Debt- The New American Past TIme

According to new studies produced by the Urban Institute, Americans are in debt – a lot of it. The average adult American with a credit file has an average of $50,000 in debt, and more than one third of those Americans, about 77 million, have had at least some of those debts in collection last year. The report is based on data from TransUnion, one of the three major credit reporting agencies. For a debt to be passed on to a collection agency, it must be more than 180 days past due. This report also revealed that geography played a major role in identifying where the larger indebted individuals live. The national average for debts in collection was $5,178.

When looking at the study, metro areas with higher density have significantly higher debt levels. This is understandable because the cost of living (housing and necessities) tend to be more expensive, also these areas typically have a higher concentration of college graduates; meaning more mortgage and student loan debt. However, these forms of debt are typically considered “good” forms of debt, because homeownership is an asset and studies have shown that higher education usually leads to increased earning potential over a lifetime. When mortgage based debt was removed, the maps painted a very different picture: the majority of heavily indebted, in collection debt was in the southern region of the country. This suggests these areas do not have access to the same amount of resources and opportunities as the rest of the country, requiring individuals to take on more consumer debt.

Twelve states have debt delinquency rates above 40%, and eleven of those states are in the south. Large amounts of debt and debt delinquency are extremely difficult for individuals to manage, usually leading to a drop in a person’s credit score, lack of access to credit, and can even restrict employment opportunities.

Counseling and training continues to one of the most effective measures for helping individuals not only understand, but manage and tackle their debt. Manna’s Homebuyer Club, a program that provides various forms of credit counseling and homebuyer education, is a great example of a program that meets people where they are, and empowering them along the road of success.

 

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Fairness For Fastfood

This past weekend, over 1,200 fast food workers gathered together to coordinate their efforts for increased pressure on raising the minimum wage. The conference, which was held in Chicago, was attended by low wage workers that have worked for companies, some over a decade, but have seen very little to no increase in their wages. One of these workers, Cherri Delisline, a single mother who earns $7.35 an hour after 10 years as a McDonald’s cashier in North Charleston, S.C. said “I get paid so little money that it’s hard to make ends meet, and I’ve had to move back in with my mother.”

The actions by these fearless workers have paid great dividends so far.  In their most recent strike in mid-May, workers walked out at restaurants in 150 cities nationwide, with solidarity protests held in 30 countries. They cite these efforts as key factors in the passage of a bill in Seattle that would raise the wage to $15 an hour, as well as similar bills that will be introduced in Chicago and San Francisco.  These movements have not come without their fair share of opposition – business groups all over the country oppose this. However, these are the same companies, like McDonalds, whose CEOs makes double in one day what the average employee does annually. In order for families to be able to build wealth and have access to opportunities like higher education and generational wealth building, they must share in the gains produced by their productivity. If everyone works hard for the profits, but only a select few at the top reap the rewards, the cycle cannot be sustained, nor is it equitable. Nothing less than a fair and living wage is acceptable for those who dedicate themselves to their work.

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Banking for the Unbanked

Some banks are trying to clean up their public image, and it seems very low-income individuals are the targeted beneficiaries. Typically forgotten and underserved, large financial institutions have recently begun creating financial services and products geared towards helping individuals with troubled finances that were being squashed by predatory bank overdraft fees. These programs and products are not financially beneficial for these institutions, but for banks who played significant roles in creating the Great Recession, an increase in public approval may be just as valuable.

Mike Mayo, a banking analyst at the brokerage firm CLSA states “This is good for the customers and good for the banks’ images…Banking still ranks among the worst industries in the public’s opinion.” Banks have even gone a step further; some of the larger financial institutions such as Bank of America, JP Morgan Chase, and American Express have physically shadowed low-income individuals in order to develop products and educational tools that will actually work for them and be more beneficial than using a pay day lender.

Some individuals are skeptical of these actions by the banks, the low-income individuals being targeted now are the same individuals who were targeted for subprime lending. This could also be a part of the banks’ long term strategy: bringing lower income individuals into the fold now, while hoping to be able to offer lines of credit and other profitable banking services later. Regardless of intention these financial institutions have been receiving praise from regulators, and we should support these changes and push them to do more.

These actions from the banks stress the importance of Responsible Banking Ordinances. Having a local legislative measure to encourage and ensure community reinvestment is key to the development of all eight wards of the District. Bruce Murphy, KeyBank head of corporate responsibility says this about the current surge in responsible activities by financial institutions: “Being the right thing to do has a short shelf life.” We should not let responsible banking be a fad for banks, but an ongoing focus and goal. A Responsible Banking Ordinance would help ensure that.

