The CRA Service Test: Are Bank Branches Serving Low- and Moderate-Income Customers?

The Community Reinvestment Act (CRA) exam for large banks with assets above $1 billion has three tests: the lending test, investment test, and service test. Columns the last two weeks covered the lending test and investment test. Like the lending and investment test, the service test has unfulfilled promise. It is somewhat effective in holding banks accountable, yet its full potential is not realized.

The service test measures the number and percent of branches in low- and moderate-income neighborhoods, the availability and effectiveness of alternative systems like ATMs for delivering bank services, the range of services offered in low- and moderate-income neighborhoods, and the amount of community development services. The last category, community development services, refers to the provision of financial services and can include bank professionals offering counseling sessions.

Rigorous service tests on CRA exams are needed. The rate of unbanked and underbanked households is too high. In the United States, as a whole, about 8 percent of the households are unbanked and 20 percent are underbanked according to the Federal Deposit Insurance Corporation.

An underbanked household has a bank account but also uses alternative financial providers like payday lenders.

In the District of Columbia, the percentages are higher: 12 percent are unbanked and 25 percent are underbanked.

Within the District of Columbia, traditionally underserved populations are more likely not to be using a bank. Consider:

Unbanked                  Underbanked

African-Americans                                                      22.3%                          36.8%

Hispanics                                                                     5.1%                            30.2%

Very Low Income (between $15,000 and $30,000)   15.2%                          42.5%

Low Income (between $30,000 and $50,000)            4.4%                            35.7%

 

When households are unbanked and underbanked, they often rely on expensive check cashing outlets, payday lenders, car title lenders, and other abusive fringe financial services. They cannot save for buying a home, pursuing further education, or starting a small business. Lack of access to affordable and responsible financial services perpetuates poverty. Access to responsible financial services starts with a low cost savings and checking account at a responsible bank.

In this context, the service test is vitally important. The test uses data to compare the number and percent of bank branches to the number and percent of households in low-and moderate-income census tracts. It examines the impact of branch openings and closings on the percent of bank branches in low- and moderate-income neighborhoods. It also engages in similar analysis to compare the number and percent of ATMs to the number and percent of households in low- and moderate-income census tracts.

The test, however, uses a fudge factor of branches in middle- and upper-income neighborhoods that are considered in close proximity to low- and moderate-income tracts. Sometimes a distance is mentioned by the test and sometimes the word “close proximity” is used. For populations with limited mobility like older adults, the “close proximity” of branches in middle- and upper-income neighborhoods should not be counted. When I was at NCRC, we complained about this practice. If a community group examines a bank branch distribution and notices that this practice is greatly inflating the “availability” of branches in low- and moderate-income neighborhoods, the community group should comment on the bank’s CRA exam. The only way to change a practice is to continue objecting to it.

The biggest blunder of the service test, however, is its almost complete failure to analyze the number and percent of bank accounts for low- and moderate-income customers. That’s where the service test is half incorrect. It is half correct to look at the distribution of branches but half incorrect to omit consideration of the income distribution of customers.

Currently, data is not collected by banks and reported to federal agencies on the income of checking and savings accounts customers. But this would not be too hard to do. Banks have been reporting on the income of home loan recipients in the Home Mortgage Disclosure Act (HMDA) data that they have been reporting to the federal agencies and the public since 1975!

If we really want to make a dent in the high percentages of unbanked and underbanked households, we need data on bank efforts to provide checking and savings accounts to these households! This data should also be used by CRA examiners. In addition, CRA exams should assess whether the accounts are affordable and free of abusive overdraft protection and high fees. Currently, banks receive CRA points on the service test for providing low-cost checking and savings accounts, but most CRA exams do not discuss whether banks do so. When CRA exams mention low cost accounts, data on how many are offered and the income of the customers is usually lacking.

The section of the service test on community development services is also weak. Bank staff service on the board of directors of community groups is often mentioned without any detail of whether bank staff just attended meetings or provided meaningful technical assistance. In addition, the exams will often mention hours of community service by bank staff with little detail about whether this service was counseling or other service that is actually related to the provision of financial services.

The bottom line: Now that you know the strengths and weaknesses of the service test, you can critically review CRA service tests and comment on CRA exams. Just like the lending test and investment test, the CRA service test is more likely to be rigorous when the public is involved.

Josh Silver is the Development manager at Manna, Inc. Prior to his time at Manna, Josh served as the vice president of research & policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter.

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A Brewing Fight

There’s a fight brewing in the District and it’s on its way to becoming a main attraction. On Friday May 8th District Attorney Karl Racine filed suit against the founder of Results Gym, who’s been illegally operating an Air BnB in the District. Doug Jeffries is the founder of Results Gym, yoga studio Stroga in Adams Morgan and volunteer organization Mission Results. According to Racine, Jeffries failed to gain the appropriate licenses with DCRA. The home has also gained unwanted attention. Between April 2014 and April 2015, neighbors have had to call the police over 100 times, mostly for disorderly conduct and noise violations.  Racine hopes to stop all illegal rentals, “This is an example of a property owner operating a business with complete disregard for the law and with disrespect for his neighbors,” Racine also said. “Business-licensing laws and regulations are in place to protect the health, safety and welfare of our residents and our suit seeks an end to all business at the property until the owner complies with all relevant laws.”

