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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An Increase in Taxes to Decrease Homelessness

taxesWe’ve recently passed the 90-day mark for the Bowser administration, and affordable housing is still the primary topic in the District. Because this is still the greatest challenge the city facesBowser has proposed an increase in the city’s sales tax to combat it, even amidst rising revenue for the District. This increase in taxes would create a $19 million surplus the city would be able to use to transform the District’s homeless services. The Mayor also proposed building a network of smaller homeless shelters across the entire District, in all eight wards, to replace D.C. General.
The tax increase would be .25%, raising the rate to 6% and bringing in an additional $22 million over the course of a year.  Mayor Bowser also proposed raising the taxes on parking garages around the District to help subsidize the growing cost of operating the city’s metro system. This kind of flat tax increase has had opposition in the past due to its increased impact on the poor. To supplement the news of tax increases, Mayor Bowser also focused on a more effective budget, attempting to shift some of the burden from tax payers back to the city.
These actions by Mayor Bowser, regardless of whether these are the best tax increases to make, have not only shown a commitment to the city’s most pervasive problem, but that she is willing to risk political capital to do it. According to her proposed budget, the Mayor has also fulfilled her commitment to funding the Housing Production Trust Fund at $100 million, though the Home Purchase Assistance Program was decreased by $2.5 million. While only time will tell, the first 90 days of this new administration has provided many affordable housing advocates with optimism of a very bright city, a District supportive of all its residents, not just the privileged few. 
In this coming budget process at the City Council, we need to work to support a dynamic continuum of affordable housing, from homeless services on through homeownership, streamlining programs to create new affordable housing and move people along the continuum to make space for others. This is part of the Mayor’s vision of a pathway to the middle class, a very good vision, indeed!
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Payday Should not be Mayday: End the Abusive Payday Lending

The Consumer Financial Protection Bureau (CFPB) is contemplating new protections on payday and other consumer loans. This is a big deal. The CFPB would be the first federal agency to propose protections on a wide swath of consumer loans including payday, vehicle title loans, deposit advance products, and high cost installment and open-end loans.

Payday loans are the best known. Payday lenders make loans of $100 or more to borrowers that are due on the borrowers’ next payday. Borrowers often resort to these loans due to emergencies like car break-downs or medical costs.

Many of these payday loans become mayday loans for borrowers. The payday lenders often do not assess whether the borrowers can pay back and borrowers often have to “rollover” or refinance the loans with high fees tacked on during each rollover. Annual percentage rates can reach higher than 300 or 400 percent. The CFPB’s research finds that half of payday loans end up being renewed. More than one in five loans end up in a series of seven rollovers. The amounts borrowed in the rollovers often equals or exceeds the original amount borrowed.

The Center for Responsible Lending has found that nearly half of all payday borrowers default within two years of their first loan. Eighty percent of payday loan volume is due to “churn” or rollovers. Rollovers cost borrowers a whopping $2.6 billion in fees each year.

The CFPB is considering proposing a rule intended to curb the abuses associated with payday and other consumer lending but the proposed rule is too convoluted to ensure adequate protections. It requires payday and other lenders to conduct an analysis ensuring that borrowers have the ability to repay. Another option for lenders is to forego the ability-to-repay analysis and instead offer loans with certain protections. Under this option, lenders could not place borrowers in more than 3 loans in a three month time period and then would be required to adhere to a 60 day cooling off period during which no more loans could be offered. Yet another option being considered is that the loan principal must be reduced with each loan and the principal is completely paid after the third loan. For loans longer than 45 days, the CFPB is considering a 28 percent interest rate cap.

The CFPB should not offer the either/or option to lenders. There is no reason why a lender should not be required to conduct an analysis-to-repay and adopt loan terms and conditions designed to avoid repeat rollovers. Moreover, the payday loan limits appear to allow six loans in a year, which is too many. How about a cut-off at 3 or 4 loans? Also, how about the interest rate cap of 28 percent being required for all consumer loans for which the CFPB is proposing to cover.

The CFPB is required by Congress to allow small businesses the opportunity to meet with and comment to the CFPB before a proposed rule is released and the public is given an opportunity to comment on the proposed rule. This gives small businesses (lenders in this case), the first opportunity to influence the rule. And they will blast the rule as a way to destroy their industry! The public can only hope that the CFPB will stand tough and strengthen, not weaken, its proposal.

