Asset Building

What Would A Responsible Homeownership Policy Look Like?

Reid Cramer — Tue, 24 Nov 2009 18:15:00 -0500

Despite the recent performance of the economy and the role of the housing bubble, we know that families will continue to aspire to own their own homes. They will do so for a variety of good reasons. For many, homeownership represents a path to stability, community, and long-term wealth building. But how to we rebuild our housing policy in ways that are constructive and supportive of economic stability rather than economic armagedon.

My perspective on this questions is presented in this recently published peice in Shelterforce magazine. The key is a new policy regime and regulatory framework that mitigates the inherent risks of the process. If done right — by matching buyers with appropriate mortgage products in a transparent and fair manner — we can make homeownership work for a broad range of American families, even those with low incomes and few resources.

Here is a sample of the argument:

The search for a responsible housing policy is likely to take us back to the future. Two of the greatest innovations in American finance are the 30-year fixed mortgage and the creation of mortgage markets with a high degree of liquidity. Fannie Mae and Freddie Mac were initially created to ensure that banks had access to sufficient capital to lend to home buyers. Their subsequent overreach has left them under government conservatorship. They will need to be replaced or reinvented to serve their original purpose. On his way out the door, former Treasury Secretary Hank Paulson proposed replacing Fannie and Freddie with highly regulated utilities. In exchange for a fee, these firms would purchase and bundle mortgages that would be backed by the federal government in case of default. Like other utilities, they would be governed by a public commission that would set the rules for operation, including establishing a fee structure to limit returns and standards to ensure only creditworthy mortgages are guaranteed...

Consumer protections should be at the heart of the system and not an afterthought. Making the transition from a rule-based regulatory regime to a principles-based framework will have real ramifications for developing a sustainable homeownership policy. If this means the housing finance system becomes a low margin business, with limited profit opportunities, so be it. In the near future, we should expect that the housing finance system provides fewer incentives for “innovation” but delivers more “value.” There is no shame in getting back to basics and relying heavily on the old standard 30-year fixed FHA mortgage...

Shoring up the housing finance system is a necessary step, but so is the recognition that homeownership is not for everyone. Accordingly, we need to ensure that there is a sufficient stock of affordable rental housing and consider alternative ownership models, such as shared equity homeownership. In exchange for a public subsidy, families give up a portion of the home appreciation. This makes buying the home easier for the family and preserves affordability for the community over the long term. At the same time, the owner is placed within a community-based support system, such as a land trust or limited equity cooperative, which can mitigate the risks of homeownership. Shared equity housing has the potential to provide an attractive balance of affordability, access, and the opportunity to build up home equity. It has been modeled in a number of the communities across the country and is ready for prime time…

Congressional Savings and Ownership Caucus Launches and Pew Releases a Paper on Savings

Justin King — Tue, 17 Nov 2009 16:32:00 -0500

Thursday, November 19th the Congressional Savings and Ownership Caucus (CSOC) is holding it's first event of the 111th Congress--"Advancing Economic Mobility Through Savings: Savings, Ownership and the American Dream."

The CSOC is a bi-partisan Congressional organization devoted to exploring, debating, and advancing policies to build savings and assets for all Americans, particularly those with lower incomes and fewer resources. The CSOC is Co-Chaired by Rep. Jim Cooper (D-TN), Rep. Tom Petri (R-WI), Rep. Earl Pomeroy (D-ND), and Rep. Joe Pitts (R-PA). The Asset Building Program has helped to organize the Congressional Savings and Ownership Caucus since 2005. You can learn more about some of the work of the CSOC here.

The event will feature the release of a new report on savings and economic mobility, the report is being released by the Economic Mobility Project of the Pew Charitable Trusts and was co-authored in part by Reid Cramer and Rourke O'Brien from the Asset Building Program.

The event is from 1PM until 2PM in room 2456 of the Rayburn building.

If you're interested in attending the event, learning about the CSOC and getting a copy of the report, you can RSVP here.

Consumer Protection Proposal Gains Momentum

David Newville — Thu, 12 Nov 2009 22:21:00 -0500

After several months of debate in Congress and the media, the proposal to create a Consumer Financial Protection Agency (CFPA) has recently taken some important steps toward becoming a reality. Earlier this week, Senate Banking Committee Chairman Chris Dodd included the CFPA in legislation to restructure the nation's financial regulatory system. This comes after the House Financial Services Committee approved a bill last month that would create the agency and which the full House is expected to vote on it in early December. The proposal has also received some support from important voices in the private sector and field of economics. Mark Zandi, chief economist at Moody's Economy.com wrote a piece this past Sunday in the Philadelphia Inquirer endorsing the creation of the agency.

