Thank You Peter Welch

The Center for Enterprise Development (CFED) sent out another email today urging people to lobby congress for “The Savings for Working Families Act (SWFA) of 2007, H.R. 1514 & S. 871,” which currently has 75 co-sponsors.

Contact your Member of Congress now to increase support for matched savings to help low-income working families build wealth.

Click here to send an e-mail to your Representative, urging them to support H.R. 1514.

Click here to send an e-mail to your Senator, urging them to support S. 871.

I was pleased to see that the expanded list of co-sponsors includes Representative Peter Welch of Vermont, whom I chided back in April for a tepid response to my last email urging him to support this legislation.

Lacking any evidence to the contrary, I’m going to claim that it was my disappointed blog entry that got Welch’s attention, spurred him to look harder at the SWFA bill, and finally persuaded him to back it as a co-sponsor. Another victory for citizen activism!

Today I sent follow-up emails to Vermont Senators Bernie Sanders and Pat Leahy, so if either of them join as co-sponsors, you can be sure I’ll claim credit.

Foreclosure Prevention

I got an email yesterday announcing a “Foreclosure Prevention Campaign” from NeighborWorks and the Ad Council:

Nothing is worse than doing nothing.

Foreclosures are a very serious problem in our country. We estimate that a staggering one million families will face foreclosure this year.

NeighborWorks and the Ad Council are launching a new Public Service Advertising (PSA) campaign to reach at-risk homeowners and encourage them to get free, confidential financial counseling by calling 888-995-HOPE, a foreclosure prevention hotline provided by the Homeownership Preservation Foundation.

By highlighting the effects that foreclosure has on the entire family, the PSAs remind homeowners that if they’re “not facing their mortgage issues things will only get worse. Call 1-888-995-HOPE now. Because nothing is worse than doing nothing.”

Everyone loses with foreclosure just as everyone wins when communities are vibrant places all are proud to call home. We encourage you to share this link with your colleagues and friends.

Thank you,

Kenneth D. Wade, CEO
NeighborWorks America

One million foreclosures is scary. A hotline seems like a great resource, to make sure people in danger of foreclosure get all the advice they can to help them prevent it.

Les Murray on Poverty

My perennial favorite magazine, The New Yorker, introduced me recently to an Australian poet I should have known years ago judging by the accolades he has received: Les Murray.

His poem, The Tin Wash Dish, referenced in the article, opens:

Lank poverty, dank poverty,
its pants wear through at fork and knee.
It warms its hands over burning shames,
refers to its fate as Them and He
and delights in things by their hard names:
rag and toejam, feed and paw—
don’t guts that down, there ain’t no more!

Murray races from image to image, volleying bursts of short words with heavily accented syllables that cry out to be read aloud.  The energy of his lines reminds me a bit of Charles Wright, a long-time favorite of mine, who likewise gets compared to Gerard Manley Hopkins.

Click here for the full text of this poem, plus a number of others by Murray. 

9 Tips for First Time Home Buyers

In recent months I have been studying up on first time home buyer (FTHB) assistance programs available to low- and moderate-income people in Massachusetts, so I thought I would share some of the wisdom I’ve gained (much of which applies to other states as well).  A lot of this stuff just isn’t widely promoted.  When I bought my first home in North Adams, Massachusetts, I probably could have qualified for some of these programs to get a better mortgage rate or down payment assistance, but I had no idea that such assistance even existed.

The resources listed below are certainly not comprehensive, but they’re among the major ones to know about.

1. Homebuyer counseling agencies. I start with this because I highly recommended seeking out the kind of local knowledge and broad-based understanding of the homebuying process that can come from participating in a certified homebuyer education program.  Such programs are a requirement for many other forms of assistance, and they help people to understand all aspects of house-hunting, negotiation, mortgage application, inspection, etc., etc.  Citizens’ Housing and Planning Association (CHAPA) does the certifying and maintains a list of programs in Massachusetts.  However, especially if in-person courses won’t work for you, you should also check out online resources such as Nehemiah’s homebuyer counseling program, or general calculators and tips from places like HUD , Domania, and Realtor.com. (And although this post isn’t really focused on strategies for choosing a house and negotiating a price, I have to mention Zillow, which is a tremendous tool in that it often shows what previous owners have paid for a particular house and how much people have paid recently for comparable houses, which can be critical in deciding whether to make an offer on a house and how much to offer.)

