Monday, July 16, 2018

Student debt and homeownership – the conundrum continues

The July 31, 2017 headline on heralded good news: “New Rule Makes It Easier To Get A Mortgage With Student Loan Debt.” Forbes contributor Nick Clements, a finance industry veteran, outlined a change in Fannie Mae’s underwriting rules that appeared set to help people on income-based student loan repayment plans by eliminating a longstanding barrier to qualifying for a mortgage.

Not so fast. Nearly a year after Clements’s rosy prediction, those involved in the homeownership process at Appalachian Community Federal Credit Union (ACFCU) can tell you: People who are otherwise qualified and ready to take on a mortgage are being stymied by how student debt is treated in the process.

 “I’ve coached two different couples with major student debt who have taken action items to lower their debt portfolio, pay some things off, consolidate some things, find equity in some assets,” ACFCU Financial Coaching Specialist Adam Taylor says. “But it turns out the student debt is still preventing them from taking the next steps to homeownership.”

It’s happened time and again, Taylor says. Here’s how it works – or doesn’t, rather:

A client has worked hard to put all the pieces in place for a mortgage. She has an income-based monthly student loan payment of, say, $150. Rolled in with her other debt, that $150 leaves her able to afford a house payment that can get her into a good starter home, but her total student loan principal is $75,000.

The $150 payment would, in most situations, be added in to calculate her debt-to-income ratio, or DTI. Most mortgage lenders allow total DTI, including auto loans and any other debt, in a maximum range of 40 to 45 percent.

In the case of student debt, though, if the borrower can’t show proof the current payment will be in place for at least three years, the calculation for DTI is based on 1 percent of the total loan principal. And most student loans on income-based repayment are recalculated every year.

With this Catch 22 in play, our theoretical borrower’s DTI availability takes a $600 hit. She’d been eligible for a house payment of up to $900 with the $150 figure. That has now dropped to $300. Here in Central Appalachia, $900 a month can get someone a decent house. $300? Not so much.

It’s discouraging, Taylor says.

“They feel overwhelmed by their student debt when this housing issue comes up, and they realize there’s no real answers or way out of it.”

Indeed, it’s not that the people in question are having trouble paying their income-based payments. They’re doing everything responsibly, and often they’re in the type of careers that make that income-based payment unlikely to adjust dramatically. And if that payment did increase, it would be in concert with an overall income increase that should keep the borrower’s DTI in a fairly tight range anyway.

Thus the Forbes story, and many others that are as close as a basic Google search. Few dispute that a problem exists. Folks with ACFCU’s mortgage origination team encounter the problem too, and say that despite frequent chatter that underwriting standards are going to address it, so far little has changed.

Taylor says people shouldn’t give up. Some institutions offer “in-house” mortgage options that can provide solutions. Student loan servicers are easy to work with, too. His advice?

“Be as strategic about it as you can, understanding the income based repayment options and avoiding the rumors about those things.” 

And hope that someday, policymakers might realize the current reality is holding back many otherwise qualified people from the bulk of the mortgage market -- and the primary path to asset building in this country.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Monday, July 9, 2018

Wrestling with your finances: Get coached to win

We have been working recently with a couple who know the sport of wrestling, and their journey toward greater financial knowledge and health contains some parallels to life on the mat.

I wrestled in high school and when I lost, it happened because my opponent was able to exploit my weaknesses. There is one guaranteed way to avoid losing a wrestling match: Don’t give up any points to your opponent. That means not letting your opponent take you down, escape when you have him in your control, or “reverse” control from you to him. Worse yet, let your opponent keep your shoulders on the mat long enough, and it’s over – you’re pinned.

In personal finance, your opponent is poor financial health and lack of knowledge. The opponent tries to defeat you by exploiting your weaknesses: lack of savings, high-interest “predatory debt” (think payday loans), accounts in collections or maxed out credit cards. Sometimes your opponent has those tools through no fault of your own, such as debt from an unavoidable medical expense or high student debt. Most often, you provide an opening that results from lack of preparation or a mental mistake. You don’t know how to defend a move, or you get sloppy and your opponent takes advantage.

To “win" in personal finance requires three main things: learning the right moves, practicing them, and staying fit. My wrestling fan clients have worked toward a win. They have a goal: to own their own home. They’ve begun applying their growing array of moves to defeat their opponent's main tactics against them – in their case, some old debt that’s in collections, some high-interest debt that costs them more than it should, and high credit card balances.