Even if many abusive lenders leave the industry, consumers will not be left high and dry without opportunities to attain credit. The Community Reinvestment Act (CRA) requires banks to provide credit in a safe and sound manner to low- and moderate-income consumers. CRA exams measure the banks’ lending, investing, and services in low- and moderate-income communities and rate the banks based on the level of their activity in modest income communities. A shortcoming is that CRA exams have done a poor job in evaluating consumer lending such as safe alternatives to payday loans. Sometimes this type of lending is mentioned on exams but the exams do not report how many of these consumer loans are actually made to low- and moderate-income consumers and whether these loans are responsible and safe. If CRA exams more rigorously measure consumer lending, viable alternatives to unregulated payday loans could increase.

Currently, a consumer can have an easier time applying for a credit card than a payday loan. Unlike payday loans or other loans the CFPB is thinking of covering, a consumer does not need a bank account to apply for a credit card loan. There is no credit score cut-off. Presumably credit history has to be decent but when I chatted on-line with a bank representative, I was told there was no minimal requirements. Interest rates tend to be lower at 12 to 23 percent than the CFPB’s contemplated rate of 28 percent for medium term consumer loans. I am not touting credit card lending because abuses occur in credit card lending also. But I think there is more potential for this type of credit being used responsibly because banks adhere to more consumer protection law and regulations like CRA than payday and other non-bank lenders.

Interestingly, Washington Post columnist Charles Lane reacted to the proposed payday rules by saying that the Post Office should not be regarded as an alternative (http://wapo.st/1EGXSDI). The Post Office in previous decades offered consumer loans in the United States and still does overseas. Policymakers have discussed the Post Office resuming this lending function, particularly in rural and other areas underserved by lending institutions. I don’t distrust government like Mr. Lane, but I would not hold my breath waiting for the Post Office to rise as a viable alternative to unscrupulous non-bank lenders. I would focus on pushing banks to do a better job responsibly satisfying short term credit needs.

Don’t listen to the hype. Abusive payday and other lenders will shout that any proposed consumer rules will end their industry and cut-off lending to consumers in need. Debt treadmills consisting of serial rollovers is not meeting a consumer need. It is more like debtor’s prison. There must be better ways like well-regulated lending. And how about increasing access to financial education and counseling? Some say the capacity is not enough in the counseling industry to reach consumers in need. How about having a mind-altering discussion regarding how to increase capacity? If the CFPB thinks 28 percent interest is reasonable, how about some of the consumer payments for interest going to fund certified counseling agencies?

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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Without Government Regulation, Honest and Fair Dealings Cease

In 1933, Ferdinand Pecora, Chief Counsel to the Senate Committee on Banking and Currency, led investigations into Wall Street practices that contributed to the Great Depression. Pecora states that the hearings revealed, “A shocking corruption in our banking system and a widespread repudiation of old fashioned standards of honesty and fair dealing in the creation of and sale of securities.” Eighty years later in 2010, Congress created the Financial Crisis Inquiry Commission (FCIC) to investigate the practices of predatory lenders, which again found that the breakdown in honest dealings were a major cause of the worst recession since the Great Depression.

Pecora documented that banking practices became dangerous when commercial banks expanded into investment banking. Originally, commercial banks received deposits and made loans to corporations. At the start of the 20th century, commercial banks branched into investment banking when they invested in stocks and bonds and sold stocks and bonds to the public.

Banks started selling bonds to retail customers using their reputable and venerable names. As Pecora maintains, the stocks were sold using the publics’ “faith in the integrity and conservatism” of the banks. Banks, however, sold dubious stocks at mark-ups to the public after they had purchased the stock at lower prices. Furthermore, “liberal prizes were offered to the salesman who sold the most stocks and bonds.” This is eerily familiar to compensation systems that encouraged brokers and loan officers to peddle predatory loans 80 years later.

Pecora continues “A bank was supposed to occupy a fiduciary relationship and protect its clients, not lead them into dubious ventures. But the introduction and growth of the investment affiliate had corrupted the very heart of these old fashioned banking ethics.”