2. Equity Builder Program (EBP), from the Federal Home Loan Bank of Boston.  EBP grants are the mother lode of true down payment assistance (as opposed to seller-funded down payment assistance, about which I’m less enthusiastic). EBP assistance can be worth up to $15,000, and these grants are available in many communities throughout New England, but my experience in western Massachusetts is that relatively few people hear about the program in order to take advantage of it.  To qualify, your household income can be no more than 80% of the area median income which, in many communities, includes perhaps the majority of first time home buyers, who tend to be younger and less affluent than other home buyers.  Here is a list of banks currently able to offer EBP down payment assistance, covering most regions of Massachusetts and the New England states.  Each bank will structure their EBP program differently.  Some will only offer 30-year fixed rate mortgages; some will only offer adjustable-rate mortgages; some will offer multiple options; it depends on what has been approved by the Federal Home Loan Bank.  Certain banks may offer a flat percentage of the purchase price, such as 5%, as down payment assistance (up the $15,000 limit), so that buyers of less expensive homes would be likely to receive less than the maximum allowable amount of assistance.  Some will offer their normal market rate mortgages, while many will offer a discounted rate. My main advice is just to be persistent in asking specific questions about the program when talking to people at the bank, because often the loan officers themselves won’t know all the ins and outs of the program; they may have to consult with their Community Reinvestment Act (CRA) officers for details on the program. Also, you need to be aware that there’s only a certain window of time during which the assistance is likely to be available.  The participating lenders receive authorization to offer EBP assistance around May 1 each year, but the money gets used up first-come first-serve and is unlikely to last far into the fall. Also note that there’s a 5-year recapture period; if you own the home for less than 5 years, you’ll have to repay a pro-rated portion of the grant back to the Federal Home Loan Bank.

3. Municipal down payment assistance. A number of cities in Massachusetts and across the country have access to funds from the federal government to provide down payment assistance through the American Dream Demonstration Initiative (ADDI) and other sources.  These funds can also be quite substantial, although the need-based limitations and recapture provisions are often more restrictive than EBP grants, and the paperwork is likely to be more burdensome.  Still, it’s definitely worth investigating if you’re below 80% of the area median income, which is the usual cut-off, and if you have limited resources for a down payment.  In most cases, the municipalities require that you be a resident of the town or city (as a renter) before you purchase your home (which also must be located in that same town or city).

4. Soft Second Loan Program. This product from the Massachusetts Housing Partnership doesn’t provide any down payment grant assistance, but it does offer a below-market interest rate on a low down-payment loan, and low-income people can qualify for a subsidy to cover some of the interest payments, which also helps minimize total housing payments for first time home buyers. You have to put down 3%, you generally get a standard 30-year fixed rate loan for 77% of the purchase price, and the “soft second” part is a second mortgage for 20% of the purchase price (at the same below market interest rate) on which you pay interest-only for the first 10 years, then principal plus interest for 20 years (and if you’re a low-income borrower the state may cover a portion of your interest costs on the second mortgage portion during your first 9 years in the house). This helps first time home buyers in a variety of ways. One of the big benefits is that, unlike conventional mortgages, you don’t have to pay private mortgage insurance even though your down payment is only 3%. Also, by owing interest-only on the soft second part for the first 10 years, you have a reasonable amount of time during which to grow your earnings before you have to pay the full principal and interest costs, but you’re still growing your equity base gradually since the 77% first mortgage is fully amortizing, which makes for a nice balance between affordability and equity growth. Virtually any community in Massachusetts can be served by this list of participating banks. But again, you need to make a point to ask the loan officer specifically about the SoftSecond program from Massachusetts Housing Partnership (not to be confused with the MassAdvantage program from MassHousing, described below), because otherwise you might never hear about it; the loan officer may just steer you to one of their standard mortgage products (as long as you qualify) because there’s less paperwork for them and their profits are higher.