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Threat to Equal Lending

Banks say that regulations stemming from the housing bubble of 2008 are discouraging them from providing FHA loans and tightening lending. An FHA insured loan is a mortgage loan backed by the US Federal Housing Administration, which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. Criticism has stemmed from recent Department of Justice rulings and triple penalty fines issued by the government. JP Morgan Chase recently paid a $600 million fine on federal fines for originating $200 million in flawed FHA loans, but these banks are stating that unless clearer penalties and fines are discussed they might stop originating FHA loans altogether. “The real question to me is, should we be in the FHA business at all?” Jamie Dimon, CEO of JP Morgan Chase said. “And we’re still struggling with that.”

Dimon’s threat to stop FHA lending is meant to force regulators to shape the penalties more favorably for the banks. Currently, regulations have been severely tightened, and a minor underwriting error could possibly trigger the same penalty as massive fraud.  Banks are under pressure to provide FHA mortgages to help meet federal laws requiring them to serve minority and low-income borrowers, but due to poor underwriting and the penalties associated banks are looking for a way out. The standoff is hurting the housing recovery and qualified, responsible lower-income borrowers as lenders tighten standards for FHA loans to avoid triggering the fines. Banks have important standards to reach when it comes to fair lending and the Community Reinvestment Act, under which they receive federal insurance. FHA helps them reach a more diverse group of borrowers that need access to credit. As John Taylor of the National Community Reinvestment Coalition states, “FHA accepts 3 percent down…Is Chase going to do 3 percent down [loans]? If he decides I’m not going to do FHA, does that mean his portfolio credit criteria are going to expand? The devil is in the details.”

A huge portion of the mortgages originated during the housing bubble were deeply flawed and poorly underwritten, typically filled with missing or falsified documents. And then we also had the issue of minority borrowers being targeted for much higher interest rates. As we get these things under control with better and more appropriate regulations, we also need to be concerned about credit access. It has been shown that homeownership education is a powerful resource that maximizes a borrower’s success, and when paired with targeted purchase assistance programs, can have a positive impact on a community. Credit access connected with good homebuyer education is one of the keys to a successful and thriving housing market that includes low-to-moderate income buyers.

Historically, banks have existed as entities founded on community development, a tool used to start small business and fund education, but recently they have strayed from this mission. Introduced by Councilmember Jack Evans, the Community Development Act seeks to leverage District funds to ensure the city’s financial institutions serve all of its residents. It is increasingly evident that financial institutions have strayed from their original mission; let’s ensure they get back on track!

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Holding Banks Accountable

It’s time to hold Banks accountable! Recently, the Department of Justice handed down the biggest civil penalty of its time - $4 billion to Citigroup for its role in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) prior to Jan. 1, 2009. These instruments were not only predatory in nature, but fueled the financial crisis of 2008. In addition to the $4 billion civil settlement, the resolution requires Citigroup to provide $2.5 billion in relief to underwater homeowners, distressed borrowers and affected communities through a variety of means, including financing affordable rental housing developments for low-income families in high-cost areas. Even though a resolution was reached, the bank as well as some of its employees could still be hit with criminal charges.

This has been the largest penalty dealt under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). A total of $20 billion has been recovered so far for consumers and investors who were misled by these financial institutions. In the resolution, Citigroup acknowledged its wrong doing – internal emails between Citigroup employees state that one “went through the Diligence Reports and think[s] [they] should start praying . . . [he] would not be surprised if half of these loans went down. It’s amazing that some of these loans were closed at all.” This conscious negligence and disregard for consumers and investors show the ugly motives of that exist within and often drive our financial institutions- profits over everything.

Supported by Manna, Inc. and over 15 local organizations and coalitions, the Community Development Act of 2013 seeks to leverage city deposits to hold the District’s financial institutions accountable for reinvesting in all of the District’s wards and residents, not just the more affluent ones. These financial institutions can’t be expected to prioritize the development of the communities around them: that is our task. A responsible banking ordinance, which evaluates the reinvestment plans of the banks that the city does business with, would be a step in the right direction.

