In recent months many factions of the financial industry have been penalized for the participation in the mortgage crisis of 2008, but in recent news the Consumer Financial Protection Bureau has narrowed its scope and taken aim at the mortgage servicing firms who play a large role in whether struggling individuals either lose their home or receive extra time to rectify their situations.
In its first act of enforcement under new mortgage servicing rules that began this year, the consumer financial regulatory bureau and Flagstar bank reached a $37.5 million settlement because of accusations the bank prevented thousands of people from accessing tools that would have helped them escape foreclosure. Flagstar has been accused of withholding information from clients, stringing clients along for months, then wrongfully denying them loan modifications, they also failed to inform clients that documents critical to the approval of their modifications were needed. Richard Cordray, the director of the consumer protection bureau said “Flagstar took excessive time to process borrowers’ applications, did not tell them when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications”
One of the biggest concerns generated from this situation is the lack of options or even community oriented departments in these large financial institutions, focused on helping clients find the best option. Here in the District we have an opportunity to provide an incentive to some of these financial institutions. The Community Development Act of 2013 would incentivize more community development from financial institutions, by evaluating their community development plans and factoring those evaluations into which banks secure financial contracts with the city. This latest settlement by Flagstar shows our financial institutions need a little push in the right direction; a Responsible Banking Ordinance seems like the perfect start.
As the city continues to grapple with its affordable housing crisis and the sharp rise in the homeless population, rapid rehousing has been one of the few bright spots. However, a recent change in how the program is administered could create a self-re-enforcing system of continued homelessness and a growing homeless population. Due to a recent change all rapid re-housing subsidies end after one year; prior to this change the subsidies where reviewed by a case manager every three months.
In a Washington Post article shedding light on this issue, the author spends time with Nkechi Feaster, someone who would be considered a rapid re-housing success, but is currently on the brink of homelessness. As a recipient of the District’s rapid re-housing program Ms. Feaster was given a full housing subsidy to cover her monthly rent of $950 and her case was reviewed every three months. The next year, after she found a temp job as a community organizer paying $1,000 each month, the city asked her to put half of her income toward rent. Shortly after she began paying her rent in full, her temp position expired and she was once again facing financial hardship. Instead of helping families break the cycle of poverty, the program can contribute to very briefly delaying it. A program first developed in Los Angeles and Minneapolis in the 1980′s, rapid re-housing was intended as a crisis intervention program, not a tool to break generational poverty. Next year the city has appropriated $20 million to rapid re-housing, while funding for homeless family services is being reduced by $6 million.
According to the Interagency Council of Homelessness families displaced are expected to increase 16% this winter and there is still huge demand for affordable housing in the city. Rapid re-housing is a phenomenal tool for quickly assisting displaced and homeless families, helping them find housing in difficult times, but to truly curb homelessness it must be paired with complementary programs that helps move families out of poverty and into stable housing. The city needs to continue to focus on funding the Interagency Council on Homelessness’ plan to end chronic homelessness by 2020, creating new units through the Housing Production Trust Fund (HPTF) whose rents are supported by the Local Rent Supplement Program (LRSP). As CNHED testified in May 2014, “ If we instead continue to focus our attention only on the “crisis” of homelessness and fail to increase the stock of affordable housing, we continue to fail these families and individuals, providing them with only an overcrowded shelter system, and no real strategies to prevent homelessness or provide permanent affordable housing.” Rapid re-housing is a great tool if used strategically, and can only work alongside these other production tools. All of these tools, used correctly, will be greatly needed in the city’s battle to curb the homelessness crisis.
Homelessness has steadily risen throughout the United States. While many of the District’s homeless population have found refuge on the streets, even this is becoming increasingly difficult. In many places being homeless is now a crime, possibly being arraigned or imprisoned for simple standing, sitting, or sleeping in the wrong areas.
While there are many laws specific to homelessness, many laws affecting the homeless population are often hidden or blended in with other laws. Park or public area curfews are often used to regulate the homeless population. In high-priced cities like the District of Columbia where affordable housing options are in high demand, there simply aren’t enough places for the homeless to go.
Recently, in March of 2014 a homeless man in New York died due to the criminalization of the homeless. A former war veteran, he was imprisoned for trespassing because he was unable to find shelter. He was sent to Rikers Island because he was unable to post the $2,500 bail set for him; he was place in a hot cell and ignored for days “basically baking him to death”.
Since 2011 there has been a great increase in the laws affecting the homeless, even prohibiting individuals from feeding the homeless. As homelessness continues to steadily rise in the District we must begin implementing creative solutions to solve this crisis. Would you be able to survive if there was no place to go and you could be jailed simply for asking for help? There are many better solutions than these and we should start looking at them.