While Racine is addressing this specific case, this scenario may have future implications for the city’s housing landscape. In New York city, there are currently over 20,000 listings for Air BnB, 58% of which are for an entire apartments or homes.

Because of the high cost of living in the District, it is far more lucrative for an owner to use their property for Air BnB than for a regular rental property someone who lives in DC. Not only is this happening, but investors are buying up properties across the city and renting them through the service. For Doug Jeffries his six-bed, five-bath house at 2220 Q Street NW, described as the Celebrity House Hunter Mansion, went for $1,200 a night, much more than he could make renting it out to a regular renter.

These dynamics are only making a bad situation worse. There is already a great disparity between those in need of housing and available affordably priced housing – by taking stock, possibly entire small buildings, out of the regular rental pool and using them solely for Air BnB, this decreases rental supply and increases prices. The District needs to use every avenue it has to ensure that laws regarding rentals and using property for things like Air BnB are being followed, and also employing tools like DOPA (the District Opportunity to Purchase Act) when appropriate. With the demand for housing growing exponentially and the stock dwindling, the city will need to use every avenue to curb this crisis.

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CRA Investment Test: Resources for Housing and Community Development if Done Right

Last week, this column focused on the lending test of the Community Reinvestment Act (CRA) exam. This week, we describe the investment test of the CRA exam and how community groups can use it to obtain financing for their neighborhood housing and economic development projects.

For banks with assets above $1 billion, the investment test analyzes the number and dollar amount of a bank’s investments in low- and moderate-income communities for affordable housing development, small business creation and expansion, and community development.  A bank can invest in Low-Income Housing Tax Credits to support low-income rental housing or in a Small Business Investment Corporation (SBIC) to support equity investments in small businesses. Banks can also earn points on their CRA exam for investments that qualify for the New Markets Tax Credits that support job creation, affordable housing, or commercial real estate development in low- and moderate-income census tracts.

Banks can also make grants to nonprofit community organizations that count as investments on the investment test. A grant can be thought of as an investment in that it represents a bank’s commitment to supporting and developing the capacity of a nonprofit organization that serves low- and moderate-income neighborhoods. Grants must be related to the development of affordable housing, community revitalization initiatives, or the provision of financial services. Manna, Inc., for example, has received grants for homeownership counseling and for pre-development activities for affordable housing.

A CRA exam is supposed to be discerning and not simply offer a high rating on the investment test for a large dollar amount of investments. Instead, the CRA exam is required to judge the responsiveness of investments to community needs and the innovative quality of the investments. A large number of “routine investments” that are not especially responsive to needs could receive a lower rating than a smaller number of investments that are targeted and effectively serving community needs.

CRA examiners are supposed to consider performance context and the comments of community groups in deciding the extent to which bank activities and investments are responsive to needs. Performance context refers to economic conditions and opportunities and constraints for banks in engaging in CRA activities. For example, if a particular metropolitan area has a high unemployment rate in comparison to other metropolitan areas served by the bank, then the bank would perform better on its investment test if it supported small business expansion, job expansion, and job training with its investments.

CRA exams should also consider performance context within metropolitan areas. For example, if a nonprofit organization targets housing counseling to an area of a city with the highest denial rates for home purchase loans, then a bank’s counseling grant to that nonprofit should score well on the investment test.

CRA exams, however, often do a poor job considering performance context analysis when judging the quality of a bank’s investments. Performance context analysis is usually a recitation of Census Bureau statistics on income and housing market data with some commentary on the composition of local industry and jobs. The analysis usually lacks an identification of pressing needs or issues such as a lack of affordable housing or high unemployment rates compared to other geographical areas. Also, performance context often does not identify cities or neighborhoods within a metropolitan area with pressing needs.

Community organizations led by NCRC have sought improvements in performance context analysis. In addition, any community organization can comment on performance context or on any aspect of a bank’s performance during a CRA exam or at any time. These comments can influence how a CRA exam judges the quality and responsiveness of a bank’s investments.

If a CRA exam consists of primarily an exchange of information between a bank and a CRA examiner, the probabilities increase that the exam will do a lackluster job of evaluating a bank’s investment. On the other hand, if community groups are involved, the chances increase that the exam will rigorously evaluate investments. The reasons are straightforward: a quiet and relatively secret process between a bank and an examiner is more likely to result in a bank’s rationale for its investments being quickly accepted with few questions. A process with more community input will result in more opportunities being identified for investments and a critical evaluation of whether a bank is meeting those opportunities.

Josh Silver is the Development manager at Manna, Inc. Prior to his time at Manna, Josh served as the vice president of research & policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter.

 

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Millenial Madness

According to a recent study by the Young Invisibles, a youth advocacy group, one in five millennial parents are impoverished, and this rate has increased substantially over the last decade. There are many factors that have contributed to the sharp rise in poverty for this demographic. Some of those factors have been stagnate wages and rising cost of living, including the cost of raising a child. For example, in 1960, childcare consumed just 2% of a young parent’s budget, compared to 18% today.

