By: Cheryl Corley

November 20, 2009

The country's spiraling unemployment rate is taking a particular toll on men as the recession continues to roil male-dominated industries, such as manufacturing and construction.

One of those unemployed black men searching for work is Randolph Smith. When Smith, 53, is working, he manages logistics, inventory and supplies for large companies. He's been trying to find that type of work since he was laid off a year ago -- but so far, he's had no success.

Playing racquetball has been a lifesaver for Smith. He meets friends at a local health club about three or four times a week.

"Just to be able to come somewhere that's affordable for me, not far from home, to be around some good friends where there's camaraderie. To exercise and get the stress off my life."

Life Without Work

It's a stress that hundreds of thousands of black men face. The latest figures from the Bureau of Labor Statistics show that African-American men over the age of 20 lead the country's jobless surge with an unemployment rate of 17.1 percent. These days, Smith's job is to look for work.

Smith lives in Richton Park, Ill. -- a solidly middle class suburb about 30 miles southwest of Chicago. He and his wife, Sabrina, raised their now-adult son here. They've converted a bedroom into a home office with two desks, two computers and a file cabinet with plenty of Post-it notes attached. Sabrina is an administrative assistant at a local hospital, and is studying to be a nurse. This office is where Randolph conducts his job search.

"[I spend time] going through a lot of the search agents that have brought information or leads to me," he says. "Following with phone calls, just following up with any new connections that I can."

The Smiths cut back on vacations and don't go out much. And like any good inventory manager, Smith says he uses a spreadsheet for their grocery shopping.

"We know how to stretch a meal out, and we know how to eat rice and beans and make that last for a couple of days," he says. "So we're doing all the right things I think we need to do to keep things going and keep our costs down."

When Caterpillar Tractor Company started shedding jobs last year, Smith, a contract employee, was let go. It was not an unfamiliar situation. Throughout his career, just about every business Smith has worked for has closed, relocated or downsized. Typically, he's found another job quickly. Not so this time.

"I think I'm marketable, and it would usually be no problem finding some work with a temp agency -- enough that would suffice," he says. "Since the beginning of the year, it's been dry."

Smith says they get by on his unemployment, his wife's part-time salary, and savings.

Several Factors At Play

Smith used to attend workforce readiness classes run by the Chicago Urban League. Even though he's highly skilled and a college graduate, he started to worry after coming up short on several job interviews.

"I wanted to make sure I was as polished as possible, and I just really had to get real with myself and say that I need some help here," he says.

Herman Brewer, the acting CEO of Chicago's Urban League, says plenty of men, regardless of race, have lost jobs during this recession. But he says black men continue to face many challenges that have traditionally led to their disproportionately high rates of unemployment. They include the decline of high-paying manufacturing jobs, high rates of incarceration, limited schooling and discrimination. So, Brewer says, the rise in unemployment is particularly tough on black men, "because many have had to overcome so much just to get where they were in a particular job."

And Brewer says many African-American men will personalize their job loss and withdraw socially. Smith admits some of his relationships have changed.

"I've had friends that have reached out and said, 'Hey, man, come on. I'll pay for a round of golf for you,' " says Smith. "Not that its pride, but I just want to get through this myself."

Smith says his faith sustains him. He goes to church regularly. Once a week, he tutors children -- and then there's the racquetball. Smith says that despite dismal job prospects, he knows he does have advantages. And he's hopeful he'll soon leave the ever-increasing ranks of African-American males who are unemployed.

By: Christine Dugas

November 19, 2009

Staci Schubert's career has taken her from New York to California, from graphic designer to website designer to sales executive.

At 40 and with such accomplishments, Schubert is Middle Class America. She and her counterparts have long been the nation's backbone, because their steady jobs and purchasing power have helped drive our economy.

But Middle Class America has two faces, a new study shows. Schubert is that other Middle Class America, too.

After earning $275,000 annually, Schubert used most of her savings to start her business in 2003. The earliest days of the recession in 2007 slowed sales, and she fell behind on business and personal bills. Credit card debt reached $65,000.

She tried to find a full-time job without much luck, because the job market was saturated. Temporary freelance design work couldn't cover her bills.

So in January 2008, she filed for Chapter 7 bankruptcy, becoming one of nearly 1.1 million consumer filers that year.

A new study by Elizabeth Warren, Harvard Law School Leo Gottlieb professor of law, and Deborah Thorne, Ohio University associate professor of sociology, finds that personal bankruptcy has become a largely middle-class phenomenon led by filers who are college-educated and owners of homes. According to the study, "The Vulnerable Middle Class: Bankruptcy and Class Status," the shift occurred even before the Great Recession.

More than 100,000 middle-class families filed for personal bankruptcy every month in 2007, says the report, which was provided to USA TODAY but will be released in a book next year. Those who filed in 2007 were in worse financial shape than those who had filed in 2001.

"The bankruptcy filings are a warning about the risks now facing middle-class Americans," says Warren, chair of the Congressional Oversight Panel on the Troubled Asset Relief Program (TARP). No longer can they count on a college education, a good job and homeownership to protect them from financial collapse.

"It's horrifying for people who are not used to anything but an upward trajectory," says Bob Anderson, a bankruptcy lawyer in Wilmington, N.C. "They are used to calling the shots."

Schubert agrees.

"I'm a highly educated, middle-class woman," says Schubert, who is the single parent of a 2-year-old son, Lincoln. "Until now, I have never in my life been unemployed."

More filings ahead

In 2005, the bankruptcy law was changed to make it harder to file bankruptcy. After it took effect, filings dramatically dropped. But this year, filings are climbing and are expected to total 1.5 million, the level they were at before the tighter law took effect.

