I recently had a blinding flash of the obvious. Much of the social sector is ignoring a vast, powerful layer of infrastructure that can help us all achieve our goals of creating prosperity for hard working, low income Americans: the nearly ubiquitous mobile phone. In places like Bangladesh and Kenya, incredibly valuable innovation is helping connect the poor to the financial mainstream by leveraging mobile phones. Grameenphone is a fascinating, bold example of this.
The potential for mobile technology all became crystal clear for me recently - even if it was a blinding flash of the obvious. In January, I took a two week learning sabbatical to Asia, funded through the Irvine Foundation Leadership Award, where I visited a number of nongovernmental organizations in Hanoi and Manila. I visited outstanding groups like the East Meets West Foundation in Vietnam, and the Knowledge Channel Foundation in the Philippines. Perhaps it was being around the visionary leaders of these groups – John Anner at East Meets West, and Rina Lopez-Bautista at the Knowledge Channel – that helped me understand what an opportunity we have.
Asia is light years ahead of the US in the way people there use mobile phones. I experienced this myself, buying a phone. I got a sim card for my phone when I arrived in Manila and it was loaded with features, including options to make payments to other network users.
In a visit with the Philippines Central Bank, I learned that 10% of the Philippines GDP comes from remittances, much of it sent through mobile phone networks.
Some mobile phone analysts believe that all virtually all Americans will have a mobile phone by 2013. The ubiquity of cell phones among Americans represents a highly underutilized infrastructure to leverage for prosperity. EARN will be focusing our collective intelligence on how to “cultivate our own garden”, to make it even easier for our clients to save, and hope others will join us in finding ways to innovate in this exciting area of opportunity.
Filed under: General, Research — Sunaena K. Chhatry @ 2:30 pm
Recent Census Bureau data finds that incomes declined and poverty increased for low -and middle - income Californians in 2007.
This reversal in trend is exacerbated by steadily increasing unemployment rate. In July 2008, California’s unemployment rate reached 7.3% —the highest level in 12 years. That’s not all; to cope with the current economic downturn, employers are cutting workers’ hours. This has profound implications in a state where nearly 29% of its households are asset poor - in other words, living paycheck to paycheck. Because many households lack the savings necessary to weather unexpected financial emergencies like job loss, we are seeing more and more families turning to public assistance programs like CalWORKs, Food Stamps, and Healthy Families program to make ends meet.
As California faces what many economists expect to be an extended period of slow economic growth, it seems our state’s workers and their families have little to celebrate this Labor Day.
Filed under: General — Sunaena K. Chhatry @ 3:19 pm
Almost half of all LA residents live in asset poverty, according to the Local Asset Poverty Index (LAPI), a tool developed by the Asset Policy Initiative of California (APIC) to help local leaders understand asset poverty in their communities.
To be exact, 46% of households in Los Angeles are asset poor. This means they do not have enough savings to live at the federal poverty line for 3 months, if there is an interruption in income. If there is a job loss or a medical emergency a household is just a few months away from becoming dependent on public assistance, losing housing, or worse.
Asset poverty is even more magnified for minorities. Latinos and African Americans have the highest asset poverty rates in the city. Approximately 62% of Latinos, 57% African Americans, and 30% of whites are asset poor.
Filed under: General, News — Sunaena K. Chhatry @ 11:18 am
Countrywide Financial Corporation, one of our nation’s largest mortgage lenders is under heat for allegedly selling high cost, subprime loans to borrowers who would otherwise qualify for more favorable loans.
Inside the Countrywide Lending Spree, an article recently published in the New York Times, accused Countrywide for swindling many of its borrowers by only offering high cost or subprime loans to clients during the mortgage lending boom. For years brokers and sales representatives in the subprime unit were unable to input borrowers’ cash reserves when assessing risk and determining the kind of loan the borrower would get access to. This meant the borrower was able to show fewer assets and thus posed a higher risk, ultimately giving lenders free reign to offer high cost or even subprime loans to clients.