President Obama originally called for the creation of a CFPA earlier this year as a major piece of a bold plan to revamp the regulation of the nation's financial system. The new agency would be charged with investigating consumer complaints, making rules, and enforcing regulations for a variety of financial products including mortgages, credit cards and bank accounts. The CFPA would also conduct research and promote financial education. New America's, Ellen Seidman, testified on the President's proposal before the House Financial Services Committee back in June. Click here to see her detailed analysis of the CFPA.

The proposal has, however, proved to be very controversial. Banks and mortgage lenders have come out in opposition to the creation of the agency-arguing that it would stifle innovation, increase costs and limit access to financial products. Consumer advocates argue that there needs to be one agency whose main priority is consumer protection for several reasons. Currently, this responsibility is spread across several different government agencies depending on the financial product or provider in question. This has resulted in regulatory gaps and consumer protection has also often taken a backseat in place of other financial regulatory priorities. Furthermore, there are several types of financial products and financial service providers that are under regulated or not regulated at all under the current system. However, some members of Congress and current financial regulators have expressed concerns about the efficacy of separating the consumer protection responsibilities that some federal agencies currently have from their other financial regulatory duties, such evaluating the safety and soundness of financial institutions.

One thing that is clear though, is that the current system of consumer financial protection is inadequate. The examples are numerous, including the millions of predatory mortgage options that were allowed to be sold and that eventually contributed to the current Great Recession. Industry practices regarding credit cards and bank account overdraft fees have also recently come under the regulatory spotlight. The debate over how best to protect consumers in the financial services sector should continue, and the bill introduced by Senator Chris Dodd and the one that passed the House Financial Services Committee are both good starts. The interests of consumer advocates should be balanced with legitimate industry concerns, but overall consumer protection must be strengthened, expanded and a clear regulatory priority if the both American families and the economy at large are to get back to and remain on stable economic ground.

Half of the world's adult population is unbanked

Shweta Banerjee — Tue, 10 Nov 2009 19:38:00 -0500

A report released by the Financial Access Initiative in October 2009 points out that 2.5 billion people or half of the world's adult population is unbanked. This means that they do not use formal or semi-formal financial institutions.

It also shows that socio-economic and demographic factors are not the only determinants of financial inclusion. For example, countries such as India have far wider usage of formal financial services despite the fact that large numbers of its population reside in rural areas.

Some key points:

The data is demand led and is based on "use of"and not access to financial services.
CGAP uses supply side data from a survey of financial regulators from 139 countries and have come up with a similar figure: 2.8 billion adults are un-banked.
India and Thailand have relatively low per capita income and a large rural population but have greater use of financial services than several richer, more urbanized countries.
The key findings include that countries can improve levels of financial inclusion by creating effective regulatory and policy environments.
The definition of an adult is a person of 15 years or older.
Nearly all of the unbanked adults live in Africa, Asia and Latin America.

The fact that a majority of the 2.5 billion are those that live on less than $5 day greatly inhibits their capacity to create wealth, build their assets and manage risks and unforeseen shocks. In the light of this evidence, microfinance - especially access to savings - becomes exceedingly important.

The Global Assets Project (GAP) has been advocating for savings-led programs for the poor for some time now. In collaboration with Columbia University, GAP is launching a savings project for youth in Nigeria which is the first child development account pilot in Nigeria and the African continent. The project is working with the youth as starting with the young will ensure that by adulthood, they would be secure adults with training in financial literacy and a corpus of savings that not only provides them with resources to advance their opportunities but also confidence.

There has been a lot of press opposing microfinance recently, click here for an article in Foreign Policy that provides examples of innovative savings led projects across the globe, arguing that it is too premature to write off microfinance.

Shweta Banerjee is a consultant with the Global Assets Project

Red -- Getting Out of It -- Is the New Black

Maria Sotero — Tue, 10 Nov 2009 02:22:00 -0500

Across California and the nation- in New York, Los Angeles, San Francisco, and Sacramento- money is the subject of buzz, new ideas, and VIP events. Specifically, the topic is the lack of money- the have-nots, the why-nots, and trendsetting solutions.

For once the subject is not just the typical California budget woes. Those aren't new (yet somehow the designers bring them back every season). It's banking development districts (BDDs), and the new models of community-building and economic development being tried on by cities. And it's the poverty measure, and the work being done to revamp its outmoded form and function.

BDDs create incentives to encourage banks and credit unions to locate in low-income areas that lack mainstream financial institutions, and are fast becoming the subject of local buzz. On October 30th the Los Angeles City Council announced it was unanimously passing a motion directing the city attorney to draft a BDD ordinance.