My financial wrestlers are saving, renegotiating and paying old debt, refinancing high-interest debt and budgeting  -- and they’re scoring points already. They know before the “match” is over, it will pay off in higher credit scores and a lower “debt-to-income ratio” (DTI). The weaknesses their opponent was exploiting will have become strengths. Their credit scores will be high enough to qualify for a mortgage and their DTI low enough for them to afford a monthly mortgage payment.

A win for you on the financial wrestling mat may be qualifying for a car loan at a good interest rate. It may be getting your first credit card and using it to build your score, refinancing predatory debt or building an emergency fund. Whatever your goal, if you’re serious about it you’ll need good coaching. Good coaches are out there at Appalachian Community Federal Credit Union and elsewhere, so find one today. ACFCU's are trained and have your best interests at heart. Learn more today: Call (423) 230-2643 and let Adam Taylor schedule a financial assessment with him or another coach, or email Adam.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Monday, July 2, 2018

Easy impact: Investing in CDFIs changes communities

What do Johnson City, Tenn. pastor Brandon Waite and Security Federal Bank of Aiken, S.C. have in common? Both know that when they invest in mission-driven lenders known as Community Development Financial Institutions (CDFIs), their money is helping move mountains in the lives of people in economically distressed communities.

For Waite and Security Federal, the CDFI is Appalachian Community Federal Credit Union (ACFCU). On a day when a Washington Post article outlines predatory lending’s often crushing effects on working people, it’s especially relevant to highlight the impact of investing in a mission-driven lender, whether you’re a bank depositing $250,000 at below-market rates or a family choosing a financial institution.  

Brandon Waite
Security Federal is among more than a dozen ACFCU-investing banks that recently learned they had received “Bank Enterprise Award” funds from the U.S. Treasury Department’s CDFI Fund. The performance-based program awards institutions that increase their investments in mission-driven lenders. ACFCU’s prominent role as a go-to depository CDFI is a clear indication that the credit union is “walking the walk” as it carries out its mission.

In ACFCU’s case, the deposits help support the kind of work that prompted Brandon and Kristen Waite to become members.

“It is far too easy, I think, to get access to very high interest loans that help people meet their immediate needs, they think, by giving them a quick influx of cash,” says Waite, of Grandview Christian Church. “Ultimately that just traps people in a cycle of never being able to pay off those loans and constantly being pushed further into poverty by the decisions that they’ve made.”

The problem is grave nationwide. It’s exacerbated by Tennessee laws that earn the state a spot in the National Consumer Law Center’s “Terrible Two” along with Mississippi in NCLC’s August 2017 report on predatory installment lending. NCLC referenced Tennessee having “amended its lending laws in 2014 to allow non-bank lenders to make cash advances at 279%.

ACFCU Financial Coaching Specialist Adam Taylor, left, has
helped member Leslie Brady escape predatory loans. 
Waite learned about ACFCU’s financial coaching, credit-building loans and other opportunities because Grandview Christian works with local families that often need financial counseling. “We reached out to ACFCU and they sent somebody over to meet with these families to provide some financial counseling,” Waite says.

“Before the credit union I didn’t know that there was a bank or another credit union or anything like that that was out there trying to help families who have been caught in this cycle escape from it… Without some kind of extra outside help there’s almost no hope that they’re going to be able to pay off these predatory loans.”

When the Waites learned that CDFI credit unions count on their members’ deposits and borrowing to help achieve the mission, they joined other community members such as Kathleen Moore, who explains in this video why she and her husband made the switch.

“All the features that we enjoyed about the bank we were at before are here at the credit union, so that made it easy to switch,” Waite says. “After you’ve made that initial investment of time to switch over to the credit union your money is not only working for you, it’s working for the other people in your community. And knowing that you can do something to help people in a real and tangible way that doesn’t really require much of you after a little initial work, I think that can motivate people to make the switch.”

