Thursday, June 28, 2012

Asset and Opportunity Profile

The City of Winston-Salem is fortunate to have been selected as one of three cities in North Carolina to participate in the Corporation for Enterprise Development's Municipal Economic Opportunity Project (MEOP).

Participating in MEOP gave Winston-Salem and Forsyth County an opportunity to study asset poverty. Asset poverty is a measure that establishes a minimum threshold of wealth needed for household security. A household is considered asset poor if it does not have sufficient assets to support itself at the federal poverty level for at least three months in the absence of income. 

The findings may surprise you. The study found that 39% of households in Winston-Salem/ Forsyth County live in asset poverty. This is concerning because these families are a job loss or illness from falling below the poverty line.

Is this surprising information to you? What do you think we should do to reduce the number of households living in asset poverty and help families become more financially stable?

Friday, June 22, 2012

The Credit Divide

There is an emerging theme of the economic recovery in the United States: Americans are divided not by income or wealth but by their access to credit. Many people have been left with damaged credit as a result of plunging home prices, lost jobs, overspending, or bad luck. In the article “Fed Wrestles With How Best To Bridge U.S. Credit Divide,” The Wall Street Journal reported on the credit divide that is hobbling economic recovery.

In theory, the low interest rates we currently have should encourage household spending, business investment, and hiring, while reducing the burden of past debts. However, there is still a gap in who has access to credit. Banks remain reluctant to extend credit to households with any hint of financial problems. Many with lower incomes or blemished credit histories are finding it difficult and costly, and sometimes impossible, to refinance their mortgages or get new loans.

In addition, interest rates have fallen more for people with good credit than for people with bad credit. Interest rates on a 30 year mortgage for households with a credit score of 750 or higher are 3.53%, but for households with credit scores around 650 the interest rate is 4.04%.

Many people with good credit are taking advantage of this cheap money. But those who can afford to borrow money are not spending the money- they are investing it. Financially secure households can already consume as much as they want, so they are more likely to save or invest the money they borrow. As a result,  the low interest rates have not triggered broad waves of spending, refinancing, and new borrowing.

The following graphics come from the Wall Street Journal and illustrate the credit divide.

Taking Most of the Credit

To read the full article, click here.

Let us know what you think about the credit divide. Have you struggled to borrow money because of it? What do you think will be the long term effects of the credit divide?

Monday, June 18, 2012

Marketing and Outreach Coordinator

New Century IDA is seeking a Marketing and Outreach Coordinator- AmeriCorps VISTA. Please see the job description below and share with anyone that may be interested! 

New Century Individual Development Accounts (IDA) is an asset building program that empowers low- to moderate- income working families to become first time home owners through financial literacy and matched savings.

The Marketing and Outreach Coordinator will manage social media channels for New Century IDA, recruit guest speakers for IDA classes, participate in New Century IDA Working Group meetings, conduct outreach to recruit new participants to the IDA program, and plan events.

The ideal candidate will be organized, have excellent interpersonal skills, and be comfortable working in a team environment.

This position is a great opportunity for someone interested in starting a career in the housing or asset building field. The AmeriCorps VISTA will gain a year of valuable job experience and while working with an excellent team of government and nonprofit  leaders dedicated to asset building in Forsyth County.

The New Century IDA AmeriCorps VISTA will be part of a larger “Community Based Asset Building” Project sponsored by the North Carolina IDA Collaborative. For more information on the project click here:

To learn more about New Century IDA, visit

For more information on the New Century IDA Marketing and Outreach Coordinator position, contact the Forsyth County Department of Housing at 336-703-2677 or 336-703-2681.

Anticipated start date is August 6th, 2012.

To apply, send resume and cover letter to

Friday, June 15, 2012

Setting the Record Straight: Part 5

This is the last blog in our 5 part blog series, in which we set the record straight on affordable housing.

Theory 5: Homeownership should be restricted to those who can put 20 percent down.

Even though studies have shown that, on the average, owning a home is less expensive than renting, it is difficult for the working poor to accumulate enough money for a dow payment. Michael Sherraden writes that, “One of the constraints on homeownership as a wealth building vehicle for low- to moderate- income households is institutional barriers to credit… Liquidity constraints, stemming from the uncertainty of lenders, prevent the extension of credit even when the working poor might be a good risk.”

Since the mortgage lending crisis began in 2007, down payment requirements have come under scrutiny. In May of 2011, the FDIC and Federal Reserve even proposed a 20% down payment requirement. While this remains unsettled, down payment requirements have remained part of the debate over mortgage finance. Within this debate is the belief that all of the down payment money must come from the borrower himself.