Warren and Thorne say their data show that the change in the law was not a scalpel that cut out only those deliberately not paying their bills. These days, it's ordinary middle-class Americans, not a marginalized underclass or high-stakes gamblers, who are most apt to experience financial failure.

Poor savings habits, health problems and excess spending have traditionally been causes of bankruptcy. But the study finds that college education and homeownership, the traditional strategies for wealth building, may not be enough to guarantee financial security.

"As these time-honored wealth-building strategies become higher-risk undertakings, the middle class may face even greater economic instability in coming years, suggesting that in the modern economy, the path to prosperity may be far more perilous than anyone imagined," the authors conclude.

The proportion of bankruptcy filers who have been to college, whether they dropped out or graduated, increased from 46.5% in 1991 to 58.9% in 2007, the study finds.

"The data was taken from the boom years," Warren says, noting that it takes a long time to analyze and produce it. "I'm almost afraid to look at the data now."

Instead of graduating from college with upward mobility, many Americans are overwhelmed with college debt and few job opportunities, according to the study.

Schubert, who didn't have college loans, thought she had it figured out.

"I graduated from a top art design school in the country," she says of the Rhode Island School of Design. "Opportunities always came."

After filing for bankruptcy in 2008, Schubert hasn't found a full-time job but has been doing freelance design work. She says she has designed a new handbag line and is looking for investors to help recharge her business.

Home, sweet ...?

Homeownership, like higher education, guarantees little, the study finds.

"For decades the middle class counted on homes as an economic lifeboat," Warren says. With a fixed-rate mortgage and a home that appreciated in value, families had a financial nest egg they could rely upon.

Now, homes are sinking families instead of stabilizing them, as home values plummet. When Diane and Nicholas Spano of Long Island, N.Y., ran into financial problems, they thought that the home they have owned for 29 years could save them.

Diane had a kidney transplant, and Nicholas temporarily couldn't work at the post office because of a back problem. Diane went back to work at a drug and alcohol center, but it closed.

They applied for a home-equity loan, without realizing that there was no way they could afford the payments. House payments totaled $3,200 a month, and Diane had $200 a month in medical bills.

This summer the couple, who are both 66, filed for Chapter 7 bankruptcy.

"I feel bad," she says. "But if we had not filed for bankruptcy, I don't know where we'd be."

The home went into foreclosure, but the Spanos are trying to work out a loan modification. Diane is working part time at CVS; Nicholas has retired.

"Carrying debt is like carrying a backpack full of bricks," says James Doan, a bankruptcy attorney in San Clemente, Calif. "It weighs people down. They feel like failures. They are embarrassed and ashamed."

The job-loss domino effect is catastrophic. In cities such as Boise, for example, the economy is dependent on the high-tech industry. Many of those workers have seen salaries shrink and bonuses disappear, while others were laid off.

"They were making good money, and now, many are working at Lowe's and Home Depot," says C. Grant King, a Boise bankruptcy lawyer. "Now, we're seeing a wave of people who never thought they'd be coming in here, filing for bankruptcy."

The housing market collapse, which devastated the construction industry, also brought in waves of filers. Builders, roofers, concrete workers, real estate agents and mortgage lenders are among bankruptcy filers now, King says.

Spend, spend, spend

During the boom years, many middle-class Americans lived beyond their means.

"People have been negligent with their finances," says Doan. "They've taken a lot of money out of their homes like it's an ATM."

Middle-class families were encouraged to spend. But that often turned into a disaster when their bills increased and wages dwindled.

"My wife and I were great at lubricating the economy," says Rock Macke, who lives with his wife and two children in Rancho Santa Margarita, Calif. "We loved to spend money, as is the middle-class thing to do."

Macke says a $400,000 tax bill related to stock from his now-defunct employer wiped out the couple's savings. He was able to keep working, but he says the couple lived paycheck-to-paycheck as debt amounted to about $225,000. They filed for Chapter 7 bankruptcy in March.

Since then, they've gotten rid of their expensive cars and downgraded. Macke takes care of the yard instead of paying for a gardener.

"I got wrapped up in materialism. But in a painful way, this reminded me of important things, like a healthy family, that you lose perspective on when you're trying to chase the American dream," he says.

By: David Streitfeld

November 19, 2009

The economy and the stock market may be recovering from their swoon, but more homeowners than ever are having trouble making their monthly mortgage payments, according to figures released Thursday.

The delinquency figure, and a corresponding rise in the number of those losing their homes to foreclosure, was expected to be bad. Nevertheless, the figures underlined the level of stress on a large segment of the country, a situation that could snuff out the modest recovery in home prices over the last few months and impede any economic rebound.

Unless foreclosure modification efforts begin succeeding on a permanent basis -- which many analysts say they think is unlikely -- millions more foreclosed homes will come to market.

"I've been pretty bearish on this big ugly pig stuck in the python and this cements my view that home prices are going back down," said the housing consultant Ivy Zelman.

The overall third-quarter delinquency rate is the highest since the association began keeping records in 1972. It is up from about one in 14 mortgage holders in the third quarter of 2008.

The combined percentage of those in foreclosure as well as delinquent homeowners is 14.41 percent, or about one in seven mortgage holders. Mortgages with problems are concentrated in four states: California, Florida, Arizona and Nevada. One in four people with mortgages in Florida is behind in payments.

Some of the delinquent homeowners are scrambling and will eventually catch up on their payments. But many others will slide into foreclosure. The percentage of loans in foreclosure on Sept. 30 was 4.47 percent, up from 2.97 percent last year.

In the first stage of the housing collapse, defaults and foreclosures were driven by subprime loans. These loans had low introductory rates that quickly moved to a level that was beyond the borrower's ability to pay, even if the homeowner was still employed.

