It’s a Wonderful Life for Whom?
Dear Leading Ladies,
Owning one’s own home has always been part of the American Dream. Finding a place in your price range can often require some compromise. Then making an offer and having your credit rating checked. Next is hunting for the best deal on a mortgage and coming up with the down payment. For those of us who are lucky, that down payment often includes loans or gifts from parents and grandparents.
Sound familiar?
To many, this scenario is as foreign as a Martian landing.
Instead, they find home-owning a faraway dream. Banks are reluctant to offer mortgages for low-priced properties and to low-income buyers; low-income buyers are unlikely to have large down payments and banks are reluctant to accept small down payments; and, partially because of banking penalties and fees, low-income hopeful buyers are likely to have poor credit ratings.
In other words, the deck is stacked against poor people buying their homes, homes that would let them create generational wealth to pass on to their descendants and close the huge financial gap between the haves and have nots in our country.
Is there any good news?
In Massachusetts, there is ONE Mortgage, a part of the Mass Housing Project. If you are a first-time homebuyer, the ONE Mortgage Program offers mortgages for as little as 3% down; a low, fixed interest rate; no Private Mortgage Insurance (PMI); and financial assistance for eligible buyers. Counseling is offered to determine how much a potential buyer can afford and what kind of domicile and the location they might consider. Those interested take a homebuyer education class at a location near them; contact a participating lender who will help them get pre-qualified for the ONE Mortgage Program. Those interested should call 1-800-752-7131. email ONEmortgage@mhp.net, or go to www.mnhp.net/one.
We looked up the lenders who are partners with ONE Mortgage. Not surprisingly, we did not find the names of the big players like Bank of America and Santander. Instead, we saw local institutions and credit unions such as Align Credit Union, Cambridge Savings Bank, Berkshires Bank, Bank Five, Citizens Bank, Cornerstone Bank, Eastern Bank, Enterprise Bank, First-Citizens Bank and Trust Company, Institution for Savings, Leader Bank, Middlesex Savings Bank, Needham Bank, Northern Home Loans, Rockland Trust, Salem Five, Stoneham Bank, The Savings Bank, Winchester Co-Operative Bank, and Winter Hill Cooperative Bank.
revenued.com.
Mortgages aren’t the only problem
People with limited income are frequently slapped with fees and penalties because they overdraw their checking accounts. “An overdraft fee is a common banking fee that gets charged when you spend more than the amount available in your account,” a May report by CNBC explains. This results in a negative balance and a “steep overdraft fee up to $35 (sometimes per transaction).”
Those living paycheck to paycheck are most vulnerable to this result. “In fact,” the CNBC report states, “43% of vulnerable households with checking accounts report having overdrafted in the past year, with 9.6 overdrafts on average, according to the 2021 FinHealth Spend Report. At a $35 fee per overdraft, that’s nearly $350 per year consumers are paying because they didn’t have enough money available to cover a purchase, payment or withdrawal.”
“Payday lenders [those neighborhood storefronts that loan money 24/7 with exorbitant interest rates] have long been cast as villains for charging consumers sky-high interest rates, leaving borrowers who live paycheck to paycheck struggling to repay loans,” according to an article by Harvard Business School professors Marco Di Maggio and Emily Williams. “But conventional banks are just as guilty of using fees to penalize consumers, hurting low-income customers the most, research shows.”
This is how it works.
“Imagine a checking account with $400. A bunch of debits post, and the bank first puts through the largest, a $500 rent check,” the HBS researchers explain. “That triggers a $35 overdraft fee. Two checks for $50, which technically came in before the larger check, go through next, bouncing and charging the account another $70 in overdraft fees.” The customers’ accounts may be closed and their credit ratings may plummet or, even worse, the low-income customers may pay back the bank with high-interest loans from payday lenders, thereby “getting trapped in a downward spiral of debt.” Meanwhile, banks realize 33 billion dollars annually in revenue from overdraft fees! And according to research from the Consumer Financial Protection Bureau (CFPB), 75% of this revenue comes from less than 9% of account holders, most of whom are in this low-income group.
Some banks are doing the right thing, reports CNBC, and getting rid of overdraft fees, notably with accounts such as Capital One 360 Checking® Account; Ally Interest Checking Account; Discover Cashback Debit Account; Axos Bank Rewards Checking; Betterment Checking; Wealthfront Cash Account; and Alliant Credit Union High-Rate Checking. A key motivation for these changes likely comes from recent actions that the CFPB has taken against certain banks, rather than acts of conscience, resulting in hundreds of millions of dollars in fines due to unfair practices linked to overdraft fees.
Other banks are doing away with minimum balances and checking fees. In Massachusetts, BankFive, Mass Bay Credit Union, Berkshire Bank, North Easton Savings Bank, UniBank for Savings, Eastern Bank, and Florence Bank boast no fees or minimums. There may be others we missed in our research. If so, let us know.
Another route to equity
“A public bank is a bank owned by the people through their representative government and operated in the public interest,” according to masspublicbanking.org. They exist throughout the world, at the local to state and national levels. The first in the US was established in North Dakota in 1919.
An act to establish a Massachusetts public bank (H.975/S.632) has been filed in the House by Representatives Mike Connolly and Antonio F. D. Cabral, and in the Senate by Sen. Jamie Eldridge. The substance of the bill is “to establish a public bank that will be a steady source of affordable, accessible, equitable and sustainable financing for small businesses, community development institutions, municipalities, land trust, and local agriculture…”
“A central goal of the Massachusetts Public Bank is to address the inequities that have left many communities, small businesses, small farms and other enterprises without access to affordable financing. The Bank can expand affordable financing in traditionally underserved sectors of the state…”
To learn more about the bill to establish a Massachusetts Public Bank, and to potentially support it, go to masspublicbanking.org.
What can we do?
We can all take our banking business to institutions that are consciously and conscientiously offering mortgages to low-income potential homeowners and not charging fees for overdrafts that are anathema to low-income customers.
We can vocally support programs such as ONE Mortgage, making sure that organizations serving low-income workers steer these people to this program and others like them.
We can also support the consumer advocacy groups that are fighting the payday lending industry’s attempts to convince the Supreme Court to abolish the CFPB. Consumer Reports, National Consumer Law Center, and Public Citizen are a few of the most vocal and active organizations working to keep the CFPB.
Fair practice banking is clearly one more avenue to lift people out of poverty and remove the barriers to generational resources. One-quarter of our people are unbanked or underbanked, keeping them out of the mainstream in yet another way. Let’s be part of the change.
Therese (she/her/hers)
Judy (she/her/hers)
Didi (she/her/hers)
Leading Ladies Executive Team