5. MassHousing loans. The mortgages available to first time home buyers through MassHousing are less restrictive than the SoftSecond product, but the benefits are a bit less generous.  With MassHousing’s MassAdvantage loans, you get a similarly below-market interest rate, and the typical down payment requirement is also 3% (although there is also a o% down option); the main difference that makes this somewhat less attractive than an MHP SoftSecond is that private mortgage insurance (PMI) is still required.  MassHousing provides discounted PMI, but they don’t waive it altogether, as is the case for SoftSecond loans.  And MassHousing’s loans don’t offer an opportunity for some of the interest payments to be paid by the state if you’re a low-income borrower, which is another attractive feature of the SoftSecond.  On the other hand, MassHousing’s products are a bit more widely available.  As mentioned for the SoftSecond product, you can’t expect a bank to steer you into a MassHousing loan just because you happen to qualify; their first instinct will naturally be to sell you one of their conventional products if you meet the underwriting criteria, so you’ll need to ask about MassHousing’s loan rates and terms.

6. Individual Development Accounts (IDAs).  I’ve mentioned these matched savings accounts often in other posts on this blog.  First time home buyers are frequently among the beneficiaries of IDAs, in which a person’s monthly savings can be matched (often at a greater than 1:1 ratio) by public and private sources, but only if the money will be put into a productive asset such as home ownership.  Depending on the program, the free match funds can be as much as $4,000 - $10,000, and you receive training from skilled home ownership counselors.  However, the income limitations are often lower than those for EBP and MassHousing assistance, and it’s not much help if your goal is to own a home in the short term, since IDAs require 6 months to several years of steady monthly savings by the participant before the match money becomes available.  An IDA is the way to go for a family that needs time and support to build its saving capacity before taking the plunge into home ownership.  Organizations sponsoring IDA accounts in Massachusetts are listed here, and a number of new programs are being formed by community action agencies (CAP agencies) in Massachusetts, so check with your local CAP agency too.

7. Section 8 Homeownership Program. This tip is only for families that are recipients of HUD Section 8 vouchers for rental housing.  If you have a Section 8 voucher, and if the housing authority that issued you your voucher participates in the Section 8 homeownership program, then you can apply for home ownership assistance.  This essentially allows you to use your voucher money to pay mortgage costs as opposed to rent costs, thus allowing some of that federal money to go toward building equity in your own home rather than simply paying a landlord.  Check here to see if your housing authority participates.

8. Habitat for Humanity. Many Habitat chapters only build one house at a time, so there may only be one slot every couple of years, and the income guidelines are fairly strict, but Habitat provides an amazing opportunity for those fortunate enough to participate.  The details are nicely summarized on this page from Massresources.org, which also has information on many of the other topics I’ve covered in this post.

9. Affordable Home Ownership Lotteries. When developers agree to build affordable home ownership units as part of a larger project, the purchase rights to those units are usually distributed via lottery.  Citizens’ Housing and Planning Association (CHAPA) tries to keep tabs on such lotteries in Massachusetts and lists them here.  These homes are typically priced significantly below market rates in accordance with an agreement by the developer, and although they often have resale restrictions attached to the deed which prevent them from being sold in the future at full market rates (and thus the potential for equity growth is somewhat limited), they do offer amazing opportunities to buy more house than one could otherwise afford.  As with other programs, there are income and asset limitations to make sure that these units are provided to people who need the help.

My major conclusion: it pays to do your homework.  Banks and developers aren’t likely to come knocking at your door with opportunities like these (the opportunities that come knocking at your door are usually the ones to avoid, like sub-prime mortgage offers).  But if you’re persistent, there are a lot of resources to help you get a first home with an affordable, responsible mortgage, which can be a crucial step in building a strong financial future.