As the subprime tide recedes, high-quality prime loans with fixed rates make up the largest share of new foreclosures. A third of the new foreclosures begun in the third quarter were this type of loan, traditionally considered the safest. But without jobs, borrowers usually cannot pay their mortgages.

"Clearly the results are being driven by changes in employment," Jay Brinkmann, the association's chief economist, said in a conference call with reporters.

In previous recessions, homeowners who lost their jobs could sell the house and move somewhere with better prospects, or at least a cheaper cost of living. This time around, many of the unemployed are finding that the value of their property is less than they owe. They are stuck.

"There will be a lot more distressed supply entering the market, and it will move up the food chain to middle- and higher-price homes," said Joshua Shapiro, chief United States economist for MFR Inc.

Many analysts say they believe that foreclosures, instead of peaking with the unemployment rate as they traditionally do, will most likely be a lagging indicator in this recession. The mortgage bankers expect foreclosures to peak in 2011, well after unemployment is expected to have begun falling.

There was one sliver of good news in the survey: the percentage of loans in the very first stage of default -- no more than 30 days past due -- was down slightly from the second quarter. If that number continues to decline, at least the ranks of the defaulted will have peaked.

"It's arguably a positive, but it doesn't undermine the fact that there are still five or six million foreclosures in process," Ms. Zelman said.

The number of loans insured by the Federal Housing Administration that are at least one month past due rose to 14.4 percent in the third quarter, from 12.9 percent last year. An additional 3.3 percent of F.H.A. loans are in foreclosure.

The mortgage group's survey noted, however, that the F.H.A. was issuing so many loans -- about a million in the last year -- that it had the effect of masking the percentage of problem loans at the agency. Most loans enter default when they are older than a year.

When the association removed the new loans from its calculations, the percentage of F.H.A. mortgages entering foreclosure was 30 percent higher.

The association's survey is based on a sample of more than 44 million mortgage loans serviced by mortgage companies, commercial and savings banks, credit unions and others. About 52 million homes have mortgages. There are 124 million year-round housing units in the country, according to the Census Bureau.

November 20, 2009

CFED (Corporation for Enterprise Development), a long-time partner of NeighborWorks America, celebrated its 30th anniversary with an Innovation Summit and a Gala in Washington, DC, with hundreds in attendance.

At least a dozen local NeighborWorks organizations offer IDA programs.

Building on what the organization has learned over 30 years, CFED is seeking to jump start innovations to create more economic opportunities for lower-income Americans. Andrea Levere, CFED's president, said the Innovation Summit was part of CFED's "innovation@cfed" platform "to identify at least two innovative approaches that will expand economic opportunity for millions of Americans. "

Stacey Epperson, CEO of NeighborWorks member Frontier Housing in Morehead, Kentucky, is the I'M HOME Innovator-in-Residence, one of four innovators-in-residence at CFED. Her innovation is Manufactured Housing Done Right!, Frontier's new social enterprise that will serve as an aggregator between local nonprofits and the manufacturer to secure volume discounts and ensure product quality.

More than 20 innovations were featured at the summit, and participants were encouraged to not only pose questions to the innovators but to offer suggestions as well. Eileen Fitzgerald, chief operating officer, Marietta Rodriguez, deputy director for homeownership and lending, and David Dangler, director NeighborWorks Rural Initiative, were among the summit participants from NeighborWorks America.

Fitzgerald participated in a "Brain Trust" session on manufactured housing innovations led by Stacey Epperson. Rodriguez led a discussion on "designing a Community Reinvestment Act" for the next decade.

The Gala, held at the National Building Museum, was hosted by Gloria Steinem and included remarks by Levere and CFED Founder Robert Friedman, a performance by the Ifetayo Cultural Arts Program of Brooklyn, NY, and the reading of a poem by Friedman, "The Threshold of Opportunity."

Links:

CFED's 30th Anniversary Video on YouTube

CFED's Innovation Web Site

NeighborWorks Case Study on Manufactured Housing Done Right!™

By: Susanne Craig and Scott Patterson

November 18, 2009

Goldman Sachs Group Inc. said it is launching a $500 million small-business assistance program that includes an advisory panel with billionaire investor Warren Buffett.

Tuesday, Goldman Sachs Chairman and Chief Executive Lloyd Blankfein apologized for his firm's role in the credit crisis. "We participated in things that were clearly wrong and have reason to regret," he said. "We apologize."

The small-business program will make $250 million in charitable contributions, with $200 million aimed at investor education and $50 million for grants to support community-development financial institutions. The remaining $250 million will be invested in such institutions to help them provide financing to small businesses.

Goldman said the first financial institution to receive money from the firm will be Seedco Financial Services Inc., a nonprofit group in New York that specialized in loans in economically distressed and underserved communities. The first loans under the program will be made in early 2010, the company said.

The initiative, called 10,000 Small Businesses, is aimed at unlocking "the growth and job creation potential of 10,000 small businesses across the United States through greater access to business education, mentors and networks, and financial capital," Goldman said in a statement.

The Obama administration has pointed to small businesses as a crucial source of job growth.

The board set to oversee Goldman's push includes several financial heavyweights. Mr. Blankfein, Mr. Buffett and Michael Porter of Harvard Business School will serve as co-chairmen.

"Sometimes people lack basic business skills, like accounting," said Mr. Buffett, who bought a major stake in Goldman last year. "This is a way to step on the accelerator a little bit. Maybe more than a little bit."

The company's conversion to a bank-holding company last year brought Goldman under stricter regulation, including compliance with the Community Reinvestment Act. The federal law encourages banks to meet the credit needs of all the communities in which they operate.

The new program wasn't designed to fulfill Goldman's CRA-related obligations but is likely to be looked upon favorably by the Federal Reserve, Goldman's primary regulator, according to a person familiar with the matter.