LA is the first city in the nation to create a BDD ahead of the example of its own state. New York City created one, after New York State did ten years ago. That model has been proven to work, but other states have failed to pick up the trend. (And with any hot, "in" model, there's been a bit of catty criticism. These ordinances make city deposits already deposited in - guess what - banks a 'carrot' for those volunteering to locate in bank-less areas. That's not "corporate welfare" or "letting council members play with bank funds," it's good, smart policy.) This recent local action could provide the impetus to state legislators to create a statewide BBD program.

As far as non-legislative ways cities can help their unbanked constituents, San Francisco has set the trend. The city's "Bank on" initiative is a public-private partnership to 'bank the unbanked,' who in San Francisco pay as much as $40 million a year to check cashers and payday lenders, by facilitating access to free or low-cost traditional bank services. Where location of banks is not the issue, partnerships like Bank on do much to increase the economic stakes of hard working families. And 50 cities across the nation 'Banked on' after seeing Frisco's success.

We're talking about poverty. So let's see what we're talking about. The federal poverty measure, which was designed the same year as the lava lamp and the smiley face, is pitifully outdated. Tripling the cost of food does not endure eternally as the measure of 'how much is enough' for America's families. Housing and health care have become luxury goods, while food has become relatively cheap.

New York City, not surprisingly, is where the modern measure debuted. Mayor Bloomberg's Director of Poverty Research Mark Levitan took the National Academy of Science's recommendations to create a method that reflects both the geographic differences in housing costs, and all the varying kinds of state support received, when determining whether a family is in poverty. That's two things the current measure does not do. President Obama endorsed the update. And a few weeks ago, New America's California Asset Building program hosted Dr. Levitan at a small roundtable in the Capitol for key staff. If California follows suit, it will be fitting with the goal of keeping the state on the leading edge.

All fashion puns aside, the work and the conversation is not important because it's new, but because it's necessary- California may actually have the highest poverty rate in the nation. And before a problem can be mended, it has to be measured correctly.

Simple and creative solutions are not going to go out of style- we just need to make sure we update policies that no longer function the way they were originally designed.

Podcast: Mark Huelsman on Encouraging College Savings

Mark Huelsman — Mon, 09 Nov 2009 20:29:00 -0500

In this version of New America's weekly podcast, Media Relations Manager Kate Brown sits down with Mark Huelsman, Program Associate with New America's College Savings Initiative to discuss the connection between savings and college completion, the advantages of 529 college savings plans, the ability of low-income families to save for higher education, and policy proposals to help them do just that.

An MP3 recording of this interview is available below. For more on Mark Huelsman, click here.

Pew Debuts "Road Map" for Improving Economic Mobility

Justin King — Mon, 09 Nov 2009 19:22:00 -0500

Pew's Economic Mobility Project (EMP) released a new report today, "Renewing the American Dream: A Road Map to Enhancing Economic Mobility in America." The report comes from the Principals of the EMP, leaders from Brookings, Heritage, AEI, Urban and New America (our own Ray Boshara to be exact).

The "Road Map" reflects the intent of this diverse group of thinkers that "more can and must be done to make the American Dream accessible to all Americans," and provides more than 25 policy recommendations for improving human capital, social capital and the ability of Americans to build financial capital.

EMP's work in recent years has gone a long way toward clarifying the realities of economic mobility in the United States--and the American Dream doesn't always meet perfectly with the facts at hand.

"42% of Americans born to parents on the bottom rung of the income ladder...remain at the bottom as adults--a figure that is nearly twice the percentage seen in many other industrialized nations.

For certain groups, upward mobility from one generation to the next is even less likely to occur. Women experience less upward mobility and more downward mobility than men. African Americans are more likely to remain stuck at the bottom of the income ladder and to fall from the middle-income rung than are whites. Strikingly, almost half of children born to middle-income black parents fall to the bottom rung as adults, compared to only 16 percent of middle-income white children."

This is a wake-up call from a very diverse group of thinkers. One of the recommendations in the Road Map which we've often talked about is the importance of reforming asset limits in public assistance programs in order to remove the disincentive to save and encourage the formation of a stable economic foundation for low-income Americans.

Read the whole report.

Reid Cramer in The Christian Science Monitor

Justin King — Mon, 09 Nov 2009 19:15:00 -0500

Reid Cramer has a piece up in today's Christian Science Monitor. In it, he makes the case for strengthening the American economy through increased levels of household saving--fostered by the automation of savings.

"When the recession took hold in 2008, it seemed that this problem (of low savings rates0 might self-correct, since people spend less when faced with job loss or diminishing home assets. True to form, savings soared, topping off at 6.2 percent in May - the highest since 1995. Yet by August, the rate had fallen to a mere 3 percent.