Greed and shady practices also dominated the stock exchanges in the years leading up to the Great Depression. The Pecora hearings found that stock exchanges were not an arena for the “free play of supply of demand” as advertised but were a “glorified gambling casino where the odds were heavily weighted. The public who bought the stocks at dizzily mounting prices were victims of a determined, organized group of market-wise operators…who were backed generously with bankers’ credits.”

After these hearings and in the midst of the Great Depression, the Roosevelt Administration worked with Congress to pass laws protecting customers from manipulative stock and bond sales. The Glass-Steagall Act, also known as the Banking Act of 1933, prohibited commercial banks from owning investment banks. The Securities Exchange Act of 1934 created the Securities and Exchange Commission to regulate stock exchanges and prohibited the manipulation of stock prices.

Fast forward nearly 70 years and America was in the midst of a lending boom and housing bubble in the mid to late 2000s, propelled by a frenzy of reckless and high cost subprime lending. Mortgage companies and other lenders used deceptive practices just like the stocks salesmen of the early 20th century to conceal the risky nature of their products. They disguised the true cost of loans by selling borrowers adjustable rate mortgages that had low “teaser” rates and rapidly higher rates in future years. In many cases, the broker or loan officer did not document borrower income or assess the borrower’s ability to repay the loan.

Just as with the stock selling in the 1920s, compensation systems encouraged excessive subprime lending and risk taking. The FCIC found that the “originate-to-distribute” model eroded lending standards. Lenders sold loans to investors while not retaining “any skin in the game” or exposure to any losses that would have made them hesitate to engage in large scale risky lending. Rating agencies were “key enablers of the financial meltdown.” Moody’s rated 45,000 mortgage backed securities as triple A, which deceived investors into believing that they had sound investments just like the fraudulent stock sales of the 1920s. More than 80 percent of the triple A securities were eventually downgraded.

The FCIC found that a lack of regulation, particularly by the Federal Reserve Board enabled these shoddy practices. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act that outlawed predatory lending practices like lending beyond borrowers’ abilities to repay. It also established the Consumer Financial Protection Bureau to implement the anti-predatory lending protections of Dodd-Frank.

The economic phenomena behind these crisis is information asymmetries. In other words, sellers’ knowledge of their products are exponentially greater than buyers’ knowledge. In this imbalance, it is too tempting for sellers to abandon honest dealings and exploit buyers. Economists also theorize that these temptations become too great to resist when sellers have no incentive to internalize externalities. What this fancy academic lingo means is that harm is “external” to a seller when the seller faces no financial consequences for peddling toxic products. A seller is either awarded handsomely for selling more toxic products and/or can avoid risk or liability (as lenders did by selling subprime loans to investors and not retaining risk).

Joseph Stiglitz, a Nobel Laureate economist, states that externalities and information asymmetries exist in most markets. Because of this government regulation is needed in most markets. He states that the real debate today is not about whether government is needed but “about finding the right balance between the market and government. Both are needed. They can each complement each other. This balance will differ from time to time and place to place.”

The same market failures caused a Great Depression in the 1920s and a worldwide recession today that was only a whisker away from another Great Depression. Trillions of dollars of wealth was lost and minority and lower income communities were disproportionately impacted. Temptations in the financial industry to be dishonest are too great without government regulation. Until we all become moral beings, regulation, particularly in the financial industry that intimately influences the ability of people to build wealth, is needed.

 

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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Lessons of LBJ and Civil Rights Movement for Possibilities of Change Today

Julian Zelizer’s recent book “The Fierce Urgency of Now: Lyndon Johnson, Congress, and the Battle for the Great Society,” masterfully explains how far reaching Civil Rights and Great Society legislation was made possible by a social movement, a determined President, large Congressional majorities, and moderate politicians in the minority party willing to negotiate. The book also indirectly illustrates why even after the financial crisis and the Great Recession, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was incomplete in its reform of the financial sector. A number of key ingredients present in the passage of the Civil Rights and Great Society laws were missing this time around.