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A Loss of Affordability

In an article written by Aaron Wiener of the City Paper last week, residents of the Museum Square Apartments were given a tough choice: either cough up $250 million to purchase their building or move elsewhere. Museum Square, a low-income affordable housing complex that houses about half of the Districts remaining Chinese population, has 302 affordable units that would be lost if the owner is able to move forward with the building’s demolition. As shocking as the ultimatum was, the real issue is the price tag given by the building’s owner, Bush Companies of Williamsburg, Va. In the District of Columbia, when a landlord wants to sell or demolish a building the owner must give the tenants an opportunity to purchase the property, but usually the tenants are matching an offer that the owner has received. In this case, there is no offer to match and the owner’s $250 million price tag for demolition seems to have been pulled out of thin air with no real attachment to reality. In a move to quickly address this problem, Councilmember David Cantania tried to introduce emergency legislation that would cap the amount an owner planning on demolishing their building could sell their property at to the city’s appraised value – in this case, Museum Square would be sold to the tenants for $30 million. Unfortunately, the emergency bill was not filed in time for inclusion in yesterday’s legislative session, the final one before the Council recesses for two months, and no special arrangements were made to add it to the agenda.

Bush Companies has given tenants until October 1st to move and they could stall demolition further if they begin to exercise their tenant rights to purchase. So, there is still time for the DC Council to act, but it will have to be done quickly. Currently, the District is in the midst of an affordable housing crisis and unless the city’s elected officials continue to take action and adapt quickly, the city will continue to lose the cultural and ethnic diversity that has made Washington, DC the world class city it is today. Common sense solutions and effective programs are only the beginning. The District must truly make affordable housing a priority if It wants to see its sustained success.


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Not Quite There

This past winter was one of the harshest winters on record. Of the many things brought to light due to the extreme cold, the District’s abundant homeless population might have been the most surprising. As growing inequality continues to plague our nation, and the middle class is continually being squeezed out, a forgotten population has steadily risen as well.

In response to this growing problem, the Mayor Vincent Gray devised a plan: “500 families in 100 days.” The 100th day is today. The program has made great strides in providing more stable living conditions for many; however, the program will fall short of its goal of 500 families. The city and homeless families were able to find 532 units since the start of the program, but 73 of those units did not meet the city’s requirements. That leaves 459 eligible units, or about 92 percent of the target. B.B. Otero, Deputy Mayor for Health and Human Services says, “I’ve been out of school for a while, but I believe that’s close to an A.” Although the majority of the housing goal was found, the city has only moved about 183 families into these homes and expects about 200 by the end of the 100 days. There are still 486 families being sheltered by the city as of July 3: 244 at the D.C. General shelter, and 242 at motels. There are only about 30 vacancies at DC General.

If the city doesn’t begin taking a more serious stance towards affordable development, last year’s crisis will look like child’s play. This is why the continuum of housing and affordable development is so critical to the sustainable growth of the city. Meeting people where they are, empowering them along the way, and potentially leading to homeownership. This is one of the few ways to reduce the city’s invisible population, while helping create stable homes for the future.

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College and Homelessness: An Unwanted Correlation

Homelessness has increasingly become a major issue here in the District of Columbia as housing prices continue to rise and affordable options continue to shrink, a trend that has greatly affected the city’s low-to moderate income households.

In a recent article by Jana Kasperkevic of the Guardian, a new population of the homeless is on the rise: College Undergraduates. There is a small but growing number of undergrads living out of cars or using public facilities to help reduce the ever increasing cost of a college education. And with over $1 trillion in student loan debt  across the across the country, access to opportunities needed to move up the economic ladder are more out of reach now then they have ever been.

In the article, our author speaks to Jeffrey Williams. A month before his 18th birthday, Williams found himself homeless. Told by his adoptive parents that they would not support him after he graduated high school, Williams decided he would do whatever it took to go to college, knowing it was one of his few chances at upward mobility. Working at McDonalds, Williams was earning just enough to pay for his food, transportation, phone bill, and the rest went to tuition. He was finally able to qualify for financial aid after a couple years, and then took out a loan for housing.

There are more than 1.1 million homeless children and youth enrolled in US public schools, according to the Department of Education. For many of them, college education is almost completely out of reach.

This isn’t a problem that’s only facing students coming from the foster system or extremely low income families, but families of more moderate means. There are many cases of students coming from families of more moderates means still finding it increasingly difficult to afford the cost of education even with savings that are dedicated to higher education, having to choose between a degree and the only expense they have the option of cutting – housing.

Another example of this involves a family of more moderate means. Jake Stevens, a mechanical engineering major at Kettering University is homeless. Even after he maxes out his federal student loan limit, scholarships, and college fund his parents saved for him he still is unable to afford housing. Kettering University, a very expensive specialty college, provides a unique curriculum that allows Jake to attend classes half the year, while allowing him to work in the field of his studies the remaining six months of the year. Although this job pays well Stevens must use this money to pay his tuition, and due to financial troubles during the 2008 financial crisis his parents aren’t able to help him with student loans. These cases are both on the extreme end of the spectrum, but the problem is still as potent. During my sophomore year at Howard University a friend slept on our couch for two months in order to finish out the semester, because they could no longer afford housing.