If you know of other significant forms of assistance for first time home buyers in Massachusetts, please comment and let me know.

American Express Members Project Update

So we’re nearing the end of the first round of the AMEX Members Project discussed in my previous post, and my idea to develop a national website that would support matched savings accounts for the poor by directly connecting individual donors with eligible savers who have a plan to get out of poverty (www.membersproject.com/Community_Development/4122) has slowly built its way to a respectable 14 votes and an average vote score of 4 stars out of a possible 5.

As I suspected would be the case, some earlier entrants have built up a commanding lead in terms of cardmember votes, and I think it has to do with the fact that no one has the time to read about thousands of separate project ideas, so many folks voting in this contest just look at ideas that already have plenty of votes (which tend to be ideas that were submitted early on), a process that naturally leads to the rich getting richer and the poor staying poor, so to speak. There are certainly some good ideas among the frontrunners, but honestly some of the ones with the most votes are pretty half-baked; they show good intentions, but they seem to provide almost no particulars about what makes the idea innovative and feasible. I’m frustrated by the high scores of lots of ideas that aren’t particularly original. Microfinance for the developing world is a wonderful thing, but it’s already happening in a thousand terrific ways around the world, and none of the microfinance proposals struck me as offering something new and original to the field, but they have nevertheless garnered lots of votes just because microfinance itself is good idea. I was also frustrated by the inclusion of “ideas” for groups like DonorsChoose.org, for example, which is a great organization but their idea has already been realized. Sure, they could do terrific things with an extra 1 million or 5 million bucks, but the spirit of this contest seemed to be more about taking a good idea from obscurity into reality, sort of the way American Idol creates instant success for some talented singers who may otherwise never have been discovered. If I were choosing the 50 finalists, I would say there are other vehicles for awarding funds to deserving organizations to expand the work that they’re already doing, but what we want here is something that doesn’t already exist.

I admit, this may all be an advance case of sour grapes, given the likelihood that my idea won’t have the votes behind it to get the judges’ attention and advance to the final 50. But I hold out hope that I will have picked up just enough interest and support from cardmembers for the judges to include my idea as an interesting dark horse candidate in the Round of 50. The judges do have slightly more information at their disposal than the cardmembers, after all, and I think they do have the discretion (at least in this first round) to consider factors like feasibility and originality and potential impact in deciding how much weight to give to the voting of cardmembers. So maybe this IDA thing still has a shot. We shall see.

In the meantime, go vote for my idea at www.membersproject.com/Community_Development/4122 if you’re an American Express cardmember and haven’t already rated my project. Thanks.

American Express Members Project

I’ve been out of commission for the past week with travel to Grinnell, Iowa (for Mrs. Asset Almanac’s college reunion) and our 9th wedding anniversary yesterday — variously known as the pottery, leather, lapis lazuli, and poppy anniversary, none of which figured in our celebration. 

But now I’m back, and yesterday I decided to stake my humble claim for do-gooding innovation: I listed a project idea on AMEX’s “Members Project,” a search for one great winning idea that has the capacity to achieve broad impact and will receive at least $1 million (and possibly up to $5 million) from American Express to help implement it. Here’s what I proposed with the allotted 1,000 characters to describe my idea:

Help poor Americans lift themselves out of poverty

Much experimentation and research have shown that many poor people can rise out of poverty with a helping hand that consists of a restricted savings account (an IDA) in which savings by the poor are matched by public and private funds that can only be invested in a first home, a small business, or education. Matched savings accounts, together with financial education, have already assisted 50,000 poor families in America via hundreds of community-based programs. A national intermediary could help build on that success by tapping into the millions of individual donors who want new solutions to poverty in America, donors who could use a well-designed website to identify individuals committed to a path out of poverty and whose restricted IDA savings they would like to match. An innovative person-to-person fundraising effort using web 2.0 tools could help take this anti-poverty strategy to scale, so that IDAs could eventually aid and motivate millions of families battling poverty.