According to this article, one of the reasons subprime loans are lucrative for Countrywide is because “…investors who bought securities backed by the mortgages were willing to pay more for loans with prepayment penalties and those whose interest rates were going to reset at higher levels. Investors ponied up because pools of subprime loans were likely to generate a larger cash flow than prime loans that carried lower fixed rates.” Therefore, the company’s incentive structure provides higher commission rates to brokers who sell risky subprime loans. For example, a broker who sold subprime loans made 0.50 percent of the loan’s value while receiving only 0.20 percent on loans that were slightly more favorable.
Last year 45 percent of Countrywide’s loans carried adjustable rates and because Countrywide has a large presence in California, more than 46 percent of Countrywide’s clients are Californians.
“As of June 30, almost one in four subprime loans that Countrywide services was delinquent, up from 15 percent in the same period last year, according to company filings. Almost 10 percent were delinquent by 90 days or more, compared with last year’s rate of 5.35 percent.”
The “spin” coming from spokespeople in the lending industry, and from elected officials on both sides of the aisle is that the current crisis was spurred by consumers’ irresponsible choices. But stories like the NYT piece on Countrywide’s incentive structure force us to re-evaluate the way we should consider the context in which these choices were made. Is this not similar to the debate about where to draw the line between allowing people to purchase cigarettes knowing they cause cancer? Rather than placing the blame solely on consumers, policy makers should take a hard look at the way the lending industry and its regulators operate.
Last week’s rollercoaster ride in Wall Street marked the beginning of a credit crunch that will ultimately hurt the chances of low- and moderate-income families from achieving the American dream of homeownership. Everyone agrees that a credit crunch will mean that working families will have a harder time getting a mortgage.
Harder, however, does not mean impossible.
Families with low incomes will have to think and plan further ahead to save money towards a downpayment, clean up their credit reports, and learn as much as possible about all the ins and outs of the home-buying process. Matched-savings programs like those offered by IDA providers may be the bridge to help low-income families get to sustainable homeownership.
And with no more cheap credit, asset-building advocates may now move a much more aggressive policy agenda on savings. For the past several months, we tried to sound off the alarm on the negative savings rates not seen since the Great Depression. Now, policy makers may be more receptive to our ideas on increasing savings, particularly among low-income families.
While these silver linings may not seem all that bright, they do present a way for asset-builders to look through the dark clouds of the current crisis as we continue to move our agenda forward.
The Los Angeles Times ran a story today about record new levels of home foreclosures in California. Year over year data for the second quarter between 2006 and 2007 shows a 799% increase in home foreclosures for the state - a stunning increase that impacted nearly 18,000 Californians. The article also notes that this jump eclipsed the previous record for foreclosures, set back in 1996. The LA Times mentions the strong regional variance in foreclosure rates between counties. Riverside, Contra Costa, Sacramento and most Central Valley counties all experienced record levels of foreclosure, while Los Angeles county was far from its previous record in 1996.
Perhaps most interesting are the reasons for the foreclosure record cited by DataQuik chief analyst: the ease with which borrowers accessed adjustable rate mortgage debt to become homeowners. DataQuik speculates that lax lending standards, and the temptation of introductory rates, which adjust significantly upward after a few years, are at the root of the foreclosure boom. For the whole article, click below:
LOS ANGELES — A sagging real estate market and tighter lending standards are exacting a growing toll on Californians, forcing them from their homes in record numbers, figures released Tuesday show.
Foreclosures soared to 17,408 for the three months ended June 30, an increase of 799 percent from the same period last year. The current rate handily exceeds the previous foreclosure peak set in 1996, when the state was in the final throes of six-year slump.
Underpinning the many visions of the America Dream is the idea that a person can work hard, play by the rules and move up the social economic ladder so that their kids can have more opportunities for a better life. This ideal, in my view, is the glue that keeps this nation together. It turns out, however, that it’s becoming increasingly harder for low-wage families in America to realize this dream.
A report by the Organization for Economic Cooperation and Development, comparing the probabilities for social mobility in five Nordic countries and the U.S., found that a male offspring of a parent in the bottom fifth of the earning’s distribution in the U.S. will have a 42 percent chance of staying in that same economic rung as his parents; the probability is 24 percent in Denmark. Social mobility for low-income families turned out to be hardest in the U.S. The Nordic Dream, it seems, may be more real than the American Dream. (click here to see chart)
These findings are very troubling because impeding social mobility in the U.S. by neglect or omission is indeed a direct threat to the glue that keeps us together as a nation.