This has had a dual negative impact. On one end you have an incoming population hampered because of the financial situation their parents are facing, being asked to do more with far less. On the other end of the spectrum, due to the same dynamics their parents faces, millennials are hesitant to start families of their own. In a related piece by Yahoo, they speak to Jessica Juarez Scruggs, a college educated millennial who faced tough times due to an unexpected pregnancy. Even with a degree and a decent paying job, Jessica and her partner couldn’t ensure a solid financial foundation for a family. Jessica said, “I just kept thinking if I can’t make ends meet, I can’t imagine what somebody who’s not as privileged is going through.”

In addition to the escalating price of raising a child, millennials have to deal with astronomical housing costs, which are skyrocketing in urban centers. Even with advanced degrees, young professionals are finding it increasingly difficult to afford a place to live. Affordable housing is typically looked upon as a low-income problem that only affects individuals at the bottom of the economic totem pole, but that has changed. In high priced cities, the ones with the most jobs and employment opportunities, that bottom rung has only gotten larger. As the affordability crisis in the city continues to grow, we must take a look at comprehensive strategies like the full continuum of housing to truly address the problem.

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CRA Lending Test: Help Grade Banks

Last week, this column discussed the benefits and unrealized potential of the Community Reinvestment Act (CRA). By holding banks publicly accountable, CRA has leveraged billions of dollars of loans, investment, and services in low- and moderate-income communities. In order to more completely understand and use CRA, we now embark on a CRA series over the next few weeks discussing the various parts of the CRA exam and how the public can be involved.

The large bank exam is used for bank with more than $1 billion in assets. It consists of the lending test, investment test, and service test. The lending test tends to be the focus of the exam for most large retail banks. The lending test measures the amount of home and small business lending to low- and moderate-income borrowers and communities.

The percent of loans a bank makes to low- and moderate-income borrowers and communities is compared against its peers. If a bank issues a consistently lower percent of its loans to low- and moderate-income borrowers than its peers across several metropolitan areas, it is likely to receive a low rating on its lending test. The lending test counts for half the overall rating so a low rating on the lending test has a disproportionate influence over the rest of the exam.

For those readers like me who love data, you can access data on a bank’s home lending via the Consumer Financial Protection Bureau’s (CFPB’s) web page . You can also find data on a bank’s home or small business lending data from another federal agency website.

When I was at NCRC, I commented on CRA exams of two banks that resulted in the banks receiving low ratings and/or failing their exams. In both cases, the banks made a low percentage of loans to low- and moderate-income borrowers and communities compared to their peers. In one case, the bank was receiving deposits and not lending out its deposits, resulting in a low loan-to-deposit ratio. This is one of the cardinal sins of CRA – taking in deposits and disinvesting from communities by not lending out deposits.

Another way to analyze data in addition to focusing on income is to examine lending by race of borrower. CRA exams do not incorporate regular analyses of lending to minorities nor use those analyses in its ratings determinations. Given glaring racial inequalities, this is a defect that we tried at NCRC to change repeatedly. However, CRA exams contain a fair lending review that tests whether a bank discriminates against minorities and women. Using publicly available data, it is not possible to definitively conclude discrimination has occurred. But you can point CRA examiners to data analysis including racial differences in denial rates or comparing a low percentage of loans to minorities by the bank, its peers, to the percentage of minority households in the metropolitan area.

If you are not a data maven or lover, you can still influence the lending test. The lending test includes a section that assesses the flexibility and innovative quality of the bank’s lending activities. If you think a bank has been flexible and innovative in its lending products and practices, you can state that in a letter to the bank’s CRA examiner. On the other hand if a bank’s lending is not flexible or safe or sound, you should explain how it needs to improve. One of Manna’s major goals over the years is to promote safe and sound lending products with low down payments. Our clients can make regular mortgage payments but they often lack the wealth to make large, up front down payments. Low down payments has been mentioned by Manna staff over the years to as a need to CRA examiners.

If you think a bank’s lending is unsafe or exploitative with high fees and interest rates, you should describe why this is the case to CRA examiners. CRA requires banks to meet community needs in a responsible, safe, and sound manner. You can also check the CFPB’s consumer complaints database to analyze whether consumer complaints have been increasing against the bank.

Lastly, when you open a previous CRA exam of a large bank, you can be dissuaded from commenting when you several states and metropolitan areas on a CRA exam. An individual citizen or a staff person of a nonprofit organization does not have the resources of a CRA examiner who can spend several weeks examining a large bank. Yet, you can make a comment on even one geographical area that can make a difference. The comment can possibly influence a rating for the relevant state or conclusions for a particular metropolitan area. Even if the comment does not result in a changed rating for a geographical area, the comment may find its way into the CRA exam. In your comment letter, you can also ask for a dialogue with the bank that would explore ways for the bank to improve its performance. It is important to remember that as well as grading banks, CRA is supposed to establish dialogue among regulatory agencies, banks, and the public about how the bank can respond to public needs.

When I was at NCRC, a well-known activist based in Bronx, NY would say, “CRA…use it or lose it.” If you don’t use the CRA process, you are missing out on an important avenue to hold banks accountable and to improve access to credit and capital for underserved communities.

Josh Silver is the Development Manager at Manna, Inc. Prior to his time at Manna, Josh served as the vice president of research & policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter.