I happen to think that’s a powerful idea (better than most of the other 3,648 ideas listed so far), and one that’s also clearly defined and achievable with a few million bucks in start-up funding. Person-to-person philanthropy, like that practiced by Kiva.org and Modest Needs (organizations I’ve mentioned previously on this blog) have demonstrated that there’s tremendous interest among donors in creating a more direct connection with the people who are benefitting from their donations. And the existing network of IDA matched savings account programs all around the country presents a perfect opportunity to match individual donors (large and small) with poor families that are determined to climb out of poverty with some asset-building assistance. It can all be done through a well-designed web interface such as Kiva’s, along with good marketing and management.

If you like the idea (and if you’re an AMEX cardmember willing to take a moment to register to vote), you can go to www.membersproject.com/Community_Development/4122 to give my idea a 5-star rating, post a supportive comment, and share any suggestions for implementing the project. I only have 2 ratings so far, and I’m going to need lots more if I hope to make it to the next round consisting of 50 finalists.  It probably doesn’t help that I posted my project two weeks after the competition began, partly due to my trip to Iowa, and that I have to play catch up with project ideas that have been gathering votes for weeks, but alas that’s life. 

May the best idea win.

Down Payment Gifts

I read on Knowledgeplex recently that HUD is taking another stab at banning the down payment assistance “gifts” that Sacramento-based Nehemiah Corp. pioneered.

It’s an interesting practice that I had never known about before.  Someone wants to buy a particular house but doesn’t have enough money for a down payment.  She goes to a lender who works with Nehemiah (or one of the other nonprofits that offers this sort of down payment assistance).  The lender applies to Nehemiah for the down payment grant, and the money for the down payment grant (plus a handling fee) is supplied by the seller, who factors those costs into the final price of the house.  So effectively this homebuyer pays more for her house, and carries a higher mortgage payment, than she would if she had other resources for a down payment. 

Seems like the buyer ends up in a risky position by essentially having paid above market price (significantly more than the seller would have accepted from a buyer with her own down payment), which may be no big deal in a fast-rising market, but could make things much worse in a declining market; some folks argue that such buyers are indeed defaulting at higher rates. 

Should the practice be banned, even though perhaps some buyers find such gifts to be their only route to home ownership?  I don’t know enough about the practice to pass definitive judgment, but my gut reaction is that it’s sketchy, just as it’s sketchy to allow predatory mortgage loans for sub-prime borrowers who don’t qualify for market-rate terms. Sure, there will be plenty of success stories for people who just needed a chance, but at what cost to those who get in over their heads?

Fortunately, there are some forms of down payment assistance that don’t come out of the seller’s pocket and drive up the home price.  Like matched savings accounts (IDAs), as I’ve often mentioned in this blog. Also, in New England, the Federal Home Loan Bank in Boston funds an Equity Builder Program offering generous down payment assistance grants through some of its member banks.  In the latest round, three Berkshire County banks — Williamstown Savings Bank, Legacy Banks, and Greylock Federal Credit Union – were approved for the program.  Now each of those banks is eligible for up to $100,000 to be distributed in down payment assistance if they can line up enough income-eligible homebuyers for those gifts before the funds get all used up by other banks around New England.  This is a terrific opportunity for families that are ready for home ownership but don’t have sufficient down payment resources.

Our asset development partnership has started doing outreach to help make sure that plenty of interested low- to moderate-income families in Berkshire County become aware of this resource.

Assets and the Farm Bill

Readers of my wife’s food blog will know that she’s passionate about agricultural policy. She and I have imagined ways that some wasteful farm bill spending could be better invested in small farms which would create new entrepreneurial farming jobs and produce healthful food that might actually get consumed locally (as opposed to paying agri-business farmers to raise more surplus export crops, so much of which literally gets left to rot every year).

So I was pleased to get an email today from the terrific folks at the Center for Enterprise Development suggesting that there is at least one innovative new idea in farm policy that’s being seriously discussed in congress this year, and I suspect this is not the only one.