Tuesday's announcement was the second big charitable commitment made by Goldman this year. In October, the firm announced a $200 million contribution to the Goldman Sachs Foundation. In 2008, Goldman launched its 10,000 Women effort to provide women in emerging markets with a business education.

November 18, 2009

At least one in two children in 17 small counties in the United States are living in poverty, according to a U.S. Census survey measuring income and poverty in small areas and school districts.

In at least 30 counties with populations ranging from just over 2,000 people to nearly 62,250 people, the poverty rate for all ages is more than one in three, the Census showed.

Douglas County, Colorado with a population of 280,621 has the lowest poverty rate of 3.1 percent, while New Mexico's Los Alamos County has the lowest rate for children of 2.8 percent.

The survey, which relies on 2008 data, is an indication of how American small towns and rural areas are faring economically. The data is also important as the stimulus plan passed in February has special programs targeted to "recovery zones," areas with high unemployment rates and low incomes, and schools where large numbers of the students live hand to mouth.

The county with the smallest median income was also in South Dakota. Buffalo, which has a population of 2,142, has a median household income of $19,182. In 23 small areas, median income does not even reach $25,000.

Virginia is home to the top two counties for median income. Loudon, with a population of 289,995, has a median household income of $111,582 and Fairfax, population 1.02 million, has a median income of $107,075.

The Census also released estimates of poverty for the more than 13,000 U.S. school districts. The New York City Department of Education has the highest number of students living in poverty at nearly 352,670, but it also has the highest number of students at 1.33 million. Still, more than a quarter of its students live in poverty.

Five out of six students in California's Kashia Elementary School district live in poverty.

By: LaToya M. Smith

November 16, 2009

There may be grants to help you buy your home--if you know where to look

In addition to the grants we'll cover today, you can also apply for the 2009 Black Enterprise Homeownership Contest to win $10,000 towards the down payment on your first home, but hurry--the entry deadline is Nov. 18th.

This week Michael J. Abel, director for New York's Housing Preservation and Development department (HPD); Florence Bartholomew from HSBC Bank; and Gita Hecht from the IRS talked about available grants and tax credits for first time homebuyers at the Bedford Central Community Development Corp. homebuyers seminar.

Abel's program provides first time homebuyers with up to 6% of the purchase price of the home toward the down payment or closing costs on a new home. Most states have a housing and community development department. Check your state's official website for your local housing office; also search for available homebuyer grants. Another helpful free money resource is Grants.gov and the U.S. Department of Housing and Urban Development (HUD). For resources specific to your state click on "state info" found on HUD's homepage. HUD also offers the American Dream Down Payment Initiative, which provides up to $10,000 or 6% of the purchase price of the home, whichever is greater.

If you're a New York resident, HPD should be on your list of programs to tap into. It provides first-time home buyers with a forgivable loan that turns into a grant after 10 years. Don't be turned off by the loan part. Keep reading. The money only has to be paid back if you don't stay in the home for 10 years. If you stay, it's free cash! The program requires you to complete a homebuyer's education course, and you must have your own savings to contribute to the down payment. Participants must also meet household size and income requirements.

Some banks provide home buying assistance through matched savings programs. The First Home Club at HSBC allows qualified first-time home buyers to earn $4 in grant monies for every $1 saved over a 10- to 24-month period. Bartholomew said potential homeowners can obtain a maximum grant of $7,500 by opening an account at HSBC Bank and making regular monthly deposits. At the conclusion of the program the funds can go towards the down payment or closing costs. This program is available to residents in New York and New Jersey.

If you're not in these areas, an IDA (Individual Development Account) might be an option for you. I called Rochelle Watson, senior program manager for CFED (Corporation for Enterprise Development) to find out about the benefits of IDAs.

"They're a good way for low and moderate income families to save towards the purchase of a home, post-secondary education, or to start or expand a small business," said Watson.

IDAs are set up through nonprofit agencies. The government provides these agencies with grant money each year and the agency fundraises for additional monies. To apply and find out more information about IDAs contact your local office by using CFED's directory. The program limits the number of applicants it can enroll each year. Call and ask if they are currently accepting account holders. Unlike HSBC's program, there is no grant at the end but depending on the IDA you apply for, you can get as much as $4 matched for every $1 you save.

These funds can be used in combination with other programs and funding sources, like the first time homebuyer tax credit, which has recently been extended. Under the new legislation, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010, and close on the home by June 30, 2010. Taxpayers can claim the credit by filling out a 5405 form on either their 2009 or 2010 return.

The tax credit is a great reward for buying a home, but you can also get repaid for being energy conscious. Hecht explained that new and existing homeowners can file for the Nonbusiness Energy Property Credit by filling out Form 5695. This tax credit is for making energy efficient improvements to homes, such as adding insulation materials, energy-efficient exterior windows, high efficiency heat pumps, and air conditioning systems.

There is also a second tax credit designed to spur investment in alternative energy equipment. The Residential Efficiency Property Credit applies to improvements such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. Check the manufacturer's tax credit certification statement to make sure it qualifies before purchasing or installing any of these improvements. These services must be installed after December 31, 2008 and before January 1, 2011. You must claim the credit on the tax return of the year that the improvements are made. You can also use Form 5695 to receive these credits.

You should plan to spend a few hours each day researching how many grants and tax incentives you qualify for. As you can see, there is plenty out there. Your hard research will pay off in the end.

Next week we'll move into the second half of the class: Repairing and Building Your Credit with a focus on money attitudes and budgeting. Follow me at www.twitter.com/LaToyaReports for daily updates.

By: William Schweke

November 18, 2009

The Obama Administration already has a remarkably full plate -- health care reform, cap-and-trade climate legislation, financial regulation, immigration policy, et cetera, et cetera. And that's just on the domestic policy front.