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policy prescriptions

When it comes to housing in the District, the city is buzzing. A pop up here and a new complex there, but somewhere in the midst of all the cranes and concrete is a growing population of individuals/families who have and are continuing to be squeezed out of the District. The issues of gentrification and displacement are very dynamic and complex, which makes them difficult to address, but why does it seem like these are impossible problems to combat? Let’s take a look at two developing stories surrounding this crisis to get a better sense of what’s going on, or better yet, what’s not going on.

Recently in the District, due to the boom in population, property owners have made additions to their homes often coined “pop-ups”. These additions usually involve an extra floor to the house and are typically used to further boost the property value of the home or create more space, which in turn can be rented out. Currently, emergency legislation is circulating the City Council, The Prohibition on Single Family Dwelling Conversion Emergency Amendment Act. This legislation would forbid any building permit to increase the height, or otherwise convert an existing one-unit or two-unit house into a multi-dwelling of 3 or more units. In recent months there has been tremendous backlash towards “pop ups” not because of density, but because they are eye sores in many communities that neighbors simply don’t want. This emergency legislation could be associated with the issue of gentrification, but doesn’t really have much to do with the actual issue of displacement. This legislation has been touted as something to combat gentrification, but clearly misses the mark.

Another aspect of this affordability crisis is supply: there simply isn’t enough! But for a city whose crane-count continues to climb, why does the list of individuals looking for affordable housing continue to grow? Foulger-Pratt Development and Torti Gallas Urban are planning on converting an old NoMa warehouse into a 11-story mixed-use building. In that area there already is and has been a ton of higher-end development geared towards the District’s more affluent newcomers, which drives up prices; it’s unclear at the NoMa warehouse how high-end the development will be, how many affordable units and for what income levels.

Both of these instances speak volumes to the affordability crisis the District is facing. On one end, our public policy initiatives sometime miss the problem at hand, while on the other end of the spectrum the District’s scarce land is quickly being divided up and needed affordable units across different income levels are not always at the forefront. The current housing problem in the District is at crisis levels and only continues to rise. In order for us to truly get an handle on this issue and begin helping the city’s residents we must change our focus - to one of a DC for all.

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Loopholes in CRA are Costly for Communities

The Community Reinvestment Act (CRA) is a giant sleeper. It is a relatively unknown law that has leveraged hundreds of billions of dollars of loans and investments in low- and moderate-income communities since its passage in 1977. Yet, despite this success, CRA has unrealized potential and could be much more effective.

The essence of CRA is public accountability. Congress passed CRA in response to “redlining,” which was the discriminatory practice of banks’ literally drawing red lines around minority and modest income neighborhoods and telling their loan officers not to lend in those neighborhoods though branches received deposits from community residents. Redlining and the drying up of credit contributed to neighborhood disinvestment and decay.

Under CRA, banks are required to meet the credit needs of communities, particularly low- and moderate-income communities, in a safe and sound manner. Federal agencies enforce CRA by conducting CRA exams which assign ratings to banks depending on their level of loans, investments, and services offered to low- and moderate-income borrowers and communities. In addition, any member of the public can comment about banks’ performance to the agencies as they are conducting CRA exams.

CRA examiners use publicly available data to assess bank home and small business lending in low- and moderate-income communities. Members of the public can also use this data in their comments. When CRA examiners and members of the public can consider a common core of facts and data, the public accountability of banks increase. The heightened level of scrutiny has increased lending in modest income communities.

A Harvard University study demonstrates that without CRA, home purchase lending to low- and moderate-income borrowers and communities would have decreased by 336,000 loans from 1993 through 2000.  The study also reveals that banks’ lending to low- and moderate-income borrowers is higher in geographical areas where federal agencies grade banks on CRA exams than in localities where banks lend but are not subject to CRA exams.

In addition, using publicly available data on small business lending, I have found that banks made more than 19 million small business loans worth $764 billion in low- and moderate-income communities since 1996.

As impressive as the benefits are, the full potential is not realized. One major problem is “assessment areas” or geographical areas on CRA exams. Since CRA was passed in 1977 and the regulations were last updated in 1995, CRA examines banks in geographical areas where banks have branches. Today, however, a considerable amount of lending occurs beyond bank branches in geographical areas where banks use loan officers or extend loans through the internet. CRA has not caught up to this and thus, a substantial amount of lending by big banks is not even scrutinized by CRA exams. Recall that Harvard found lending higher in modest income communities covered by CRA exams. Thus, incomplete coverage is quite costly in terms of lower loan levels. This is human nature. A bank, composed of human beings, will perform not as well in areas where it is not examined.

Another significant problem are CRA “lite” exams. Some banks like credit card banks are designated as “limited purpose” banks that do not have full CRA exams that include a review of lending to consumers and businesses. Instead, the exam looks at community development loans and investments that finance new affordable housing or economic developments, which is useful but incomplete. These lite CRA exams cause low- and moderate-income communities to miss out on millions if not billions of dollars of loans. I recently looked at a CRA exam of a large credit card lender and was astonished that none of its more than 1 million of small business credit card loans were scrutinized by the exam.