Across the country, people and institutions are investing to help CDFIs create positive change for economically distressed communities and families who aspire for something better. Consumers can join a CDFI credit union and help the cause with a car loan, checking account or deposit account. Institutions can make deposits at rates that enhance a CDFI’s ability to fulfill its mission.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Friday, June 22, 2018

Putting the pieces together

The Robinson family leverages ACFCU, community partners

The Robinson Family will become homeowners
this summer.
This summer, Mary and Demarcus Robinson and their twin daughters, Kay’a and Kaiya, will move into a home they can truly call their own. The American Dream is within the Robinsons' reach largely because of their experience as ACFCU members.
 “If the weather holds up we should be in by the end of July,” Mary said of the family’s move to a three-bedroom home in Patriot Place. The Elizabethton, Tenn. subdivision is a project of Eastern Eight Community Development Corp., one of ACFCU's many community partners. Without the credit union’s “Project Reinvest” down payment assistance program, the Robinsons, like so many hard-working families in Central Appalachia do, would have faced an uphill challenge in their journey toward homeownership.
The Robinsons exemplify ACFCU’s purpose of “Building Financial Relationships One Member at a Time,” as their relationship with the credit union goes back much further than Project Reinvest. The family moved to Johnson City, Tenn. five years ago. The church they joined had partnered with ACFCU on several endeavors and the couple followed Pastor Michael Cummings’ advice to join the credit union. Mary said she’s never regretted the decision, thanks to a couple key things: a strong relationship with Mimi Fink of ACFCU's Johnson City branch and the way ACFCU’s pursuit of its mission has impacted her family.
“Mimi is fantastic,” Mary said. “I’ve worked with her almost every time I’ve gone in. She’s always got that ready smile and she doesn’t fail to ask how the day is going, about how my family is doing, so she’s wonderful.”
Through the years, Mary has taken advantage of several resources ACFCU offers as an ever-growing Community Development Financial Institution. Last year, she learned about the VITA free tax preparation program and the Robinsons made the trek to Gray on a Monday night, twins in tow.
“It was such a good experience last year we decided to come back.”
Between those VITA sessions, the Robinsons ran into a roadblock with upfront costs for the Elizabethton house. They applied for Project Reinvest and received $10,500 in assistance from ACFCU, getting eight hours of homeownership counseling in the bargain.
Mary is determined to leverage her relationship with ACFCU as she and Demarcus raise two kids and juggle work and childcare, which she called “just a little bit hectic.” She said her goal is to keep building her financial awareness and capacity with the credit union by her side.
“There are times when you feel like you’re drowning, and working with ACFCU is helping me get on track and start going in the direction where I want to be.”
In the end, she said, it’s about setting an example.
“I think every day about how this impacts the girls. One of the things I wanted for them was a home, and you guys have helped make that happen.”

Friday, June 15, 2018

ACFCU and Family Promise: A dovetailed partnership

Financial coaching: More than 'checking a box'

My grandfather, Fred McLucas, spent World War II in Seattle, helping churn out planes at Boeing. Grandpa spent four years learning a craft and helping the war effort. As a young man, he didn’t do it without some help and guidance, and I’m confident Boeing had community partners who helped make sure young folks could make the most of their earnings to get a start in life. ACFCU is that kind of community partner, sharing our expertise with non-profits, employers and others.

Family Promise of Greater Johnson City is one of those partners. They serve homeless families with children, and those folks go through a case-managed process to get back on their feet. By the time they are housed again, FPJC has provided tools to help them avoid a return to homelessness. Financial health and financial knowledge are huge factors in this. The small staff at Family Promise aren’t financial experts, as Executive Director Bob Hall says in this short video. So for the past couple of years, we’ve done individualized financial coaching with client families. This is a game changer for folks when they take full advantage of that hand up we’re extending.

 Can Family Promise's staff members pull from a template, have a client fill out a survey or view a video and “check a box” saying they’ve covered the financial piece? Sure they can. But that's checking a box, not truly providing tools. We offer expert, individualized coaching with a credit report review and development of an action plan that helps people develop and reach their financial goals. We’re there for follow up, which is crucial because the journey to financial wellness is a long one with bumps along the way and lots of details to cover.

ACFCU Financial Coaching Specialist Adam Taylor
and client Tyler Hinkle.
We are working to develop enough of a relationship, and get enough buy-in, that those coaching clients will stay in a relationship with us. Emerging from homelessness can be the beginning of an upward trajectory or it can be the start of another cycle that will end badly. ACFCU has services – our coaching being one of those – and products rooted in helping people stair step to ever-increasing financial wellness and security. And we’ve got other great partners in the affordable housing space and in other agencies so our clients – whether we’ve met them through Family Promise or elsewhere – can leverage many opportunities to move ahead.