The passage of the Civil Rights Act of 1964 reveals how grassroots pressure combined with a steadfast President to pass a landmark law. The odds were great. In the previous decade, the powerful Southern segregationist James Eastland was Chair of the Senate Judiciary Committee and had succeeded in blocking 119 civil rights measures from leaving his committee. But Senator Eastland lost ground in 1963 and 1964 as the civil rights law was being debated due to the strength of the civil rights movement and its allies. Sit-ins in segregated establishments and civil rights protests succeeded in turning the tide of public opinion. The pollster Louis Harris reported in April of 1964 that great majorities of Americans supported the civil rights bill.

Religious organizations were also vital in their moral suasion. Religious leaders held meetings with Senators, including prominent conservatives, who were persuaded to vote for cloture ending the filibuster of the civil rights law. Congressional staffers got used to letters arriving on Tuesday and Wednesday after congregants were urged to write during Sunday services. This activity prompted Senator Humphery to state, “The most important force at work today on behalf of civil rights is the churches – Catholic, Protestant, and Jewish.”

Even with the grassroots pressure and increasing public support, the Southern filibuster of the bill turned into the longest Senate filibuster in history lasting 60 days. President Johnson realized that he needed the support of moderate Republicans and asked Minority Leader Everett Dirksen to negotiate a bill with his administration. Senator Dirksen’s negotiation and support for the bill carried enough Republicans to end the filibuster and pass the bill. He called civil rights a “moral” issue that “must” be resolved. Can you imagine the current Republican majority leader of the Senate or House possessing this much vision and statesmanship?

The Civil Rights Act of 1964 ended segregation in public accommodations, established the Equal Employment Opportunity Commission, prohibited distribution of federal money to programs practicing segregation, and banned gender discrimination in employment.

After Johnson signed the bill into law on July 2nd, Bill Moyers, his aide, found the President forlorn in the White House. Johnson told Moyers, “I think we have just delivered the South to the Republican Party for a long time to come.” Lyndon Baines Johnson (LBJ) was a political and legislative genius who took big risks for what he thought was right, and took these risks despite the possibility of defeat in the future. This type of political leader is sorely missing today.

In the immediate aftermath of the Civil Rights Act of 1964, LBJ did not experience political costs. Instead, he defeated Barry Goldwater in a landslide and new Congressional Democratic majorities were the largest since 1936. LBJ used these majorities to pass 200 bills in perhaps the most productive legislative record of any president including FDR. Landmark bills included the Voting Rights Act of 1965, Medicare, Medicaid, and the first federal funding of education.

Eventually, LBJ’s gambling and risk taking took its toll. LBJ was committed to the Fair Housing Act (FHA) which was a much tougher sell than the Civil Rights Act or the Voting Rights Act. By prohibiting discrimination in the sale or rental of housing, many Americans, including Midwest and Northern lawmakers who sided with LBJ on earlier civil rights bills, viewed the FHA as an intrusion on their castle, that is, their home. Americans could support earlier civil rights bills as moral imperatives and as needed to stop the bitter oppression and violence experienced by African-Americans and the civil rights movement. But the FHA seemed different and a government mandate interfering with private property. Senator Dirksen came out against the FHA. Only after the assassination of Martin Luther King were lawmakers and the nation swayed to support the bill.

LBJ’s support for the FHA, his tragic mistakes in escalating the Vietnam War, and the unrest in the nation’s cities contributed to the defeat of the Democrats in 1968. But the Great Society has endured today with civil rights laws, Medicare, Medicaid, and a federal role in education, housing and community development largely intact despite attacks.

Today, monumental legislation faces greater odds. It was miraculous that the Affordable Care Act (ACA), popularly known as Obamacare, passed despite a less hospitable Congress and a lack of a visible evil (discrimination) and a social movement that graphically displayed that evil in the nightly news on Americans’ television sets. In addition, financial reform legislation was not as far reaching as the civil rights and Great Society reforms even though the lawless and irresponsible behavior of the financial industry caused the worst recession since the Great Depression.

In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act that instituted important reforms. The law created the Consumer Financial Protection Bureau that is dedicated to protecting consumers from abusive lending and other financial products. It established new safeguards against predatory lending. It also required more transparency and data on loan terms and conditions in order to monitor lending trends and detect abusive practices earlier.