Lite CRA exams are also trouble for community organizations looking for grants to fund activities like homeownership counseling or looking for investors for Low Income Housing Tax Credits. Some credit card banks only have one “branch” or headquarter’s office. Therefore, their assessment area is only the city that contains their one branch. Many of their grants and investments are concentrated in their headquarter city. Banks are allowed to venture outside of their assessment area for making grants or investments but usually are confined to a regional area around their headquarter city. But does this make sense in the case of large lenders that make a large amount of loans throughout the country? The large credit card bank in this case made only about 6,000 loans in its headquarter city and its 1 million small business credit card loans were distributed throughout the country, and not concentrated in any one region. If a community-based organization makes a good case about a pressing credit need in a city that receives a considerable number of credit card loans, shouldn’t that community group stand a fair chance of receiving financing for a community development project?

So what is to be done about the loopholes? When I was at the National Community Reinvestment Coalition (NCRC), we regularly raised these issues with the federal agencies and Congress. Judging by recent conversations at the NCRC annual conference, the appetite among the agencies and Congress is lacking to change CRA in a way that will realize its full potential.

One reaction is to give up but this would be short changing the communities we are seeking to empower. The other reaction is to keep using CRA, to continually comment on CRA exams, dialogue with lenders, and dialogue with sympathetic members of Congress and staff of the federal agencies. You never know when an incremental change in an examination practice or a bank’s program will be beneficial. Also, you can raise issues of compliance with consumer protection and fair lending law with the federal agencies. The credit card bank in this case was downgraded on its exam because it engaged in illegal and deceptive credit card practices.

And finally remember, CRA has been quite beneficial and the chances it will remain beneficial only increase when we all use its public accountability mechanisms to hold both banks and regulators honest.

Josh Silver is the Development Manager at Manna, Inc. Prior to his time at Manna, Josh served as the vice president of research & policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter.

 

 

 

 

 

 

 

 

 

 

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Advocating For Affordable

There’s a boom coming in the District, and like the majority of the most recent ones this one has to do with housing. Just east of the NOMA metro station tons of development dollars are flooding into the Union Market area of the District. This May, ground is set to be broken on the first mixed-use residential/retail building planned for the neighborhood, and if things go according to plan another eight developments could be on the horizon. The momentum from this development has been in the works for a while. In 2009 the District published a framework for future development for the 45 acres within the cross streets of Florida and New York avenues and Penn and Sixth streets, Northeast, near Gallaudet University. The recent booms in Trinidad and NOMA have spilt over and Union Market looks to be next on the horizon.  Hopefully, this increase in supply will bring relief to market forces that have contributed to rising rents across the board and help push back the city’s affordability crisis.

 

Another contributing factor to this narrative is the strength of the city’s housing programs as more housing comes on line, more specifically the Home Purchase Assistance Program (HPAP). For those of you who don’t know, HPAP is a no-interest loan given to first-time home buying District residents for purchase assistance. As housing costs continue to rise, the level of importance of HPAP and other programs has steadily increased. In order for low-to-moderate income residents of the District to continue to be able to participate in the housing market, this kind of assistance will not only need to be continued, but strengthened.

 

On April 20th, the DC City Council held a budget hearing for Department of Housing and Community Development and community stakeholders and residents spoke in support and/or disapproval of the housing budget. For FY16, the proposed budget looks to cut $2.5 million from the HPAP budget. Residents asked for that to be restored as well as an additional $1 million dollars. Community stakeholders also asked that the maximum loan amount be increased from $50,000 to $80,000 and changes be made for the program to run faster, both necessary things for households to remain able to participate in the market. Other high priced cities have raised their purchase payment assistance as well. Below are testimonies given at the hearing. Remember, in order for the District to remain a city for all, there must be Housing For All.

 

Housing Committee Oversight Hearing

Councilmember Anita Bonds

John Wilson Building – April 20, 2014

Testimony of Latanya Boyd, Ward 7 resident and renter

 

Good Morning. My name is Latanya Boyd, and I live in Ward 7. I am proud to become a District homeowner.

I would like to thank Councilmember Anita Bonds for chairing the housing committee and for her commitment to more equitable housing across the District. I would also like to thank the council for their commitment to homeownership and programs that make it possible for individuals like me as well as families to realize the “American Dream” of homeownership in the District. And hope the council would continue prioritizing programs like HPAP that allow renters like myself to be able to own, stay and grow as homeowners in the District.

I have been living in the District all my life. In 2014 I became what I categorized myself as a “traveling roommate”. I could not afford my apartment and had to leave. Not being able to find an apartment I could afford, that’s when I became the traveling roommate. My girlfriend allowed me to stay with her for a few month – 3 months is what it was, in Silver Spring, MD. Afterwards, my cousin let me stay with her…again about 3 months. This roommate time is in Arlington, Va. Still trying to find something in the city I could afford (and feeling a little on the depress side) after about 2 months it was time to move on, my friend in Gaithersburg, MD said I could stay with him for rest of the year (rent free) providing I could find a place by the end of the year (2014). It did not look good the closer I got to year’s end.

To find an apartment in Washington, DC became frustrating and hopeless. I felt depressed. I felt defeated. If you look long into the abyss…the abyss will begin to look back at you.

