9781626560321.pdf by Unknown

Author:Unknown
Language: eng
Format: epub
Published: 0101-01-01T00:00:00+00:00

The Working Family’s Hedge Fund 79

The bottom line here is that the poor have the power to

transform their own communities; we just have to reimagine

how we measure risk.

The Dignity Mortgage

As we’ve seen in the examples of La Familia Pawn and Jewelry

and Nix Financial, nontraditional banking services do not have

to be predatory or destructive but instead can help a commu-

nity and can thus be constructive. Likewise, there are opportu-

nities in the mortgage industry to appropriately use products

that might otherwise be viewed as predatory, but once again,

mutually beneficial implementation takes real work and care.

Negatively amortizing loans, for example, were very popular

during the subprime mortgage boom. This mortgage can be

appropriate for some, but it also has a potentially devastating

feature: the mortgage balance increases with every payment

because the borrower is only paying interest, and in fact is

actually paying less interest than normally would be calculated

for that pay period. In exchange, the borrower owes the lender

a lump sum payment, due at some future date. This kind of

mortgage is perfect for someone with a high net worth, good

cash flow, and a tax professional running sophisticated num-

bers on a spreadsheet. On the other hand, this kind of mort-

gage is a financial and family disaster for a worker making

$42,000 a year with little income flexibility.

Following the economic crises, our response cannot be to do

nothing. We must do something to enable families to access

home loans and get back their lost hedge funds.

In October 2012, my friend Robert Gnaizda, former general

80 InVestInG In HoPe

counsel of the Greenlining Institute, and I outlined a new,

sustainable, responsible, less-than-prime mortgage that we

called a dignity mortgage. Our simple proposal presents very

little risk, if carried out carefully, and is likely to have extraor-

dinary support both from the vast number of Americans who

dream of owning a home and from virtually all 7,300 federally

insured financial institutions.

Under this plan, up to 20 percent of all home mortgages

per year for three years (approximately one million mortgages

per year) would be defined as dignity mortgages. Such mort-

gages would only be available to potential homeowners who

complete prescribed comprehensive financial literacy and

credit counseling programs, and Housing and Urban Develop-

ment– approved home counseling organizations or the equiva-

lent would have to certify that the potential homeowner is in

a position to meet their mortgage payments even in the case

of a temporary illness or loss of a job. To minimize the impact

of such a temporary crisis, homeowners with an established

record of prompt payments would be eligible for a brief period

of deferred payments during an emergency, thereby avoiding

many of the temporary payment problems that cause such

havoc during recessions.

The loan approval process also would ensure that borrowers

are eligible only for the homes they need, rather than for far

more expensive homes— a big reason that many people found

themselves in trouble when the housing market went south.

Additionally, the mortgages would only be available for homes

at or below 95 percent of the median price in the region, and

only homeowners with an income at or below 120 percent of

the regional median would be eligible.

The Working Family’s Hedge Fund 81

To adjust for any additional risks (and there may not be any

substantial ones), lenders would be allowed to charge up to 1.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.