October 02, 2008
SRI Advocates Call for Help Against Foreclosures and Regulation of Wall Street
by Robert Kropp
Responsible investors have led the fight against predatory lending for nearly 10 years with both
successes and failures. Advocates see opportunity in current crisis to put end to practice. Last of
a three-part series.
Plenty of blame can be passed around for the meltdown in US financial markets that occurred during
the past weeks, from predatory mortgage brokers and Wall Street investment firms to rating agencies
such as Moody's Investors Service and Standard & Poor’s that gave AAA ratings to risky mortgage
"To say that the ratings agencies made financially imprudent decisions
would be an understatement," declared Frank Rauscher, for ten years the President and Chief
Executive Officer of Aquinas Investment Advisers and The Aquinas Funds, as well as a leading voice in matters of
corporate governance for the Interfaith Center on
Corporate Responsibility (ICCR).
Some free-market advocates blame the Community
Reinvestment Act, enacted in 1977, for forcing banks to lend to lower-income borrowers in
underserved communities. But as the New York-based law firm Traiger & Hinckley demonstrated in a 2008 report, "The CRA,
which requires banks to help serve the credit needs of their local communities, including low- and
moderate-income (LMI) neighborhoods, consistent with safe and sound banking practices, deterred
banks from engaging in lending practices that fuel foreclosures."
ICCR originally lobbied
for the expansion of subprime mortgage lending, in order to increase the opportunities for home
ownership by lower-income families. But when predatory lending began to grow a decade ago, activist
shareholders introduced proxy resolutions against the practice.
According to ICCR, social
investors have filed at least two-dozen shareholder resolutions directed at predatory lending
practices, the first of which dates back to 1999. Some of the institutions targeted by investors
included Citigroup, Wells Fargo, Bank of America, Household International, and Associates First
Rev. Seamus Finn, an ICCR member, recalled a 2002 shareholder resolution, in
which "We petitioned CitiGroup to clean up the portfolio of recently acquired Associates First
Capital, which was heavy in predatory loans.
"We were successful in our fight against
predatory lending by linking executive compensation at Wells Fargo to successfully addressing
predatory lending practices," Finn added.
"In order to help put an end to predatory
lending so borrowers could keep their homes, we provided a moral compass to the companies that we
entered into dialogue with," Finn concluded.
Despite bringing predatory lending to the
attention of investors, it is widely agreed that more extensive regulation is urgently needed in
the midst of the current economic crisis. At the same time, in their conversation with
SocialFunds.com, Deborah Momsen-Hudson and David Beck of Self-Help Federal Credit Union, a CDFI based in Durham, North
Carolina, underscored the urgency of helping homeowners currently at risk to save their homes from
Efforts to curb predatory lending have met with success in several states,
according to the Association of Community
Organizations for Reform Now (ACORN), a national community organization of low- and
moderate-income families. However, a state-by-state approach is not the optimal approach to a
national problem. As such, many believe the time has come to implement anti-predatory legislation
on a national scale.
The candidates for president differ on how aggressively to put an end
to predatory lending and to help homeowners in danger of foreclosure. Barack Obama proposes $10
billion in aid to help victims of predatory lending prevent foreclosure. He calls for increased
penalties on lenders who break home-loan laws, and for increased authority for the Federal Reserve
to regulate financial institutions.
John McCain, on the other hand, opposes federal
intervention, supporting instead a plan to allow homeowners who are behind on their home loans to
apply to a Federal Housing Authority fund to replace their existing loans with government-backed
What role can investors play in efforts to put an end to predatory lending? In
addition to pushing for some common sense regulations, they can insist on greater disclosure so
that investors can more fully evaluate risks and rewards.
Rauscher of Aquinas Funds and
ICCR told SocialFunds.com, "Corporations have to do much more to make their activities more
transparent for investors and regulators." As Jonas Kron of Trillium Asset Management Corp. observed, "
It's long-term investors that own these corporations, not management."
Hedge funds, which
often use investment strategies such as short-selling, should come under increased oversight, as
well as other new investment tools and innovative practices. "They should be registered and have
the same public disclosure requirements as regulated funds," said Rauscher.