It’s no secret America is economically segregated. The current tradegy in Ferguson, Mo has shed a light on a greater problem in our country, the economic stratification of our nation. This issue is much deeper than the tragedy that is the death of 18 year old Mike Brown. It has shed light on a long list of systemic issues and policy failure that have contributed to what Aaron Wiener of the Washington City Paper calls, The Suburban Poverty Shift. Historically, many policies were put in place to stagnate the wealth accumulation of people of color. One of those primary policy decisions being redlining practices restricting African American from building wealth during key wealth building periods in American history. Wiener references in his article a Brookings Institute study focused on the shift in wealth in the Ferguson area. The unemployment rate in the St. Louis suburb increased from less than 5 percent in 2000 to more than 13 percent in 2010-2012. For residents who do have a job, real earnings declined by a third. The poverty rate doubled. On the surface these changes are a result of urban revitalization, the return of more affluent white individuals back to cities. But if a closer look is taken, the discriminatory policies that forced people of color to remain in cities as renters, while their white counterparts were able to build wealth and assets in the suburbs are the direct cause of some of the disparities we see today. In the District of Columbia many of the same economic disparities facing Ferguson, Mo are present here, but a booming economy provides the city the resources to make a difference by providing affordable housing options to help the District’s lower-to-moderate income residents. Supporting the production of affordable units as well as the support and increase funding for affordable housing programs such as HPAP (Housing Production Assistance Program) and LRSP (Local Rent Supplement Program) is the first step in addressing the District’s economic disparities.
For many Americans who face financial hardships, banking is simply out of the question due to poor customer service and outrageous fees. In its place, credit unions have been filling the void, offering a more personal banking experience and fewer fees. These practices have significantly contributed to the rise in credit union membership. According to Mike Schneck, chief economist for the Credit Union National Association, credit union membership has risen by 2.9%, adding 2.85 million new members. It was the largest increase in more than 25 years. Research has shown that this growth isn’t due to individuals leaving the banks, but the large population of individuals who simple can’t participate in basic commercial banking. Many individuals are excluded from traditional banking because they don’t meet the banks’ criteria, don’t have enough money, or may not make enough transactions in a month. These fees and requirements exclude many low-to-moderate income individuals who don’t have the money to spare, or meet the requirements to hold these accounts. Citi Bank, for example, charges their checking account holders $10 a month unless they maintain $1500 in their account or receive at least one direct deposit per month - for many people these simply aren’t options.
About 72% of nation’s 50 largest credit unions currently offer free checking to their customers, according to Bankrate’s 2014 Credit Union Checking survey. As for banks, that number dropped from 76% in 2009 to 38% in 2013. This news is also very enlightening because of the recent actions by large financial institutions to attempt to clean up their images. Bank of America and JP Morgan Chase are just two of the big banks that have developed products and educational tools specifically designed for lower income individuals.
While high fees and requirements are a large issue, they represent a much larger problem – a lack of equitable banking. A responsible banking ordinance would begin changing that by leveraging city funds for community investments by the District’s financial institutions. This ordinance would provide an incentive for community development from large institutions - a simple solution to a very critical issue.
All across the District of Columbia, affordable rental units, subsidized by government programs or tax credits, will expire from their contracts requiring them to remain affordable.
This issue recently caught public attention when the Museum Square Apartment complex was suddenly set for demolition, giving its residents an ultimatum, pay $250 million for the building or move. This decision has recently been reversed, due to public disapproval and an attempt at emergency legislation from Councilmember David Catania.
There have been a host of ways the District government has gone about subsidizing the development of affordable housing, but one of the most popular has been the Low Income Housing Tax Credit program. According to the U.S. Department of Housing and Urban Development, one-third of all rental apartments constructed between 1987 and 2006 took advantage of these tax credits. Apartments subsidized through this program must keep their rents under a specified level for 15 years.
Although the Museum Square issue seems to be resolved, it has shed light on the much larger issue of expiring contracts all over the city. This may not be a big issue for all LITHC subsidized building owners, but for those in emerging areas market rate prices are just too enticing to pass up. Over next five years, 45 properties will reach the end of their mandated 15 years of affordability. These include the 224-unit Rockburne Estates in Buena Vista (expiring next year), the 406-unit Columbia Heights Village along 14th Street NW (expiring 2017), and the 422-low-income-unit Capitol Park Plaza in Southwest (expiring 2018).
The District has tools like TOPA (Tenant Opportunity to Purchase Act) to help tenants purchase their building if the owner decides to sell. However, other tools are needed to help tenants in LITHC buildings be able to afford to stay in their buildings or elsewhere if the owner decides to not renew the LITHC status for another 15 years. As the District changes, we need to create more creative and nimble policies that ensure hard-working District residents are not financially squeezed out of their homes, communities, and lives.
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.
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.
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!
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.