But Dodd-Frank missed one critical reform. In 1977, Congress passed the Community Reinvestment Act (CRA) which requires banks to serve all communities consistent with safety and soundness. Federal agencies conduct CRA exams and give banks ratings based on how many loans, investments, and services they offer to low- and moderate-income borrowers and communities. This law has boosted banks’ lending and investments in modest income communities by hundreds of billions of dollars. If Dodd-Frank had applied this law to all segments of the financial industry including mortgage companies, insurance companies, and Wall Street investment banks, lending and investments would have been multiplied many times over in lower income and minority communities. Lawmakers had proposals before them to expand CRA during Congressional consideration of Dodd-Frank.

Sadly, however, the Great Society ingredients were not there. The President did not invest as much political capital in financial reform as LBJ did in civil rights and Great Society laws. Support in Congress for CRA reform was tepid at best and had many prominent lawmakers hostile to CRA. Lastly, the social movement was not as strong as the Civil Rights movement. I proudly worked at the National Community Reinvestment Coalition for almost 20 years, ghost wrote CRA reform bills, and worked with 600 community organizations to support CRA reform and make community voices heard in Congress. But it is not a knock on our collective efforts to state honestly that we were not as successful as the Civil Rights movement. It is just hard, hard work. Perhaps we also lacked the visible evil of violent discrimination.

One can conclude that the possibilities for profound social change are rare. So many ingredients must gel at the right time. It is easy to give up and be cynical. But perhaps the response that LBJ, Martin Luther King, and other leaders would advocate is to never give up, defend current gains, push for incremental reforms, and support budding social movements when they occur. Just maybe, you might be involved in once in a lifetime moment of social change.

 

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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Participate in Crowdfunding for Affordable Housing and Homeownership

As readers of this blog know, affordable housing in DC is becoming harder and harder to find each year. Manna is constantly searching for financing/funding and available properties/lots to produce affordable housing for those who need it. Manna is not a hand-out but a hand-up. Most subsidies received from the city in the form of second loans or low down payments are paid back over time. And Manna’s programs work because of diligence and effort on everyone’s part.

Recently, we have acquired a foreclosed property in the Hillcrest section of Washington, DC to renovate and sell to a lower income purchaser. Manna used funds provided by Neighborworks America to purchase this house, which is currently undergoing renovation. The house is a semi-detached, 2 bedroom, 2 bathroom town house with a full renovated basement, and very large backyard with deck overlooking a small stream. Before renovation was complete, Manna received an offer. Akua Danqua is a single mother with two little girls. This family has prepared themselves for a couple years and is very excited to be able to buy their own home. For more information about Akua, her family, and affordable housing in DC in general, please read this Street Sense article.

As a part of the M St. renovation, Manna will need to provide the home with a number of brand new appliances, which is why we are asking for your help with funding. In an effort to test out crowdfunding as a new source of fundraising, we have created a campaign on causevox.com to raise $13,290 for appliances in a new Manna property on M St. SE. Information about the property and the future owner, Akua Danqua, can be found on this page. We invite everyone to please send this link to any family or friends that they believe may be interested in helping Akua with funding for her household appliances before she and her two young daughters move in.

Not only do Manna’s programs work, they represent less risk than a traditional bank’s loan portfolio as buyers are prepared, educated, and supported. Before people become homeowners, they work with Manna’s counselors on saving for a down payment and cleaning up their credit for one or even two years! In the coming weeks, Manna will be producing a report showing that Manna’s low-to-moderate income families have a lower foreclosure rate than the rate in Washington DC, as a whole. And remember, DC was not ravaged by the foreclosure crisis like some other localities, and it is a city that has experienced considerable gentrification over the last couple of decades. What is special about Manna’s program is that we have provided sustainable and affordable homeownership for 1,000 families. The families who have purchased Manna homes have gained millions of dollars in equity, and a typical family has about $200,000 in homeowner wealth after starting with little or no wealth. We have participated in some cases in ending inter-generational poverty. Most of these homeowners will pass this wealth along to their kids, some will fund education, and some may fund small business start-ups.

Be a part of supporting affordable housing in DC and Akua Danqua’s family in particular!