A new Individual Development Account (IDA) pilot program for beginning farmers and ranchers could become law as part of the Farm Bill reauthorization. 

The Beginning Farmer and Rancher Opportunity Act of 2007 (S. 1412) would provide $5 million for financial education provided to savers by nonprofits and matching funds for individual savings.  Savers would receive a 3:1 match, up to $9,000, towards the purchase of farming or ranching equipment, supplies, training, livestock, land, building, or other necessary items.  The U.S. Department of Agriculture would be required to fund programs in at least 15 states.   The maximum grant size would be $300,000 and requires a 25% local match.  Program functions, including account management and financial education could be supported by 20% of the federal grant award, interest on the matching funds, or the entire local match.

The Beginning Farmer and Rancher Opportunity Act of 2007 was introduced by Senators Tom Harkin (D-IA), Charles Grassley (R-IA), Sherrod Brown (D-OH), and Max Baucus (D-MT) and includes public policies like IDAs that will enable future farmers and ranchers to successfully enter into farming and ranching.

Not that $5 million represents a huge re-direction of overall agricultural policy, but it’s a promising start. The emphasis on beginning farmers and ranchers is encouraging, as that population is more likely to produce for the growing local food market and help diversify our agricultural base. And the linking of IDAs (a favorite approach of mine ) with agricultural policy is an interesting way to bring asset-building policy into other settings.

It’s an experiment worth trying, and I hope it gets passed.

Lots Happening

Sorry for the long silence. Last week was chaotic, with full days of regular work and several late nights focused on activities related to our local asset development program. We held a good fundraising committee meeting one evening, and divvied up the list of solicitations. I also sat in on a meeting of housing services providers in Berkshire County to explore how best to collaborate on the delivery of IDA accounts and home ownership assistance in general. And we held another focus group, this one composed of struggling artists, freelancers and other self-employed people, who make up a growing segment of the local economy. As a group, they were pretty receptive to asset development concepts, and I was a bit surprised that they were at least as interested in strategies targeting small business development and career education as they were in strategies targeting home ownership assistance. One reason was that four of the twelve were already home owners; interestingly, they all owned two-family homes, saying it was their only option because they couldn’t afford the mortgage payments without some rental income, and they weren’t averse to running a tiny landlord business in addition to their self-employment business. Over time, their input may be helpful in tailoring some asset development services to residents who are struggling as artists and self-employed business people.

The past week was extra busy because I was getting ready for a conference in Chicago, where I am until Wednesday night. My own presentation is now out of the way, so the pressure is off and I can enjoy hearing about other people’s good ideas for the next two days.

Techno-Poverty Watch: Voices of Poverty

My Technorati “poverty” tag subscription has brought me a string of posts in recent days from a project called “Voices of Poverty,” a podcast series put together by the Leadership Charlottesville group of mid-career business-people in Charlottesville, Virginia. From what I can gather, it appears that this Chamber of Commerce program engages future business leaders in an examination of key civic issues that Charlottesville will be grappling with for years to come. Sounds like a terrific program. We have something similar in our community — the Berkshire Leadership Program, coordinated by our Berkshire Chamber of Commerce.

The Voices of Poverty project, so far consisting of four podcast interviews lasting about 8 minutes each, strikes me as a quite powerful way to actually expose an influential group of people to lives lived in poverty. Even business leaders who are engaged in human service work — volunteering for the United Way, serving on boards of directors, etc. — often have few opportunities to hear directly, and at length, from the poor. That experience is ultimately more important than analyses of poverty statistics and discussions with nonprofit CEOs. I particularly appreciated this interview about the experience of a woman who emigrated from Mexico and has been struggling to gain a better financial foothold in Charlottesville. The interviews are thoughtfully conducted and well edited; the parts I’ve listened to haven’t seemed amateurish at all.

This makes me think I should contact the people who run the Berkshire Leadership Program and get those folks engaged in our asset development initiative.