However, loans in the Community Advantage Portfolio do not fit into this new prototype. “A down payment of 1 to 3% of the home price is not uncommon, nor is a minimum borrower contribution of $500.”  Furthermore, a substantial amount of CAP’s borrowers had help meeting their down payment requirements and closing costs.

Using data from 2003 to 2011, Allison Freeman and Janneke Ratcliffe found that “having received assistance toward one’s down payment and closing costs has no significant effect whatsoever on CAP homeowners’ mortgage performance.”

For a closer look at the study, click here.

In conclusion, this five part blog series has used information from the UNC Center for Community Capital to refute claims about homeownership for lower- income families. These findings are particularly interesting because they have held true through recent market turmoil. Michael Sherraden argues that, “Homeownership is an important component of a long- term asset building strategy: the accumulation of small amounts of savings in an IDA can be put toward a home, which in turn can allow owners to send children to college, start small businesses, or pass along wealth to the next generation.”
New Century IDA is proud to be a part of the asset uilding movement by helping low- to moderate- income working families in Forsyth County become first time homeowners!

This home was purchased by a New Century IDA graduate in 2009.

Thursday, June 14, 2012

Setting the Record Straight: Part 4

This is the fourth blog in a series in which we refute common misconceptions about homeownership.

There has been a long- standing debate over whether it  makes more sense for lower- income people to rent rather than own, and this has gained even more traction since the housing crisis began in 2007. Some argue that renting is less expensive than owning, but this had not been analyzed for lower- income households.

Sarah Riley and Hong Yu Ru studied data from participants in the Community Advantage Program from 2003 to 2010 to put this theory to the test. They calculated costs of both owners and renters. For owners, the included mortgage payments (including property taxes and insurance), the opportunity cost of holding equity in the house, mortgage closing costs and origination fees, homeowners association fees, maintenance expenditures, annual depreciation, the observed net property appreciation, and the tax benefit received each year.

The results may surprise you. The study found that the median owners’ user cost was $36,000 from 2003 to 2010. The median cumulative equivalent cost for renters was $41,000. Riley and Ru found that “the initial period of house price appreciation was sufficient to offset the subsequent higher owners’ user costs as a whole.” They estimated that it was necessary for the house price to appreciate about 2% annually to ensure that owning was not more costly than renting for this time period.

It is important to remember that CAP borrowers all received fixed rate, fixed payment, and competitively priced mortgages. Another factor is the cost of renting, which has been increasing in recent years. As the cost of renting continues to rise, Riley and Ru suspect that “homeownership may actually be gaining relative financial advantage over renting.”

For more information, check out Riley and Ru's study, "The User Cost of Low- Income Homeownership: 2003- 2010."

Wednesday, June 13, 2012

Setting the Record Straight: Part 3

This is the third blog in a series in which we refute common misconceptions about homeownership.

Theory 3: Lower- income homeowners erode their equity gains through excessive borrowing.

Another criticism of homeownership as an investment is that lower income homeowners might diminish their wealth gains through excessive borrowing. For low- and moderate- income households to recognize the benefit of accruing equity, they must not borrow that money back for other uses. Allison Freeman and Janneke Ratcliffe from UNC’s Center for Community Capital used data from the Community Advantage Program (CAP) to determine whether or not low- and moderate- income homeowners increase their levels of borrowing because of the accumulation of home equity.

Freeman and Desmarais found that home equity of more than $150,000 corresponds to an average increase of $1,000 in credit card debt. However, “the accumulation of equity over time shows a smaller relationship to the accumulation of credit card debt.” Notable borrowing against the home occurred only when equity levels exceeded $100,00 and never reached a scale that would decimate equity based wealth.

The study concluded that while there appears to be some association between the accumulation of large amounts of equity (more than $150,000) and increased debt, “there is no evidence that debt accumulation by CAP homeowners offsets the wealth- building effect of home equity.”

For more information on this study, click here.

Tuesday, June 12, 2012

Setting the Record Straight: Part 2

This is the second blog in a series in which we refute common misconceptions about homeownership.

Theory 2: Homeownership crowds out other investments, while renting allows households to diversify their investments.

There is speculation that homeownership leaves some households with under-diversified and, therefore, riskier portfolios. If this is true, it would be particularly concerning for lower- income households who invest a greater portion of their net worth in housing.

Allison Freeman and Janneke Ratcliffe from UNC’s Center for Community Capital put this theory to the test. They used data from homeowners that participated in the Community Advantage Program (CAP) to determine whether or not they restricted their investments in other financial instruments as a result of having their investment concentrated in their home.