That's a signal that we shouldn't assume a new, more responsible era has already dawned. The recession may have converted many Americans to thrift in the short term, but we shouldn't squander the opportunity to put in place protections that can help families weather future downturns and create a strong economy for the long term."

In particular, he makes the case for AutoSave and for a universal system of children's savings accounts. It's a good piece, and timely given the recent remarks by Secretary Geithner on the importance of savings.

Take a look.

New America Event, 11/5: Linking Savings to College Access, Affordability and Completion

Mark Huelsman — Tue, 03 Nov 2009 15:55:00 -0500

Just last year, tuition and fees at four-year public colleges rose 6.5 percent. Unfortunately, this continues a decades-long trend of rising college costs, even during periods of economic unease and low inflation. Escalating prices have also coincided with stagnation in need-based financial aid availability, the result of which has been mounting levels of student debt for low and middle-income families. In this context, there has been greater reliance on savings, particularly through 529 college savings plans, in order to increase college affordability and reduce debt.

But there is also an emerging body of research linking savings to important educational and behavioral benefits, as well as college completion.

The Obama Administration has indicated that saving, broadly, will help lay a new and sustainable foundation for economic growth, and that saving for college in particular can help America regain its global education lead. How can college savings plans be reformed to help achieve these goals, particularly for low and moderate income families? What has the Obama Administration learned from its recent review of 529 plans? How are states, through their 529 plans, helping families combat the rising cost of higher education? And how are families actually saving for college, given the current economy?

Join the New America Foundation's College Savings Initiative this Thursday, November 5th, for a discussion of these questions and more, featuring Alan B. Krueger, Assistant Secretary for Economic Policy at the U.S. Treasury Department. This event will also feature commentary by Dan Ebersole, State Treasurer of Georgia, Margaret Clancy of the Center for Social Development at Washington University in St. Louis, and Scott Buchanan of Sallie Mae.

A live webcast of the event can be seen on the event page.

Secretary Geithner on Savings

Justin King — Mon, 02 Nov 2009 21:16:00 -0500

Secretary of the Treasury Tim Geithner was on Meet The Press this weekend to discuss the state of the economy following last week's announcement of actual growth in the GDP. The summary of his remarks basically boils down to "This is good news, but we're by no means out of the woods. Oh, and stimulus=good." Yet there are some interesting nuggets in the details of his remarks. For instance, the Administration continues to speak favorably about personal saving, and hint at more efforts to promote saving in the future.

According to the transcript, Secretary Geithner said:

"Well, again, I think it's -- it's good news and it shows that, when you act with force, you can stabilize a crisis like this and, you know, start to repair the damage and bring things back.

But this is going to be a different recovery than the past, because Americans are going to have to save more. A lot of damage was caused by this crisis. It's going to take some time for us to grow out of this. It could be a little choppy; it could be uneven; and it's going to take a while. But I think, again, this is encouraging signs."

The italics are mine, but I think it is notable that the Secretary of the Treasury is saying that "Americans are going to have to save more." Of course, the Administration has taken some steps in the past to make that easier, but Secretary Geithner is going to have to do quite a bit more in order to make a large mark on the state of saving in the US.

Later in the program, Secretary Geithner describes the choices families are facing in these economic times:

"You -- you're seeing them do the rational thing now, David. You're seeing Americans start to save again after a long period where people were not putting enough aside again the risk of a recession or a job loss. You're seeing people start to save again, and that's a healthy, necessary adjustment. It's going to make sure that -- it'll help make sure that growth is more stable and more sustainable in the future.

It is refreshing to see this level of candor from the Treasury, and not a fallback to the type of pro-consumption cheerleading we've seen too often in the past. However, Geithner's remarks provide a good opportunity to examine the state of savings in the US. Here are the Personal Savings Rate numbers from February until now:

February	March	April	May	June	July	August	September
3.4	3.5	4.5	5.9	4.2	4.0	2.8	3.3

We know for a fact that the April and May numbers were bumped by one time payments from the Government, and that the August numbers are deflated significantly by "Cash for Clunkers." So if you take out the outlier figures, where do we stand? An average PSR of 3.5% or so? Is that enough? Does it signify a return to a culture of savings? Is it enough to provide for a more "stable and sustainable future?" I'm not an economist, but in my opinion we're probably far short of where we need to be for that to happen.

President Obama today sounded similar themes, calling for a "post-bubble economic growth model" which is more "sustainable." We've heard this before from the President, but I believe this kind of public commitment to saving is relatively new for the Treasury Secretary. Its coming time to ask what proposals we might see out of the Administration that has made so much of their commitment to saving. With all of this smoke, is there any fire? While it seems a long way off, perhaps we'll see something big in the State of the Union and FY 2011 Budget Proposal?