In the face of this depression I did begin to see glimmer of hope in such organizations as Manna, especially when I met Willamena Samuels – director of the Homebuyers Club. I joined Manna in 2009 but I still had that “I can never afford to buy in DC” mentality so I didn’t take it seriously. But Ms. Willamena saw something I just did not see…a Home Owner. The sessions have taught me a lot, how to deal with my finances and credit. It absolutely opened my eyes and has made me thriftier. I am doing whatever I can to save for a down payment and I am definitely on a budget.

Organizations like Manna and government home ownership loans such as HPAP and the Housing Production Trust Fund, are the backbone for people like me to actually have that dream of home ownership. We want to better ourselves and it will take hard work to get there. However, with all our best efforts and education, the reality is we need help to make the dream real. The cost of homes within the District makes the “American Dream” feel untouchable…unattainable…out of reach.  Therefore, loan programs like HPAP are key to those of us in that moderate to very low income.

We’re do our part, saving, cleaning up our credit, paying back our HPAP loans, paying taxes, and supporting the city we love and want to live in. We ask that the administration be recognized so that more families can benefit from the funds effectively, but also ask that the maximum loan amount be increased to $80,000.We also ask that the council not cut funding to the program by 2.5 million, it is a struggle for middle to lower income individuals to participate in this market. Each day the District is getting more expensive to live.

This is a market, an open market that is increasing in value because of the efforts of all District residents.

Please make homeownership a priority in your next budget. Homeowners help keep the District

together, communities are strengthen by it and building up neighborhoods. Help ensure the District remains a city for all.

Thank you for allowing me to speak. May God bless you all.

 

Testimony of Sarah Scruggs, Director of Advocacy and Outreach, Manna Inc.

Budget Oversight Hearing

Committee on Housing and Community Development

April 20, 2015

 Good morning, Chairwoman Bowser and Committee members. My name is Sarah Scruggs and I am the Director of Advocacy and Outreach for Manna, Inc. Manna supports the housing and economic budget priorities that CNHED has set forth. We believe in a dynamic continuum of affordable housing that empowers people to move through different types of housing over time, reaching whatever is their full potential. We need $100 million in the Housing Production Trust Fund to do this, to meet the need of preserving affordable housing and creating more. We also need programs like HPAP to assist prepared residents in purchasing homes.

 Manna has worked with so many homeowners who have moved from homelessness, transitional housing, affordable rentals and other types of housing into homeownership created by the Trust Fund or homeownership on the open-market; we have also seen folks in ridiculously expensive rentals move into homes they can afford, stabilizing their payments to years to come. HPAP needs to be supported and seen as a vital part of the housing continuum, a part of the pathway to the middle class. We need to increase funding, increase loan amounts, and institute needed program changes. All of these things are possible and we ask for the Council’s support.

This Saturday, Manna is holding our 4th Annual East of the River Homebuyer Education Fair event along with DHCD. We are expecting larger turnout than ever before. And this fair is happening as outreach for the East of the River Homeownership Initiative is starting, a groundbreaking effort that the Council full heartedly supported last year. As you’ll see in the attached one-pager, mortgage-ready HPAP applicants remain high and will increase. These people put their time, effort and resources into preparing for homeownership; let’s make sure HPAP is available for them to purchase homes not just in Wards 7 and 8, but other parts of the city as well. Time is of the essence as mortgage rates remain low; just a one percentage increase would increase mortgage payments by almost 15%; now is not the time to cut HPAP’s budget.

Raising the maximum HPAP loan amount to $80,000 is absolutely essential. The attached one-pager shows that home prices have risen past 2008 levels when the HPAP loan amount was $70,000; however, HPAP loan amounts have not kept pace. The increase to $50,000 in last year’s budget was not enough. Manna knows this well as we saw many DC residents only be able to purchase by combining HPAP with the $20,000 CityLIFT downpayment funds that we administered from late 2012 to 2014. And loan repayments can be restructured for those with less income and higher loan amounts, going back to the historic VPAP structure where homeowners didn’t repay until resale. Other cities have structured their purchase assistance loans in this way and DC has done it before. Don’t forget that HPAP money comes back; it’s an investment that can change lives, create a family’s economic future, build DC’s tax base, and keep recycling.

Along with CNHED and other stakeholders, Manna participated in many HPAP meetings at DHCD last year and developed ideas to improve the program. We are confident that the needed changes to streamline HPAP can and will be implemented and look forward to working with DHCD. Attached you’ll see a list of those changes. We’re even starting to see improvements now, including better communication between the Urban League and HPAP buyers.

The full continuum of affordable housing and the programs that make it possible need your support. This is about addressing need and building a vibrant, inclusive city that offers opportunity to all DC residents. Thank you for the opportunity to testify.

 

 

 

 

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Towards a More Inclusive and Prosperous Economy

Recently, the Center for American Progress, a progressive think tank, released an ambitious “Report on the Commission on Inclusive Prosperity” co-chaired by former Treasury Secretary Lawrence Summers and Ed Balls, member of the British Parliament. Supported by the Rockefeller Foundation, the Commission included a number of other dignitaries including former elected officials from Europe and Australia and U.S. labor leaders. This report is likely to have a significant influence on the policies adopted by the Democrat party and perhaps even a few recommendations will find their way into the Republican Party platform.