They found that when renters were given the same equity amounts as a matched set of homeowners in 2008, the simulated effect on their investment portfolios was a shift of less than one cent. They found no evidence that investments or savings suffer from having funds tied up in homeownership. Freeman and Ratcliffe concluded that affordable homeownership, “serves as an effective means for promoting stable wealth- building for low to moderate income households through the forced- savings mechanism of equity accumulation.”

For more information on this study from the UNC Center for Community Capital, click here.

This home was purchased by a New Century IDA graduate in 2007.

Monday, June 11, 2012

Setting the Record Straight: Part 1

This is the first blog in a series in which we refute common misconceptions about homeownership.

Theory 1: Homeownership is not a reliable wealth building strategy for lower- income families.

There has been debate about the wealth- building effects homeownership offers lower- income people. However, data from the Community Advantage Program shows that “when low- and moderate- income families purchase homes they can afford with mortgages that are sustainable, wealth happens.”

This is supported by the Community Action Program’s (CAP) rates of equity appreciation relative to other investments in which low- to moderate- income families could have put their down payment funds. Home equity gains are a primary factor of wealth building and give home owners an advantage over renters. As the foreclosure crisis was beginning to unfold from 2005 through 2010, homeowners saw an average gain in net worth of more than $11,000, while the matched sample of renters only gained an average of $742. It is also interesting to note that non- housing wealth grew faster for owners than for renters over this period, and there was no significant increase in liabilities for owners compared to renters.

It is also important to state that homeownership doesn’t just generate wealth, but it can also act as a buffer against losing wealth in tough economic times. Measuring from 2005 to 2010, home owners were able to retain greater net worth through the financial crisis.

CAP also found that homeownership has a significant beneficial effect on financial satisfaction and overall stress. The statistics show that homeownership truly is an effective means of long- term wealth building for working families, even in times of economic upheaval.

For more statistics from the UNC Center for Community Capital, click here.

Friday, June 8, 2012

Setting The Record Straight on Affordable Housing

Since Michael Sherraden’s groundbreaking book Assets and the Poor: A New American Welfare Policy, discussion around welfare policy has shifted from income and consumption to the promotion of savings and wealth generation. Sherraden advanced the use of individual development accounts (IDAs) and argued that IDAs should enable homeownership as a path towards economic mobility.

In the paper “Setting the Record Straight on Affordable Homeownership,” Allison Freeman and Janneke Ratcliffe argue that affordable, sustainable homeownership is one of the best ways to help lower income households build long- term wealth. A home has the added benefit of being a consumption good. Freeman and Ratcliffe say, “Essentially a home provides its owner with a place to live while simultaneously forcing the owner to save, and hopefully build wealth, through principal reduction and equity accumulation.”

However, the recent foreclosure crisis has caused some to question if homeownership had been pushed too far and made available to too many families. While proponents of homeownership acknowledge that it is not appropriate for everyone, it has been a successful route to economic security for working families who are asset poor.

The University of North Carolina’s Center for Community Capital conducted a study in which they tracked borrowers who participated in the Community Advantage Program (CAP), which includes a portfolio of over 46,000 home- purchase mortgages made to lower- income households. Using data from this study, Freeman and Ratcliffe refute five theories that have arisen since the foreclosure crisis.

The theories are:

  1. Homeownership is not a reliable wealth building strategy for lower- income families
  2. Homeownership crowds out other investments for lower- income borrowers.
  3. Lower- income borrowers erode their equity through excessive borrowing.
  4. Renting is a more affordable option for lower- income individuals.
  5. Homeownership should be restricted to those who can afford a 20% down payment.

Next week, we will run a blog series in which each day of the week we share information to refute each of these theories. Be sure to check back each day to learn more about how homeownership helps low- income families achieve economic stability and why New Century IDA is so passionate about helping low- to moderate- income families become homeowners!

Thursday, June 7, 2012

Money As You Grow

Money and financial matters can be difficult to discuss, especially with your children. To help you get started, check out this great online tool, Money As You Grow. This tool was developed by the President's Advisory Council on Financial Capability. It provides 20 age appropriate financial lessons along with activities to help put the lessons into practice.

For example, a lesson for a 3 to 5 year old is that "you earn money by working." An activity that may help you child understand this concept is to walk through  your neighborhood and point out different jobs that people are doing.

The main objective of this tool is to improve the financial capability of young Americans. Families can use these lessons and activities to start a conversation with their children about money and to teach kids the importance of saving, making choices, and avoiding debt.

Money Milestones Poster

After checking out this overview of the 20 financial lessons to kids to learn as they grow, be sure to check out the website to take advantage of the various activities you can do to help these lessons stick.