Over the years I have seen society in the US struggle with repairing the disparity in housing amongst the races, the perception is that if lenders just stopped their conscious or unconscious biases everyone would be at equal footing. That may have been so in the 60-s and ’70s but as lending has evolved into a heavily commissioned game that argument lost its power. Instead what you saw were increasing minority homeownership but at higher or not competitive terms because lenders made more off of the new to the housing game.
The CFPB was born and Billions in fines were levied. Did that money go to solving the issue or did it go to creating a large bureaucracy that more than doubled the cost of getting a loan, eliminating competition and therefore higher terms to the consumer? Did this bureaucracy increase minority homeownership? No matter of fact it is at its widest gap (30%) since 1968 Passage of the Fair Lending act! We need more than Republican or Democratic thinking. We need Great Society vision with wise business implementation.
You have to change a cultural view and learned behaviors that take a generation to form. We need Financial coaching, not just education. Currently, we teach a class on home ownership—anywhere from 1-3 sessions—give a certificate and a grant and this optimistic family can by the house. But then the boiler goes, they lose one of their 4 jobs, life happens and payments get missed. They can’t refinance because of their credit which also creates a disparity as “fair lending” rears again because they pay higher terms after closing than other cultures.
Even when we put a minority new entrant into the homeownership world they tend to stay there. How do we keep them financially active and smart in their choices so they can take advantage of lower rates and build equity over time that can be leveraged into trading up or cashing out and buying a new investment property? Most dependable wealth has been built through real estate, especially the move to the middle class and upper-middle class.
The answer is to create an AmeriCorps of financial educators, tapping into our aging population who have endless economic wisdom and mixing in recent college grads who bring enthusiasm and technology. The government needs to create a path away from public support and create stable independent households that add to the economy and tax rolls.
We are all faced with endless financial decisions; some are daily or monthly and some big ones are only once or twice in a lifetime. Markets and tax laws are always changing, you have to stay on top off all of it. How does one home buyer class solve the greater issue? Plus all the different financial choices you then have to make alone put you at risk of losing your home. Then if you are lucky to find a counselor to help you it is only once you are faced with foreclosure.
We humans have a funny relationship with money. It is power, pain, and joy altogether. For some of us, it’s a never-ending battle like battling weight gain. For others, it is an evil addiction like alcohol or drugs. Either way, the only programs that will help are long-time committed coaching programs that give clear rules and guidance with coaching. You will fall off the wagon, it’s how you get back on that makes the difference of whether you stay on longer next time. Whether its Weight Watchers or AA, you know in your town where and when weekly meetings are and who the sponsor/coaches are. We need that structure driven by the Federal government and in partnership with the states for financial coaching to not only increase home ownership but increase wealth and stability across all races and classes.
Tax credits would be earned by those benefiting in the program and by those teaching in it. $2500 for a single $5000 for a married couple annually if they stay in the program and their fico does not drop (fico part is debatable). There also could be a financial rating or grade that is computed annually that drives like a fico or AUS decision that measures credit, reserves, and savings for retirement or education, etc. The point is that there are educated touchstones that will be there to keep them on their path, no matter what.
The educators are at the stages of life when they are looking for a greater purpose. They could use financial benefit by either having their college debt paid off as part of the federal loan program or are looking for tax breaks or medical credits. So beyond minimal wage, the government could add those credits to keep the jobs attractive for quality people who want to give back.
The full time staff of the Financial AmeriCorps is driven by federal edict but the positive repercussions from this movement will lower the demand for government housing and shrink the defaults on government and state loan programs and thus fund the department. Plus it gets financial education and jobs into a percentage of our youth and gets them to listen to the lessons from their elders. It puts money back into an aging population that we all will care for and makes them feel wanted and valued. Their financial experiences and wisdom from making mistakes and adapting to changes is an untapped resource that can power millions of lives.
No, I don’t want to be the 32nd Democratic candidate or Howard Schultz’s independent VP. But I do wish for a third-party solution that can tap into a lot of retired mortgage bankers who are looking to leave this nation and the next generations stronger than they are today. Plus I’m tired of the mortgage industry being the target of why there is such a disparity in homeownership. Look back to the days of Kennedy and Johnson and find a bipartisan government that used government programs to harness the power of youthful idealism and local wisdom to do great things.
Debate me, start the discussion---as 2020 approaches we need to get beyond the headlines and solve real people issues.
PS I wrote this before the announcement from Harris, Warren, and Booker about subsidizing down payments to the tune of $100Billion, but NO money to keep people in their homes. Who is teaching budgeting and financial planning? It feels good to put everyone in a home and you can pat yourself on the back for doing good deeds but similar to 95% of lottery winners going bankrupt awards are only half the story. It would have been better to stay renting than deal with the stresses of unprepared homeownership breaking up the family unit. Spend $1B on preventive education pre and post-close and utilize the low to no money down options available TODAY as they always have been to get educated buyers into their homes and stay there forever.