 

The Commission presents a strong analysis about the harmful economic impacts of inequalities in income but only indirectly and sparingly comments on inequality of wealth and its impacts. While economic, labor, fiscal trends and policy receive hundreds of pages of analysis, housing and homeownership are discussed in three pages. As a consequence, the Commission is mostly correct with its policy prescriptions but some critical recommendations around housing, homeownership, and wealth creation are omitted.

 

The Commission starts with an emphatic statement about the unhealthy status of our laissez faire economy. The Commission asserts:

 

Left to their own devices, unfettered markets and trickle-down economics will lead to increasing levels of inequality, stagnating wages, and a hallowing out of decent middle-income jobs. This outcome is morally wrong, economically myopic, and at fundamental odds with a democracy in which everyone quite reasonably asks for an equal chance to succeed. The enduring response of progressives has been to find ways to share the gains of market dynamism more broadly. To ensure that all of society’s citizens have a stake in its prosperity, and therefore all of its citizens have a stake in its future.

 

The first section of the report is a comprehensive and insightful overview of perverse economic conditions during the last few decades and especially during the Great Recession. The report states that “Developed countries have experienced a toxic combination of too little growth and rising inequality.” While productivity growth has increased over the last 60 years, the growth in income experienced by workers has decreased while management has claimed a rising share of income in most developed countries.

 

The rise in inequality contributes to a slowdown in Gross Domestic Product (GDP) or national income. Low- and middle-income consumers spend a greater percentage of their income on goods and services than more affluent consumers. Thus, less income for modest income consumers results in less consumer demand and lower economic growth. In addition, the high levels of family debt and foreclosures during the Great Recession also dampens consumer spending on goods and services. Further, long-term bouts of unemployment not only has damaging short term consequences but can retard economic growth for decades to come as unemployed workers lose skills and earning power.

 

Meanwhile, the corporation functions “much less effectively as providers of large-scale opportunity…and their dominant focus has been the maximization of share prices and the compensation of their top employees,” according to the Commission’s report. CEO pay is often largely in the form of stocks, providing incentives for CEOs and top managers to focus on the next quarter’s profits and ignore longer term investments. In fact, the Commission finds that U.S. companies invest about half the amount in workforce training today as a share of GDP compared to a decade ago.

 

In order to reverse increases in inequality, the Commission issues strong recommendations to bolster the level of unionization and collective bargaining. While these recommendations will not make it into the Republican playbook, unions have historically improved wages of the middle class in this country and are important counterweights to inequality. What may make it into the Republican playbook are Commission recommendations to more widely share corporate profits with workers through mechanisms like Employee Stock Ownership Plans (ESOPs) and workers cooperatives. Giving people more of a stake in their companies’ and capitalisms’ success may be appealing to Republicans and has also been found to boost productivity. Likewise, providing more input for workers in firms’ decision-making through workers councils promise to generate ideas for improving productivity and may align worker and management focus on long-term investments instead of short-term fixation on stock prices.

 

The Commission offers a number of other important recommendations regarding free access to community college and public undergraduate universities. It documents that spending on infrastructure (roads and bridges and schools) should be significantly increased as a way to bolster national productivity, employ more workers, and increase consumer demand.

 

The weakest part of the Commission’s report is the few pages it devotes to housing policy. It gets some things right. It states that a slowdown in residential investment has retarded overall economic growth. It correctly identifies restrictive lending policies as a growth impediment, citing an Urban Institute estimate that 1.2 million fewer home purchase mortgages were issued in 2012 than earlier in the decade due to changes in underwriting standards. The Commission laments the decline in minority homeownership, remarking that the homeownership rate has fallen dramatically for African-Americas by almost 14 percentage points from its peak and for Hispanics by 9 percentage points. Lastly, the Commission is correct to urge much more aggressive foreclosure prevention policies.

 

The policy prescriptions for increasing financing of affordable and decent homeownership and rental housing fall short, however. The Commission is correct that Fannie Mae and Freddie Mac need to lower fees on their loan guarantees and that obligations for Fannie Mae and Freddie Mac to support affordable homeownership and rental housing for minorities and lower income communities must be strengthened. But the Commission is silent about the obligations of banks and non-bank institutions.

 

Since lending restrictions have tightened beyond the point of reasonableness (average credit scores are 754 for borrowers), how about strengthening the Community Reinvestment Act (CRA) as applied to banks and apply CRA to non-bank institutions including mortgage companies, credit unions, and investment banks. CRA rates banks based on their lending, investments, and services to low- and moderate-income communities and borrowers. However, CRA has noticeable gaps including not examining banks beyond their branch networks although several large banks make considerable numbers of loans beyond their branches. CRA has been responsible for leveraging billions of dollars of safe and sound loans and investments in modest income communities. But if policymakers improved CRA as applied to banks and expanded it to non-bank financial institutions, underserved communities would have more opportunities to build wealth through increases in homeownership and small business creation.