There are many dynamics contributing to college affordability and the access students have to higher education, but homeownership has been one dynamic that has consistently helped in this pursuit. In a study done by Pew’s Economic Mobility Project, students whose family who saw an increase in housing wealth during the years leading up to their college years saw a higher college completion rate. Homeownership continues to provide many long-term benefits to individuals of all income categories, consistently assisting in providing opportunities for lower and moderate income families at generational success.

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Millenials on the Move

The very generation responsible for the District’s boom in youth, culture, population, and housing prices are being priced out themselves. In an article written by Robert Samuels of the Washington Post, District (Did you mean to put the title of the article here?) millennials and research based on city data paint a picture of a city that has become increasingly unaffordable even for individuals making around the area median income of about $107,000 for a family of four.  This research also sets a grim backdrop for the many of the city’s long term residents – as the wealth/asset gap continues to grow, more and more Washingtonians, key contributors to the rich history and diversity of the city, will no longer be able to afford to stay in the city. If the city is becoming increasing affordable for those making AMI, it would be safe to say it is only getting worse for the city’s lower income individuals. And all of this will have a significant impact on the sustainability of the city’s future.

In Samuels’ article, we meet John Van Zandt, who rents a small, one-bedroom apartment in Columbia Heights with his wife. Not only are they being priced out, but his wife is pregnant, and the appeal of a local bubbling social scene pales in comparison to the need for more space to accommodate his growing family. Most recent data provided by the DC Office of Planning shows that while the median age of those moving into the District is about 26, the median age of those migrating out is 29. Of the 59,000 people who left the District in 2012, about 44 percent ranged from 20 to 34 years old. Those leaving were likely to be college-educated and have an income above $50,000. Nicole Newman, an organizer with the Washington Interfaith Network says “The affordable-housing crisis has become a more complex narrative than we thought it would be,” Newman said. “If it’s not addressed, the city will lose them and lose committed residents.”

This affordability crisis, if not addressed, will have severe impacts for the District down the road. While this article focuses on young professional millennials who are making closer to the area median income, the lower income population of the District is being squeezed even further. Van Zandt, a program manager for the Latin American Youth Center, speaks on this dynamic from his work with families at the bottom of the economic totem pole. “We are not victims,” Van Zandt said. “Sometimes, I feel like I get what [the homeless] are going through. But then a pregnant mom comes into my office for help because she’s been sleeping on a park bench. It puts things into perspective.”

Supported by CNHED, the Continuum of Housing seeks to support households at 80% of the area median income and below, meeting them where they are and moving them along the housing ladder. More support and focus needs to be put toward the Continuum, while also creating options for those who make just above 80%…To begin addressing this issue more housing must be developed at all categories of the income spectrum, not just the higher income categories. If not, in addition to an affordability crisis the District could face a culture and diversity crisis as well.

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Starbucks leading the way

Starbucks, a business known for its great benefits for employees, is again trying to revolutionize the work place. On Monday it plans to announce a plan the will help its baristas earn online degrees, partnering with Arizona State University to provide 135,000 U.S. workers the opportunity to earn degrees for various educational programs, without any work requirements after degree completion.

For freshman and sophomore years, employees would pay a greatly reduced tuition after factoring in a scholarship from Starbucks, ASU and financial aid, such as Pell grants. For junior and senior years, Starbucks would reimburse any money that workers pay out of pocket. So, for employees who have completed at least half of their course requirements, the remainder of their bachelor’s degree will be free.

The company already has a program the helps students in college, but Starbucks says the new program is far more generous and is intended to address high college drop-out rates, given the financial struggles many face in finishing college.

This program is a great example of a corporation sharing the wealth it generates with the very people who help generate it. As education and many other fundamental building blocks for a bright future become increasing unaffordable, programs like this provide opportunities for many, by investing not only in the future, but in people. This program is also a step in the right direction to addressing the nation’s growing wealth and education gap. As Starbucks states, many low-to-moderate income individuals start college, but fail do finish due to financial hardship. This program will directly help to begin solving this problem by attacking it at the root, assisting individuals with finishing school without burdening them with huge debts. In research done by Pew’s Economic Mobility project, 86% of college grads who started at the bottom of the economic ladder moved up to another income category – in contrast, for those in the bottom income category without college degrees, only 30% are able to move up.

Programs like the one Starbucks is embarking on could have a huge ripple effect for families at the bottom of the economic totem pole, providing opportunities for wealth generation and increased education.

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