The administration already faces a variety of difficulties on this front. First, it will be difficult to prove to skeptical independent and swing voters that Obama policies kept the economy from entering a complete Depression-level meltdown. Though clearly true and an important accomplishment, it is a bit abstract.

Second, the fact that the President inherited such enormous economic challenges from the Bush Administration will not cut him much long-term slack. The Obama Administration's role in recovery will be its ultimate pass-fail test.

Third, the American electorate does not generally understand Keynesian economics and its paradoxical, but compelling arguments.

Fourth, there is a toxic populist rage out there that could poison the administration attempts to "right" the economy. Many in this group are far from convinced that government can be their friend.

Fifth, unemployment numbers will be last to improve. Indeed, the definition of a recession-free economy is based on output, not jobs. These problems are compounded by the staggered implementation of the stimulus package.

Sixth, the Federal Reserve and the Obama Administration could easily time their deficit reduction wrongly and send the economy into another recession, as Roosevelt did in 1937.

Seventh, if it does move too slowly on deficit reduction, federal policymakers could spark an inflationary surge.

Succeeding will require lots of good luck, some art, superb intuitions, and a great deal of communication that finds a way to treat the populace as adults rather than children. Indeed, Obama, our market doctor, must perform the mean feat of encouraging contingency thinking and action regarding employment and inflationary policies.

So, since it's never too late to begin getting suited up for the big game that has to be fought between a rock and a hard place. What specifically should be done?

First of all, the administration should follow-through on the advice of Timothy Bartik and John Bishop, two ace economists, by establishing a temporary job-hiring tax credit, aimed at small business. Their proposal will generate a lot of visible jobs -- a few million -- among an important constituency.

Next, if inflation starts to take off and the administration does not want to apply the "Paul Volker macroeconomic medicine," as was done during the Carter and Reagan presidencies, it must take the offensive. To remind you, Volker, in an effort to curb "stagflation," raised interest rates sky-high and sent the economy back into recession.

Obama can avoid this scenario by being prepared to act fast on significant tax hikes and spending cuts. The latter measures will probably only happen, however, if President Obama pursues the creation of a commission similar to the one that was used so successfully to close a number of obsolete military bases, i.e., a decision-making body that requires an up-and-down vote for an entire package.

Finally, he must find solutions that do not require minorities, the poor, and working people to be conscripted into an anti-inflation "army," which deflates the economy by cutting their wages and terminating their employment. This is the usual prescription.

In short, it's an incredibly difficult, uphill tightrope the President must scale. It's in all of our best interests to hope fervently that he succeeds.

William Schweke is a senior fellow at the Durham office of the economic development think tank, CFED. This article was written for NC PolicyWatch.

November 17, 2009

With job recovery nowhere in sight, financial assets decline along with economic mobility

Waltham, MA--Today the Institute on Assets and Social Policy (IASP) at Brandeis University's Heller School released a new research and policy brief which reports that four in ten U.S. families lack sufficient assets to pay for essential expenses in the face of unemployment.

IASP created a new approach to measuring asset poverty that includes unemployment benefits and compares families' asset holding to their ability to pay for essential household expenses and also to invest in future opportunities for mobility, such as a home purchase, business start-up, retraining, or education.

The IASP research and policy brief also shows that less than half of all U.S. families have sufficient savings to address essential expenses and invest in opportunities for mobility when faced with a job loss. Moreover, many more households of color lack the financial assets to meet their expenses during periods of unemployment. Sixty-six percent of African American and Latino households are not asset secure, and only 20 percent of households of color have financial assets to invest in opportunities for mobility. While most American families lack sufficient wealth to invest in education, housing, business ventures, or training for better jobs, the dramatic distance that marks families of color is a reflection of the profound, deep, and systematic racial wealth gap.

"The wealth gains of families of color over the past two decades are being savaged by the Great Recession, illustrating the persistence of the racial wealth gap in the U.S.," said Thomas Shapiro, IASP Director and co-author of the report.

Unemployment rates topping 10 percent are the highest in 26 years. Families are working more hours and taking on more part-time jobs. At the same time, unemployment benefits are running out for many families. Faced with the worst recession since the Great Depression, many U.S. families have no choice but to draw on inadequate savings to pay for essential household expenses. Many of these families are at risk of losing their housing. They may also cut back on food and healthcare to make ends meet.

"This timely and incisive report documents the lack of financial capacity of families to weather tough times. In this financial crisis, millions of American families have used up their nest-eggs, with job and wage recovery nowhere in sight," said Robert Kuttner, co-editor of The American Prospect, a Senior Fellow at Demos, a nonpartisan public policy and advocacy organization, and Author of "Obama's Challenge."

"Now, more than ever, Tom Shapiro, Melvin Oliver and Tatjana Meschede, turn our attention toward what it will take to make America again, the land of opportunity," Said Bob Friedman, Chair, Corporation for Enterprise Development (CFED).

By: Mike Snyder

November 16, 2009

Residents of mobile home park band together to buy the land they live on

With the help of Community Resource Group, an Arkansas-based nonprofit, the 94 households in Pasadena Trails became the first group of mobile home residents in Texas to collectively purchase the land under their homes.

The sale closed June 30, and the residents who have served as interim leaders met earlier this month in the laundry room to rehearse the formal election of board members a few days later. On Saturday, the residents gathered for barbecue to celebrate their collective purchase of the park.

Leaders of Community Resource Group and other affordable housing advocates say conversion of mobile home parks to resident ownership represents a promising approach that's received insufficient attention in government and nonprofit programs. About 8.8 million households nationwide live in manufactured homes, according to the 2000 Census.