 

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NY Agreement May Increase Lower Income Homeownership in DC

Last week, Eric Schneiderman, the New York Attorney General, reached agreement with the three large credit bureaus, Equifax, TransUnion, and Experian, which could result in more minority and lower income loan applicants nationwide and in the District of Columbia qualifying for home mortgage loans. By reducing the number of errors on credit reports, the chances that applicants are creditworthy and qualify for loans increase. This disproportionately helps populations that are traditionally underserved by the financial industry.

The three large credit reporting agencies (CRAs) collect information on the use of credit, the amount of debt, and delinquencies on some 200 million Americans. In a massive data collection undertaking, errors are inevitable. But care can be taken to reduce the amount of inaccuracies and resolve disputes and errors when they occur. Without adequate oversight, errors can multiple and unfairly penalize hard working Americans. The CRAs provide credit reports to FICO and other companies that calculate credit scores or numbers usually on a scale of 300 to 800 that indicate how creditworthy consumers are and how likely they are to repay their loans and debts on time. Faulty credit reports depress credit scores and may lead to loan denials. Other adverse consequences can follow as well. Employers and landlords consult credit scores in addition to lenders.

A Federal Trade Commission study in 2012 found that 26 percent of consumers’ credit reports contained inaccuracies that lowered credit scores. Thirteen percent of consumers boosted their credit scores after working with the credit bureaus to resolve errors on credit reports. Some simple math reveals profound implications of errors. An error rate of 26 percent means that 52 million of the total 200 million consumers have credit report errors. A 13 percent correction rate means that 26 million successfully improved their credit reports and scores. Assuming that the Attorney General’s agreement makes it possible for another 10 percent or so to improve their credit reports, another 20 to 26 million consumers may be able to boost their scores. Chances of loan approvals then increase significantly.

In particular, medical debt is an oppressive problem. Over half of the debt collections on credit reports are medical debts. Anyone familiar with medical bills can attest to how difficult they are to understand, how difficult it is to determine what the consumer must pay and what the insurance company will pay, and delays in working with medical care providers and insurance companies in sorting out medical bills. Not surprisingly, the likelihood of delinquent medical payments increase for the uninsured and for lower income borrowers.

A Center for Disease Control study finds that 26 percent of the lowest income borrowers had problems paying medical bills compared to just 6 percent of the richest borrowers.

Graph for NY AG Agreement post - 2015 Mar 17

Regarding medical debt and other issues, the Attorney General’s agreement with the three large bureaus requires the following:

  • Medical debt: CRAs must wait 180 days before reporting delinquent medical bills on credit reports. This will provide more time for consumers to work out their bill payments with medical care providers and insurance companies. Once paid, medical debt must be removed from credit reports, which is not the case now.
  • Disputes over Errors: CRAs will no longer automatically reject a consumer’s dispute about an accuracy of a debt report after a lender verifies that the lender reported the debt. Instead, an employee with discretion to fix errors must investigate the matter and review documentation from all parties.
  • Illegal Loans: CRAs are prohibited from reporting debt incurred on loans deemed to violate New York state law regarding predatory lending. These abusive loans must not be allowed to further penalize consumers through damage to credit reports. Other jurisdictions should follow the New York Attorney General and adopt this provision.
  • Bolster the Visibility of AnnualCreditReport.com: Most consumers do not know that they are entitled to one free credit report annually via this website. The CRAs are required to adopt increased marketing and outreach to make consumers aware of the availability of free credit reports so consumers can investigate and fix any errors.

Although the New York Attorney General negotiated this agreement, most of the provisions of the agreement are national. Thus, the consumer protection actions of the New York Attorney General will benefit consumers in the District of Columbia, particularly minority and lower income loan applicants. A few weeks ago, this column reported that the below percentages of different populations in DC during 2013 were denied conventional home purchase loans because of creditworthiness:

  • African Americans – 17 percent
  • Low-income – 15 percent
  • White – 8 percent

Suppose that the New York Attorney settlement benefits all applicants but disproportionately benefits low-income and minorities that probably have the highest frequencies of medical debt and errors on their credit reports. The agreement has the potential to narrow racial and income disparities in access to credit for residents of the nation’s capital.