Without some continued guidance in financial matters, things can go south in a hurry. So we’re always thankful when people recognize the value we offer and continue taking advantage of our guidance through the many steps in their journeys.

Thursday, June 7, 2018

Moving mountains in the Appalachians

How it's happening. Why it matters

One working mom loses her job when she can’t overcome the hurdle of a $600 repair for her run down car. This is Central Appalachia – without a decent set of wheels, it’s tough to keep a job. Another mom turns to an innovative hardship loan program operated by her rural Kentucky employer, Appalachian Community Federal Credit Union (ACFCU) and a non-profit partner. She keeps her job, builds her credit score and accesses expert financial coaching that will help her money move mountains, even at her modest income.

One family of modest income goes to a paid tax preparer and pays $400 so they can get part of their $6,000 refund (minus the fee) the next day. By late spring they are strapped, with little to show for their windfall. Another family gets its taxes prepared for free thanks to an innovative partnership between Tusculum College and ACFCU, but they leverage their advantage far further than $400. They utilize the credit union’s financial coaching to develop a budget. They pay down debt and exchange predatory debt for fair, affordable debt, saving significantly on interest. The credit union introduces them to its grant-funded, $10,500 down payment assistance program, and to a partner in the affordable housing space. The next year at tax time, they are homeowners. In one year, their money has moved mountains. Thanks to partnerships and hard work by the people those partnerships serve, ACFCU repeatedly finds itself at the center of life-changing progress for families.

This is not a personal finance blog, though personal finance and occasional tips will come into it.  It isn’t an advocacy blog that will be filled with strident calls for regulatory or political change. Nonetheless, commentary may appear about the political, cultural and financial industry dynamics that daily and deeply affect the financial lives of Central Appalachians – particularly those who are low and moderate-income or underserved.  

Foundationally, this blog is about people – the good,hardworking people of a region that’s often stereotyped and misunderstood – and the financial challenges they face as they strive for a decent life. It’s also about partnerships, with peopleorganizations and businesses, that counter a prevailing approach to finance gripping our country today, one that leaves many families vulnerable to predatory lending (see photo at right, which contains a personal offer to me -- 36 percent interest). That approach may be legal and make sense from the perspective of risk-based pricing and profit margins. It may be perfectly viable for a segment of our society, and it may be justifiable to shrug one’s shoulders and murmur “c’est la vie” upon hearing that someone hasn’t managed to use that approach to his or her benefit.

The letter of the law and the prevailing approach to financial services leave wide swathes of people underserved, underinformed or at high risk of crippling financial difficulty. Blamecasting, whether against the consumers “who should know better” or the institutions, laws and regulations “who should act better” doesn’t change anything. So, ACFCU is on a journey as a mission-driven, socially responsible financial cooperative. That mission is to use community and economic development to improve the financial health of people and businesses who lack adequate access to capital, high quality financial services and financial coaching in Southeast Kentucky, Northeast Tennessee and Southwest Virginia. The credit union’s designation as a “Community Development Financial Institution” (CDFI) has opened doors to funding opportunities, partnerships and other resources that help ACFCU pursue such a daunting, expensive mission.

Along with a small number of other CDFI credit unions pursuing this mission, ACFCU must balance its financial safety and soundness with the mission at hand. The national credit union motto of “Not for profit, not for charity, but for service” rings true here. Through ACFCU’s purpose statement of “Building Financial Relationships One Member at a Time” (and through service to non-members) the credit union’s staff and partners are striving to “teach people to fish” as opposed to simply giving them fish. Mmmmmm… fish.

I am very privileged in my communications role at ACFCU to gather and share the underlying stories that the credit union is part of thanks to its work and that of its partners. My work in that realm, as a financial coach and in community relations, also exposes me to the issues and concrete challenges facing us, our partners and, most importantly, the people we serve. The links throughout this post lead to a few of those stories. Member impact stories will remain an important part of this blog. Along with broader observations and important facts about maneuvering our financial system so that your money can move mountains, I look forward to sharing them with you.


Student debt and homeownership – the conundrum continues

The July 31, 2017 headline on heralded good news: “New Rule Makes It Easier To Get A Mortgage With Student Loan Debt.” Forbes ...