"For decades the affordable housing community, particularly the rural affordable housing community, simply refused to acknowledge manufactured housing," said Lance George, a research analyst with the Housing Assistance Council, a nonprofit focused on rural housing needs.

Resident ownership initiatives such as the one in Pasadena, George said, represent "manufactured housing done right and done responsibly."

Most residents of mobile home communities own their homes but lease space in a park that provides utility connections and other services. The properties, often on the fringes of metropolitan areas, are popular among real estate investors who can buy them cheaply and then sell them at a profit as they are absorbed into expanding cities and their value increases.

When this happens, residents are forced to move, often with little notice and at considerable expense.

60-day notice

Troy Thomason, 63, said he and his wife were living in another Pasadena park about five years ago when they received a notice that they had to leave within 60 days because the property had been sold. It cost them $2,300, plus the expense of several days in a hotel, to move their mobile home and reconnect it at Pasadena Trails, Thomason said.

Thomason said he jumped at the chance to create a resident nonprofit group that would buy the property when it was listed for sale.

"If we didn't buy it then somebody else would, and then they could sell it out from under us," Thomason said.

John Squires, Community Resource Group's chief executive officer, said resident ownership offers not just greater stability but also a valuable sense of investment in a community. An out-of-state investor who has never set foot on the property might be indifferent, but people who live there have a strong motivation to maintain it, Squires said.

Profits reinvested

To finance the purchase, the organization starts by converting the residents' security deposits into a down payment fund, then obtains financing from foundations and lenders. Once the sale is completed, Squires said, the residents essentially are paying lease fees to themselves.

Any profits, Squires said, are reinvested into the community.

The concept of mobile home park conversions began in New Hampshire, where residents have purchased about 100 properties, Squires said. It's been done on a smaller scale in a few Western states, he said.

Government and nonprofit leaders have been slow to recognize the needs of manufactured home residents in part because of a lingering stigma, said George, the Housing Assistance Council analyst. But the quality of the homes improved markedly after new federal standards were imposed in the 1970s, he said.

Bernadette Alvarado, who has been serving as interim president of the nonprofit board since the residents purchased the property, said she's grateful to have the opportunity to plan improvements to the property.

"It's a nice park, very tranquil," Alvarado said. "It just needs a little buffing up."

In addition, she said, the purchase of the property was empowering. "We make our own decisions, and we can make sure that all the residents know everything that's going on."

By: Alan Berube, Karen Dynan and Ted Gayer

November 15, 2009

The economy's expansion last quarter, for the first time in more than a year, has prompted much speculation that the recession is over.

About 8 million jobs have been lost to this recession -- the largest decline in percent terms since the Great Depression. While the pace of job loss has recently moderated, the weak business outlook and still-tight financial conditions point to continued slack in labor demand. A weak labor market augurs weak income growth, which means we are unlikely to see sustained robust gains in consumer spending anytime soon.

Strong growth in consumer spending is possible if households are willing to spend more and save less out of the income they have. But with home prices and stock prices both down about 30 percent from their pre-recession peaks, personal saving has risen as people attempt to rebuild household assets. Greater saving will eventually put households in a more sustainable position, but will also slow the pace of recovery.

Housing prices have turned up in recent months, but it is unlikely that a rebound in home construction will lead the recovery. The inventory of unsold homes has fallen with the collapse in construction, but remains high by historical standards. The millions of homes in the foreclosure process raise the risk that distressed properties will flood the market in coming quarters.

Regional diversity reflects the different forces at play with regard to a broad recovery. While this recession represented a massive blow to the national economy, the Washington area was only mildly hit. Its job losses and unemployment rate are well below national averages, and its gross domestic product has already recovered to pre-recession levels. Home prices fell substantially, but recent increases may signal that a turning point has been reached. Washington has benefited from strong concentrations in industries whose declines were minimal, such as professional services, information, education and government.

By contrast, Cleveland began to suffer well before the national economy. While employment there is down almost 6 percent from a year ago, the metro area has shed nearly 40 percent of its manufacturing jobs since 2000. The mortgage credit boom drove serious foreclosure problems in both the city and its suburbs. Now the region's economic crisis may be further destabilizing housing prices, which, after showing signs of recovery earlier this year, flatlined in the past quarter. Like other manufacturing-dependent metro areas in Great Lakes states of Ohio, Michigan and Indiana, it is unclear when, if ever, Cleveland may recover fully to its pre-recession state.

Out West, the recession came a bit later to Las Vegas, but its recent job losses have been even more severe than those in Cleveland. That region's overreliance on home building and rising home prices during the housing bubble ultimately battered its economy amid the subprime lending fallout and ensuing credit crisis. A plunge in consumer spending further damaged the metro area's tourism and hospitality industries, which are critical to the local economy. While national home prices are showing signs of recovery, home prices in this area continue to fall. Las Vegas and similarly structured housing and economic markets in inland California and throughout Florida will have to rethink their future growth path.

The nation's largest metro area, around New York, has performed relatively well. Despite Wall Street layoffs, job losses overall have been relatively modest, and home prices have begun to recover from declines early this year. The diversity of that region's economy, together with the high education levels of its workers, leave New York and similar structured metro areas such as Boston and San Francisco better poised for recovery than those that had relied heavily on housing or manufacturing for growth.

Beyond the economy, the surge of public satisfaction with the president, with Congress and with "the way things are" recorded in the first half of the year has retreated. These indicators remain twice as high as a year ago, at the height of the crisis, but the noticeable decline in the president's approval among independents, and the growing gap between how Republicans and Democrats view the presidency, are signs to watch.

The conflicts in Iraq and Afghanistan, with climbing fatalities, contribute to national unease. Though troop levels have begun to decline in Iraq, they have nearly doubled in Afghanistan. As the country looks to the final quarter of the president's first year in office, Americans seem to be asking not only "how are we doing" but also "where are we going?"