Key to this, however, is consumer use of this new agreement. Manna’s homeownership counselors regularly assist consumers in addressing errors and cleaning up their credit. Let us hope that the New York Attorney General’s agreement facilitates this important work, increases loan approvals, and thus helps us build wealth in traditionally 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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Police and Wealth Extraction vs. Lending and Wealth Creation in Ferguson, Missouri

The tragedy of Ferguson, Missouri has prompted national reflection. Will it prompt corrective action? It is too early to tell, but the Department of Justice report, Investigation of the Ferguson Police Department, is a sobering, sad, and maddening account of policing in our towns and cities.Let us hope it spurs us to a serious examination of our institutions and whether they empower all races and classes in America or whether they purposely keep some downtrodden in order to elevate others.

Ferguson is a small city of about 21,000 people that has undergone a tremendous racial transformation from about 90 percent white in 1970 to 67 percent African-American today. In this racial transformation, the power structure of local government remained largely in white hands with disastrous results. The police became an instrument of oppression and wealth extraction. Not only does the Department of Justice document arbitrary enforcement practices aimed at African-Americans, they record unspeakable racist emails from police officials that make one’s stomach turn and that I cannot bear to repeat in this column. As someone who has studied access to lending for several years, the Department of Justice report motivated me to compare the police to another major force in American life, financial institutions. While the police appear to target African-Americans, what are the lenders doing in terms of serving African-Americans?

The bar graph immediately below shows that African-Americans received 51 percent of the home purchase loans issued in Ferguson during 2013, Missouri while African-Americans are 67 percent of the population.

Ferguson share of loans police actions

 

While lending is disproportionately low, negative police actions are disproportionately high. About 93 percent of all arrests are of African-Americans, 88 percent of the cases of force involve African-Americans, and 95 percent of cases of citizens being in jail longer than two days are African-American. Oppression occurs at a higher rate than financial empowerment and access to credit for African-Americans.

Before we equate lenders with police, it must be added that the racial disparity in lending observed in Ferguson is less than the disparity observed in other municipalities including the District of Columbia as has been pointed out in previous columns. Lenders are not acting as poorly as the police. The reason, I believe, is that the Ferguson police have not been accountable to the community for decades whereas lenders have been required to abide to laws and regulations including the Community Reinvestment Act, the Fair Housing Act, and the Equal Credit Opportunity Act. We have much more ground to cover to make the lending marketplace fair but progress has been made whereas the Ferguson police were operating with complete impunity before the tragic death of Michael Brown and the Department of Justice investigation.

Ferguson as well as being an African-American city is a poor city, but lending institutions have not shied away from serving low- and moderate-income borrowers in Ferguson. Lenders issued 40 percent of their home mortgage loans to low-income borrowers and another 36 percent to moderate-income borrowers. Lenders made 5 loans to borrowers with less than $20,000 in annual income and 24 loans to borrowers with incomes between $20,000 to $30,000 during 2013. This is possible because a good number of homes appear to have values ranging from $40,000 to $70,000, judging by the loan amounts made to these low-income borrowers. Hopefully, this is the silver lining in the Ferguson fiasco. That is, the affordability of homeownership creates possibilities for wealth building through responsible home mortgage lending. If the City gets its act together and takes action to make it an attractive community for everybody, then perhaps the homes will experience healthy appreciation in future years.

Contrast, the wealth building prospects of homeownership with the wealth extraction of policing. The Department of Justice describes the case of an African-American woman that police charged $151 for a parking ticket. She tried to make partial payments but they were not accepted. Experiencing periodic bouts of homelessness, the woman was charged for missing court dates. She spent six days in jail. Despite paying the City $550 in fines, she still owes $541. Some abusive payday lenders would be jealous of how well the Ferguson police and courts have perfected extortion.

The bar graph below shows that fines and fees assessed by the City of Ferguson totaled $2.46 million while the total dollar of home loans were $7.1 million during 2013. In other words, police wealth extraction was about 34 percent of wealth building possibilities represented by home purchase loans. Loans to African-Americans in the city amounted to about $3.4 million. Fines were about 73 percent of the loans issued to African-Americans.

Either the police department will voluntarily settle with the Department of Justice and institute reforms or will be sued. Let’s hope that the voluntary route is taken and concludes with robust reforms. Progress still needs to be made on the lending front but at least a decent start has been made there. The key to all of this is whether the citizens have input, participation, and representation in the institutions that so mightily influence their life chances.

dollar amt fines vs loans

 

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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