Last year I analyzed four myths about payday lending that the Pew Charitable Trust’s “Payday Lending in America” project proved to be highly suspect in the first iteration of their study on borrowers. Their newest report (How Borrowers Choose and Repay Payday Loans) goes into more depth, revealing a love-hate relationship between borrowers and high-cost, short term loans. The report tells a conflicting story of dependence, need, stress, relief, and any other emotion associated with finances that you could think of. Borrowing from the Mythbusters again, here’s the skinny on Pew’s new report.
At this week's "Can America Save Itself?" event, attendees were able to hear four distinct policy proposals that would work to increase the amount and rate of savings for American families. Not necessarily barn-burning stuff for the average viewer.
This is America Saves Week, which is an annual campaign that encourages nationwide discussion on savings and promotes good savings behavior. For those of us in the asset-building field, this is an opportunity to elevate research on the relationship between savings and life outcomes. This research can help justify the importance of good savings behavior, especially when these habits and behaviors start early in life. So in honor of America Saves Week, here are some of the research highlights from the asset-building field. Specifically, these highlights come from our research at the Assets and Education Initiative (AEDI) at the University of Kansas School of Welfare, where we are studying the relationship between children's savings and their financial and educational outcomes later in life.
After spending a few hours on the Hill this morning, we have both good news and bad news. The bad: No one in Congress appears to be working to avert the so-called "sequester." The good: key tax writing committees of both the House and Senate are hard at work evaluating proposals and developing plans to reform the tax code. Those reforms could make it easier for Americans to save money, and become more financially secure – if they’re done correctly. How do we help ensure that the reforms will help – not hurt – average Americans? CFED (an organization dedicated to promoting economic opportunity) hosted a forum today called "Can America Save Itself?" to highlight a range of promising (and often bipartisan) strategies to leverage the tax reform process to promote asset building, thereby making it easier for Americans to cope with emergencies, save up for a big purchase like a home, or live comfortably in retirement. As CFED President Andrea Levere noted, Americans of all income levels struggle to save and remain financially stable. Roughly 44 percent of all Americans are living in liquid asset poverty, meaning they do not have enough funds on hand to survive at the poverty level for three months in the absence of income. While concentrations of liquid asset poverty are higher at low-income levels, the challenge of living "paycheck to paycheck" is still present well up the income ladder.
After years of political organizing, research and advocacy, Hawai’i is poised to become the seventh U.S. state to eliminate the asset test for applicants to its Temporary Assistance for Needy Families (TANF) program. If the experience of other states is any indication, this policy change should reduce unnecessary paperwork, bolster administrative efficiency, and establish a more supportive environment for strengthening low-income families’ financial security.
We're looking forward to attending CFED's forum tomorrow on Capitol Hill titled "Can America Save Itself?" The event will feature a dynamic bipartisan panel to discuss a range of policy approaches to using tax reform to better promote financial security for all Americans. The forum will be held in Room 121 in the Cannon House Office building. Breakfast is served at 8:15 am and the event will start at 8:30.
The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program’s blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include workforce protections and income inequality, the safety net, housing, and retirement.
My colleagues and I made a short podcast where we annotated President Obama’s State of the Union address. It’s worth a listen if you were not sitting next to a row of policy wonks during the speech.
Among other ideas promoted by the President was a proposal to help more homeowners refinance their mortgages. Here’s what he said (hit the buttom for the podcast to hear it in Obama's tenor voice:
And part of our rebuilding effort must also involve our housing sector. The good news is, our housing market is finally healing from the collapse of 2007. Home prices are rising at the fastest pace in six years. Home purchases are up nearly 50 percent. And construction is expanding again.
But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who have never missed a payment and want to refinance are being told no. That’s holding our entire economy back. We need to fix it.
Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before. So what are we waiting for? Take a vote and send me that bill.
And here’s what I say:
Interest rates are indeed historically low and it is a good idea to help more people take advantage of them by allowing them to refinance their mortgages. Refinancing will allow families to keep more of their income, which they can then use to stabilize their balance sheets still weakened by the Great Recession. And if this is done on a large enough scale, this can strengthen the recovery by increasing disposable income.
The problem is that many homes are still underwater. The drastic declines in home values since the bursting of the housing bubble has left many families owing more on their mortgages than their homes are worth. Current rules lock out these homeowners from refinancing. The President supports streamlining the Refi process so that as long as you have been staying current on your payments, you can participate.
For each homeowner, thousands of dollars are at stake. In the example featured on the White House website, refinancing a $200,000 mortgage from a rate of 6.5% to 4% lowers monthly payments from $1350 to $900. That’s $5,400 a year. It’s less, obviously, for a lower mortgage but I have also recently seen rates that are even lower than 4% on a 30-year fixed rate. Whether you think of this as savings or reduced costs, it’s a significant amount of cash that can be redirected from banks to families.
To the frustration of many advocates and policymakers, mortgage modifications and refinancing through current programs has been slow. It would have been nice if the financial institutions stabilized and saved through the timing infusion of public cash moved with a greater sense of urgency in helping families remain in the homes and stay current with their mortgages. To date, only 1.5 million families have participated in the Treasury-run HARP Program, even though 4 families qualify. The proposal supported by the President and in legislative form would expand eligibility to 12 million families.
It is worth recalling that many people ended up underwater through no fault of their own, Poor oversight of the market allowed many to bet trapped by inappropriate products. Others just happened to live in neighborhoods and regions that were hit hard.
Regardless, refinancing is a sensible solution. It keeps responsible owns in their homes, just with better terms.
It’s a completely separate issue as to what we do with Fannie Mae and Freddie Mac, the former publicly-traded companies now under government supervision. It is time to tackle the question of what a reformed housing finance system looks like.
New safeguards are certainly necessary to make sure we don’t re-create the types of liabilities that brought down the previous system and left us all on the hook, but it is equally important that we maintain opportunities for aspiring families to become responsible owners. While it’s true that homeownership is not for everyone, it is also true that when done right, it can be sustainable, even for lower-income and minority families. These are the families that can greatly benefit from the residential stability, access to neighborhood amenities, and the potential to build wealth over time that can accompany homeownership. But expanding these opportunities and fixing the housing finance system will require a renewed engagement of the public sector and more effective oversight of the market. A vote on that is a bit farther off but it's time for Congress to get to work on that issue as well. After they pass the no-brainer refinancing law.
David Dayen has a nicely written piece up on Pacific Standard ("Signed, Sealed, Delivered") arguing that a "two birds, one stone" solution exists within the current struggles of the United States Postal Service. He argues that we could improve the USPS' bottom line and strike at the heart of the challenges faced by unbanked and underbanked Americans by allowing the USPS to offer basic financial services.
Last night I had the chance to attend an advance screening of “A Place at the Table,” a new documentary about hunger in America. Drawing upon the perspectives and experiences of families struggling with hunger around the country, the film takes a critical look at the agricultural policies and political failings that have contributed to insufficient levels of public benefits, a preference for charity organizations over government programs, and a significant increase in childhood obesity rates. With WIC (a nutrition program that serves women, infants and children) on the chopping block as part of the looming sequester and SNAP under threat in the ongoing Farm Bill debate, “A Place at the Table” is an important call to action to preserve and strengthen our nutrition assistance programs.