-- Alan Berube, Karen Dynan and Ted Gayer

The writers are, respectively, senior fellow and research director for metropolitan policy, senior fellow and vice president for economic studies, and senior fellow and co-director for economic studies at the Brookings Institution. For a complete analysis of this data, a further breakdown of regional home and employment figures, and interviews with experts, visit http://www.brookings.edu/index.

By: Joseph Gyourko

November 15, 2009

Even as we wade through the wreckage of the housing collapse, Americans remain a staunchly house-proud people.

Housing is a great long-term investment.

1.Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year. You would have earned well over 2 percent per year had you invested in Treasury bills over the same period. And you would have earned even more on riskier investments: Moody's corporate bond index rose an average of 6 percent per year between 1975 and 2008, while the S&P 500 stock index rose an average of 8 percent per year. Most of the return from owning your home comes not in financial gains but in the benefits you enjoy by living there.

The homebuyer tax credit makes buying a house more affordable.

2. Not necessarily. Just because you got an $8,000 tax credit toward the purchase of a home doesn't mean that you actually saved $8,000. In areas where there is strong demand for housing and the supply of new housing is limited -- including the Washington metro region -- tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.

Homeownership is good for society because owners make better citizens.

3. This is the rationale behind the government's many efforts to subsidize and expand homeownership, and there is an appealing logic to the argument. Since homeowners have a financial stake in their communities, one might expect them to be more responsible and involved citizens. But there's no overwhelming evidence that higher homeownership rates make for better societies. Austria, Germany and Denmark all have ownership rates in the low 40 percent range, meaning that just over two-fifths of all housing units are occupied by their owners. This is well below the 68 percent ownership rate in the United States, but those countries don't appear to be suffering a shortage of civic-mindedness. At the other end of the spectrum, Spain's ownership rate tops 80 percent, but no one seriously claims that this makes Spaniards better citizens than Americans.

It's safe to buy a house with a very low down payment.

4. Because the Federal Housing Administration insures mortgages backed by down payments as low as 3.5 percent, you might think that buying a house with a low down payment is relatively safe. But in the case of a 3.5 percent down payment, a borrower winds up carrying $96.50 of mortgage debt for every $3.50 of home equity. And the less equity you have in your home, the greater the chance that a fall in prices will leave you owing more than the house is worth, a condition often described as being "upside down" or "underwater." In this example, housing prices only need to fall by 4 percent to leave a buyer underwater.

To put this in perspective, Lehman Brothers, Bear Stearns and other investment banks were using similar ratios of debt-to-equity to finance their investments before the financial crisis. Of course, buying your house with little money down is less risky than engaging in the complex trades that Lehman and Bear Stearns were making. Still, negative equity sometimes leads to mortgage defaults, and when buyers default, they lose not just their down payments but also closing costs and the value of any improvements they've made to their homes.

Even if buyers don't default, they may not be able to afford to move, because they have to pay off their old home loans to get new ones. My research suggests that households with negative home equity are half as likely to move as similar households with positive home equity. As a result, our borrowing binge during the recent boom will probably leave many people locked into their current homes. One of the great virtues of American society has long been our willingness to relocate and follow opportunity. But now, many families are going to be stuck in declining parts of the country, unable to take advantage of better labor market conditions elsewhere.

Owning a home is cheaper than renting one because you save on rent.

5. Most real estate agents will tell you this, but the argument doesn't survive scrutiny. It's true that if you own, you don't have to write a check to a landlord. However, you have to cover all the costs of maintaining the house. It is the same house with the same operating costs, whether you pay them directly or whether you pay rent to cover them. By covering these costs as the owner-occupier, what you spend (including your mortgage payment) comes very close to what you would have spent if you rented your house.

Many of us own because it is a way to commit to saving by building equity over time, but we should not expect to make large profits. Housing is an expensive durable good, and durable goods are costly to maintain. The main reason to own is because you really like your home, not because you think it makes you money. It doesn't.

Joseph Gyourko is the chairman of the real estate department and the director of the Zell/Lurie Real Estate Center at the University of Pennsylvania's Wharton School.

By: Traci Bruckner

November 11, 2009

USDA recently awarded 29 grants for the Beginning Farmer and Rancher Development Program (BFRDP) - a competitive grants program designed to support collaborative networks and partnerships that provide beginning farmers and ranchers with education, training and mentoring.

For example, California FarmLink helps beginning farmers gain access to land through their Beginning Farmer Individual Development Accounts. Through this program beginning farmers and ranchers saves a percentage of their income over a two-year period and California FarmLink matches it three to one. At the end of that two year period, the beginner can accumulate nearly $20,000 for purchasing land, equipment or for other eligible farm related expenses.  We are pleased to see California FarmLink among the grant recipients because it will help them provide education, training and mentoring to farmers and ranchers that participate in their innovative program.

However, after looking through the list of USDA grant recipients, it is surprising to see so many grants to universities, 17 out of 29. This is especially disconcerting since the statute calls for projects that are lead by or include non-governmental and community based organizations to be a priority for the grant program.

We are hopeful that most of these universities are partnering with such organizations or technical colleges where projects lead to real, on the ground results. We look forward to analyzing the awarded projects to see how well they serve beginning farmers and ranchers on the ground.

By: Veronica Flores-Paniagua

November 14, 2009

As host city for this year's National League of Cities conference, San Antonio trotted out significant public projects. Among them: Voelcker Park, the San Antonio River's Museum Reach and Haven for Hope.

The names aren't sexy, and you can't tour them on a barge. But the programs leave another kind of lasting impression, as Hilda Bañuelos attests.