When questioned about the enormous income inequality in the United States, the cheerleaders of America’s unfettered markets counter that everybody has a shot at becoming rich here. The distribution of income might be skewed, but America’s economic mobility is second to none.
That image is wrong, and these days it abets far too many unfair policies, including cuts in essential programs like Head Start or Medicaid. The poor, we are told, can use their own bootstraps. President Bush got away with huge tax cuts for the rich in part because nonrich Americans, who make up most of the population, believe everybody has a chance of making it into the club. Unfortunately, the American dream is not that broadly accessible.
This week the CA Department of Finance released a startling report on the expected population growth in California by mid-century. According to the report, the number of Californians will grow from 34.1 million in 2000 to 59.5 million by 2050. The report details its population growth projections on a county-by-county basis.
The report’s projections are a signal to responsible legislators and advocates to start thinking in practical and rational terms about how to overcome the challenges that come with such growth. Make no mistake, there will be those that will scream and shout at the future, holding on to their golden memories of yesteryear. Some others may even work to sabotage efforts to prepare for such a future, hoping not to lose power or status in a California with a Latino majority. At the end of the day, however, we have to count our blessings that California will yet again reinvent itself as we lead the country into the future. Indeed, the future is noting to fear; it’s something that we can prepare for as we continue to build a Golden State where everyone counts and everyone matters.
Riverside will become the second most populous county behind Los Angeles and Latinos the dominant ethnic group, study says.
By Maria L. La Ganga and Sara Lin
Times Staff Writers, July 10, 2007
Over the next half-century, California’s population will explode by nearly 75%, and Riverside will surpass its bigger neighbors to become the second most populous county after Los Angeles, according to state Department of Finance projections released Monday.
California will near the 60-million mark in 2050, the study found, raising questions about how the state will look and function and where all the people and their cars will go. Dueling visions pit the iconic California building block of ranch house, big yard and two-car garage against more dense, high-rise development.
The recipe for financial success is actually quite simple: add a pinch of knowledge, an ounce of sound advice, a cup full of desire, and some seed money; stirrer all together in a supporting, welcoming environment and you got yourselves real people on the path to financial security.
This past May, EARN presented 3 Asset Builder of the Year Awards to Duane, Zenelia, and Aniya who participated in EARN’s matched-savings program that helped them realize their goal of buying a home, continuing their education, or starting up a small business.
Hear their inspirational stories for yourself; and see their glow as they walk the path towards financial stability.
For the past several years, the U.S. has been inundated with cheap credit. On the plus side, low interest rates meant more families could afford, among other things, mortgages even while prices for homes were going higher and higher. Consequenlty, in just ten years the national homeownership rate went from 65.4 percent in 1996 to 68.8 percent in 2006. That’s a huge jump considering that the national rate wobbled between 64-65 percent for almost 4 decades.
On the negative side, low interest rates meant families assumed more debt; and with more debt comes more interest payments on that debt. The Federal Reserves tracks what they call the household debt service ratio – an estimate of the ratio of debt payments to disposable personal income. From 1996 to 2006, the debt service ration jumped from 11.87 percent to 14.29 percent. For households in the lowest income quintile, the debt burden eat up 26 percent of their income in 2004. In other words, for every dollar that low-income families earned, 26 cents went to pay off their debts, leaving only 74 cents to pay for everything else.
Bottom line is that low cost credit meant more spending and thus less savings. It’s no wonder that our national savings rate dipped to negative 1 percent during this period of low-cost credit.
I recently had a blinding flash of the obvious. Much of the social sector is ignoring a vast, powerful layer of infrastructure that can help us all achieve our goals of creating prosperity for hard working, low income Americans: the nearly ubiquitous mobile phone. In places like Bangladesh and Kenya, incredibly valuable innovation is helping connect the poor to the financial mainstream by leveraging mobile phones. Grameenphone is a fascinating, bold example of this.
Countrywide Financial Corporation, one of our nation’s largest mortgage lenders is under heat for allegedly selling high cost, subprime loans to borrowers who would otherwise qualify for more favorable loans.