 

Perhaps the Commission did not spend as much attention to housing as it should because it also missed an analysis of wealth inequalities. Other research has found that inequalities in housing wealth is a driver of overall inequalities in wealth. In an important discussion, the Commission describes how current inequality also exacerbates intergenerational inequality since children of parents with low incomes are likely to fare poorly in the economy. Increases in homeownership for lower income and minority populations can heighten intergenerational upward mobility when children either inherit housing wealth and/or parents use some of the housing wealth to fund education for their children.

 

Overall, the Commission’s report will be most helpful for a national discussion and debate about how to reverse pernicious inequality and its impacts on all of us. Hopefully, others will fill in the missing gap on housing policy during the upcoming national elections.

 

Josh Silver is the Development Manager at Manna, Inc. Prior to his time at Manna, Josh served as the vice president of research & policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter.

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How do We Address a Lack of Consumer Savings and a Precarious Economy

A new Neighborworks America survey reveals an astonishing lack of emergency savings capacity for most Americans. This finding exposes stark inequalities and, if left unaddressed, will contribute to overall economic instability. Last week, Neighborworks America released a survey of adults in America which found that 34 percent or 72 million adults do not have savings for an emergency such as a medical bill or a car break down. An additional 47 percent said that their savings will last three months or less. So 80 percent of all adults in America have little savings!

Minorities are most likely to have no emergency savings. While 34 percent of all adults do not have emergency savings, 50 percent of African-Americans and 42 percent of Hispanics do not have emergency savings. Not surprisingly, lower income adults are more likely to have no emergency savings. The survey found that 19 percent of people making $100,000 or more per year had no emergency savings, while 53 percent of people earning less than $40,000 had no emergency savings. The economic consequences of lack of savings are perverse and damaging. A lack of savings for most adults contributes to the growth of the abusive payday lending industry which was described in last week’s post. Predatory payday lenders feast on high-cost and short term loans which most customers have to renew several times, often racking up fees that are more than the original loan amount.

For the economy as a whole, a lack of savings depresses consumer demand. Consumers do not feel confident that they can purchase large items like cars or buy homes. A lack of savings has most likely slowed the economic recovery. Moreover, if existing homeowners experience unemployment they are more likely to experience foreclosure if they lack savings and cannot keep up with mortgage payments.

So what is to be done to increase savings rates? There are many policy prescriptions and solutions, most of which will be difficult to implement in this political environment. Wages need to be boosted via the pursuit of full employment policies. More public sector spending on decaying infrastructure (roads and bridges) would be helpful. Full employment at higher wages would help Americans save.

While waiting for fiscal public policy initiatives, another policy and programmatic response is to increase the number of people who have banking accounts or the means to save. The latest FDIC survey reports that 8 percent of all Americans or 10 million people lack a bank account. An additional 20 percent or 25 million people are under-banked, meaning that while they have an account, they use alternative financial institutions like payday lenders to meet some of their financial needs. Again, racial disparities are stark: 20 percent of African-Americans and 18 percent of Hispanics were unbanked.  The Office of the Comptroller reports that less than one third of low-income households and less than one half of moderate-income households have savings accounts.

A major reason of being unbanked was a lack of savings. Almost 58 percent of the unbanked said that the main reason they did not have a bank account was that they did not have enough money to open an account or avoid fees due to not maintaining minimum balances. More can be done regarding the Community Reinvestment Act (CRA) and bank policy. As stated in previous columns, CRA rates or grades banks on the level of loans, investments, and services they offer to low- and moderate-income borrowers and communities. A significant shortcoming, however, in CRA exams is a lack of data showing how many savings and deposit accounts banks offer to low- and moderate-income consumers (CRA exams do not currently measure bank services to minorities but they should if we want to be serious about narrowing racial disparities).

Federal bank publications discuss various savings programs including Individual Development Accounts (IDAs), children savings accounts, or accounts that automatically transfer a certain amount of money from checking to savings accounts.

In order to address the issue of a lack of savings, IDA accounts often match the savings of consumers and can be used for making down payments on mortgage loans or to pursue education. While all of these programs sound appealing and attractive, there is a paucity of data on how widespread they are. More data in CRA exams on the volume of savings accounts and programs for modest income customers would help address the problem of insufficient savings. If most banks do very little in this area, CRA ratings on at least the service portion of the exam should be low as a way to motivate more effort. My suspicion based on inflated CRA ratings and on the national data year after year showing low savings is that the scale of effort is small relative to the need.

More resources should be made available to support financial education courses like those offered by Manna and other nonprofit counseling agencies. Again, banks receive points on CRA exams for offering support for counseling, but data on how widespread bank support for counseling is not systematically collected by the federal bank agencies that conduct CRA exams.

Ultimately, Presidential leadership with at least some Congressional support is needed to address inequalities and low savings rates that dampen consumer demand and threaten economic prosperity. The last time CRA was reformed in a meaningful way was when President Clinton ordered the federal bank agencies to improve CRA. But this was in 1995! President Obama is trying to pursue some ambitious policies like halting global warming in his last two years of office. Why not put CRA on the priority list as a way to address inequality and improve the economy? In the meantime, all of us, especially those in the nonprofit sector, should use CRA to prod the banks to do more to help modest income people save and build wealth.

Josh Silver is the Development Manager at Manna, Inc. Prior to his time at Manna, Josh served as the vice president of research & policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter.

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