The city coordinates with a local credit union to offer the auto-refinancing. Qualifying residents are referred through the Volunteer Income Tax Assistance, a tax-preparation service for taxpayers earning up to $45,000. The existing loans must have an annual percentage rate of more than 9 percent for residents to qualify. Incredibly, the average APR for participants' original loans is often more than 20 percent, according to John Scarfo, who directs theVITA program.

Bañuelos, who was working part-time with VITA five years ago, turned to the program for help after it was almost too late. Her silver 2005 Honda Civic had been repossessed in the middle of the night.

A single mother of a baby boy, Bañuelos was living with her parents. Her father was disabled and her mother fell ill and was unable to work, leaving the 19-year-old Bañuelos to foot most of the bills in a household that included two younger siblings and her young niece.

Predictably, the West Side resident fell behind on payments that had been financed with an APR of 24 or 25 percent. Instantly, her family's safety net was gone.

"It was the only vehicle we had," Bañuelos said. "It helped not only me, but it also helped me get my brother and sister around," she said.

The loan refinancing helped her salvage the car. While still saddled with an air-sucking APR of 15 percent, Bañuelos said the predicament was a stiff wake-up call that prompted her to seek out the city's IDA program.

As do other cities with similar programs, San Antonio's IDA pools local, federal and private funds to offer a "savings match" to qualifying residents who save their money for at least six months. The matching funds ($4 for every $1 saved, up to $1,000) have limited but inspiring, uses: They can be used to buy a first home, go to college or vocational school or start a small business.

Bañuelos estimates she's about 11/2 years away from buying her first home. When she finishes her associate's degree in early childhood studies at San Antonio College, she wants to open her own day-care business.

"Ever since that happened to me, I've changed my ideas about how to spend money," she said.

Bañuelos has no illusions about what her fate might have been without the city agency to lean on and, she notes, neither should anyone who, like her, "pushed aside my goals."

"This is what the real world is."

Personal Savings Need a Boost

November 10, 2009

The following information was released by Syracuse University:

America's days of economic dominance are numbered because we don't save. The government is borrowing like crazy, and households aren't doing much better. The personal savings rate -- the share of after-tax income that people set aside for a rainy day -- has been falling like a stone since the early 1980s.

With little or no savings, families were especially vulnerable to the economic recession. Lacking rainy-day funds, spending had to fall much more than it otherwise would have when breadwinners lost their jobs. The resulting drop in demand compounded the economic carnage, triggering even more job losses.

Right now, policy is correctly zeroed in on boosting spending to try to end the recession. But when the economy recovers, we should have a strategy ready to encourage more savings. The public is likely to listen. The Great Depression created a generation of compulsive savers. Perhaps with some nudging from policymakers, the Great Recession could do the same thing.

So how can we encourage more savings? The one thing we know is that the current strategy isn't working. We spend more than $100 billion annually on tax incentives for savings -- 401(k) plans, pensions, IRAs -- and the savings rate goes nowhere but down. Indeed, it started falling in the early 1980s, at the same time that retirement tax breaks were expanded, and another round of expansions early this decade did nothing to slow the trend.

One problem is that most tax breaks are poorly targeted. The biggest beneficiaries are high-income people who would save a lot even without subsidies. Those with lower incomes, who pay little or no income taxes, gain little from tax exclusions, credits and deductions. (The Obama administration has proposed making a tax credit aimed at low-income savers refundable, which would make it more effective.)

Meanwhile, our consumer culture constantly tells us that more is better and now is better than later. Low interest rates and easy credit only reinforce the carpe diemmessage. Savings just seemed so unnecessary ... at least until the bubble burst.

One silver lining in the financial crisis may be that people once again will have to save to make meaningful down payments on houses, and credit cards may no longer drop like manna from heaven to feed our buying habits.

Some policies also have been counterproductive. The eligibility rules for means-tested transfer programs, such as food stamps and the earned-income tax credit, deter low-income people from savings. If you have too much in the bank, you can't get these benefits. Medicaid provides free nursing home care for those who can't afford to pay for it, but that punishes middle-class families who prepare by saving or buying long-term care insurance. And college financial aid formulas penalize middle-income households that save for college.

Still, not all the news is bad. Employers have learned that automatically enrolling their employees in 401(k) plans, rather than requiring employees to opt in to company retirement plans, significantly increases participation. The Obama administration would extend this thinking to many employers who do not offer retirement plans by requiring them to contribute to employees' IRAs unless the employees explicitly opt out.

I'd take President Obama's plan a step further. Starting in 2012 (if the economy has fully recovered), employers should be required to withhold a percentage of earnings from all employees for a savings account that could be used to help fund retirement, to make a down payment on a house, to cushion the blow of a job loss or to start a business. (The accounts would resemble "individual development accounts" - a small program some low-income families qualify for now.) Withholding could be integrated with payroll taxes so that employers would face little or no extra burden.

Under my plan, employees could elect to receive the withheld money at tax time, but, if they did, they would lose savers' credits and other tax breaks. Tax software and tax-return preparers would have to show users and clients how much they would lose by withdrawing the money. The lost tax breaks plus the power of inertia -- you would have to do some paperwork to get your money -- could prompt a lot of new saving.

Over time, the share of pay set aside through the new program could gradually increase to 5 percent or more.

There are other ways to boost savings. The government could require middle- and upper-income people to buy long-term care insurance. Requirements for down payments could be increased for government-sponsored mortgage programs, such as for first-time homebuyers and veterans. Asset tests for transfer programs could be relaxed so low-income working people aren't punished for saving.

And Mr. Obama should use the presidential bully pulpit. This is a teachable moment. We know now, in case we forgot, that the economy can crash. The next crash will be much easier to handle if we have money in the bank.