their Balance Sheet. Generally, a company's Income Statement and Balance Sheet is where manipulation can occur by key executives and in my opinion, these financial instruments do not truly show the financial strength of a companies operating business.

If the federal government really wants to protect the tax payers from having to bailout faltering company's manipulation of the public's confidence, it is time for the federal government to start emphasizing to companies and Wall Street that the Statement of Cash Flows will be the basis of analysis for investment purposes. But, will the federal government do this? I am not betting on it, but hopefully advocating for it. As tax payers, we should too.

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.

Wednesday, September 10, 2008

Sabotage of Obama Chances by Senator Biden? You be the Judge.

Biden: 'Hillary might have been a better pick'

Sept. 10: Democratic vice presidential candidate Joe Biden tells a New Hampshire audience that Hillary Clinton "might have been a better pick than me" for vice president.

Please post your thoughts on this blog.

Friday, September 5, 2008

Oprah's Refusal to Host Governor Sarah Palin On Her Show: Good Move?

Syreeta L. McNeal, CPA, JD

The Drudge Report announced today rumors circulating whether Oprah Winfrey would allow Republican Vice-Presidential Nominee Sarah Palin to be featured on her show. (Check the link: Well as the rumors circulated, Oprah stated the following in her official statement:

"The item in today's Drudge Report is categorically untrue. There has been absolutely no discussion about having Sarah Palin on my show. At the beginning of this Presidential campaign when I decided that I was going to take my first public stance in support of a candidate, I made the decision not to use my show as a platform for any of the candidates. I agree that Sarah Palin would be a fantastic interview, and I would love to have her on after the campaign is over."

I want to ask you, was this a good move for Oprah?

Oprah has publicly endorsed and campaigned for Senator Obama's presidency. She did receive a backlash from her largest consumers, white women, for her perceived shunning of Senator Clinton's presidential race in the Democratic primaries.

Does her refusal to feature Governor Palin worsen the divide that exists with her and her consumer base of white women or make it worse for Senator Obama's presidential ambitions?

Please post your comments on this blog.

Update: Media's response to Oprah's decline to interview Republican VP Nominee Sarah Palin

Is Oprah Biased? Host Won't Interview Palin