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FEDERAL
RESERVE
BANK OF
ATLANTA
VOLUME
.....
16 ,
NUMBER
2 , 2006
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Soaring Insurance
Costs Make
Housing Less
Affordable
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
CRA Revisions:
Flexibility and
New Choices
Reverse
Mortgages
Provide Answers
for Some ( but
Not All) Seniors
Recruiting
Retirees Calls
for Careful
Planning
partn ers
in commun i ty a nd eco no mic developm e nt
PA G E
9
CRA Revisions:
Flexibility and New Choices
EITedi,·p Sep!Plnlwr :200:'i. the Community Rei.J1n>sl11wni
Act Lm<in-went chang,-s that ell.7)ancl the dP!1nition of
c-onHnLulity de, Plopnwnr and creatP a new ca tegory of
financ-ial institution.
PAGE
12
Reverse Mortgages Provide Answers
for Some (but Not All) Seniors
ll om1•m\'1leIS who ,ffP 6:2 or older arP opting ro tap into
il1eir
e, 1u.ity to c·ow·r It mg-tt>m1 carP ,·xpen-;es and honw
repairs that \\ill allow them to liYe incl,•pPnclently longPr.
PA G E
2
PAGE
15
Can Housing Be Green and Affordable?
Recruiting Retirees Calls
for Careful Planning
Green building and affordable housing are
:\ ging i>aby boonwrs \\lll s,,·ell tlw rPtiree ranks with
natmal partners with the common goals of
signific-ant disposai>IP income in tlw c-oming cle,·,Hles.
enswing long-tern, housing affordability, creating neighborhoods of choice and limiting
Many rural crnnm un.ities have m ad,· a ttracting rPtin ·•-"'
a kt->y c-omponent of tlwir o,·pra[l t•c·oncHnic dP,·,.jopment strategy.
mban sprawl. Although many asswne green
building is not cost effective in affordable
housing. growing e\idence suggests that ifs
often economically justifiable.
PAGE
18
Atlanta Fed Hosts Last in
Series of Asset-Building Forums
Tlw F, ·d ,-•ral RPSr·1v,· Bank or Atlanta and CF'ED hCls!t,I
a clay-long meeting of s enior-le,·el rPpresentati\·e,-. to
P:>q,IorP the role nf financial institutions in ell.7)a nclin g
FEATURES
PA G E
6
Soaring Insurance Costs
Make Housing Less Affordable
HmLsing a!Tordai> iliiy b being c-hallt>ngPC! in many htuTicanP- and tlood-pron e areas i>y 1lw mmuuing Pll.1 wnsP or
insw-ance brough t on by rect>nl shocks to tlw in<ILL-;try.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
pro<iuds and se1vi, ..,s for low-inc-onw incli,idua ls.
PAGE
20
Spotlight on the District Georgia and Eastern Tennessee
Technical Education: a Remedy for Poverty?
Rt->llPning tlw c\ilanta Fe~l"s Ptnphasb "n llw C"mnnmity
em ploye<-' training to the
H,·in v..stnwnl Ad, /Jar/11 e1·s often fon1;-;, •s on 1wi ghl,o r-
needs of lhl'S<' corpora tions.
h"od rPd,,,·,, J"i'nwnt t"Pi"s such as a!Torda l,I,· hous-
]\!lost graduai,-s arP rm ployed
ing and small i>usi1wss grmnh. But w,, hm·,_, seldom
by the f'Orporate partners
addr,,ssPd tlw J><>lPl1lial of,·ocarional or rP('hniC'al
1ighr a\\·ay, and a fp\\' hm·p
Pdtl<'arion as a rPmPdy for pon•ny.
e\·en bef'ome :\landwsrer
Biel \\·ell Pm ployt-•es.
T,_,, ·hnif'al Pdu ..ati"n programs are desig1wd to prO\idP
tlw skill-.; n<·•·•·ssai y to ..any out tasks in a spP,. ilk tradP.
Several yeai>; ago, Bill hrga n
A.. quirin g tlws,• ski lls may help individuals gt-'! I><-'t!Pr-
introdu cing this hi ghly successful educational nwd PI in
paying or morP stahl<-' jol>s. especia lly if tlw Pdtwa-
other pans, ,f tlw cotu1iry. Today, these programs I,asPCI
tional programs arP alignt'<J \\ith committ<"<i crnp,rarP
on meering markPt opponlulity are gaining stPam. Facil-
PmploypJ>;. L.nfontmat<-'ly. ,·o-rech programs oft,•n do nor
ities hm·e rPCPnily openPCI in San Francisco. Cincinnati
Pstai>lish tlws,· links. and indi\iduals trai1wd in tlwsP
and Grand Hapids. Each Ls a customized ,·e1-sion of the
programs may still struggl<-' to find good jui>s.
otiginal Pitts! >tu-gh cent er that prmicles specifif' trai1l.ing
through coq>"ratP pannersll.ips a t the local ]P\'PI. Bill is
Training pPopi<' propPrly to fill good joi>s and nwt-'! an
now conside1ing r>.1)a 1Kling the i\lanclwster modP I into
Pmploy,•r's <i<'mands f'an he challeng in g. For siartPrs.
othPI' cornm wl.iti PS, inc luding t\\·o markets in tlw ~ixth
most r.,,.hni<'al programs prO\ide g<-' n<'ral training that
Federal R<-"SPJY<-' Bank dL-.;i1ict-AtJanta and ~PW Orlnms.
pn,parPs graduatPs for ent ry into a s pP,.il'k tradP. !J ut
only at tlw ground Jp,·pJ. Ir abo takPS iinw and m,>1wy tu
At a i\lay 200f, 111 Peting hosted by th e Atlanta FPd in col-
,·ompl<c'lP a l<'"h program. and studPnts may JWP<i sup-
laboradnn \\iih Ent eq ,1isP and the Comnnulity Fotmda-
port \\·hile tlwy finish tlw nu-ricullun. Finally. tlwrP is
don for Greater Atlanta. i>LL5iness and comnnulity IPad ers
nsually no guarantPe of a hetrer-pa:,,ing joi> . .,,..,n afrPr
took a nip to P>-1>Prienre one of these \·ocational Pduca-
tlw program is ,·omplPtPd.
don centP1-s fit>;! hand. 17wir interest in ptu-su.ing parinersll.i ps with Ma nclws ll'r Bidwell Corporation was ,,1....ar.
~PVt•ral y,-•ars ago, I nwt Bill Strickla nd. prPsid ,·nl ami
A Sf'Cond tr ip s .. Jwrl uJ<'d f'or la ter in th,-• stu1111w1· .. oulrl
CEO ofa r,-·,·lrnkal Pdtwarinn program that nwds tlwse
bring a simi lar ,·,.,ntff into our area.
chal!PngPs . Lo ..ated in Pittsbtu-gh. Pa .. :\landwster Bidwell Coq>"rntion is the parent organization t" s,,,.,_,ra]
\\17.ile \\'P r<-'alizt• that a lP<'iul.ical education program likP
n"nprofit ,·"mpani<'s and .. enters dPsig1wd r" Pdu .. ate
che Biclwell l )·aining Center \\ill nor enrirPly nu·e 1>< >\·e1Ty.
disadrnntag<-'d y"uth and tmemplnyPd adulrs. ~tudPnis
its succPss in imprm'in g the !iYes of those fortunatP
.. a n .. hnos,-• options ran ging from a r t a nd !' Ulinary
Pno ugh to part iripatP s1waks for itsP!f .
instrudion to trainin g in hyd ropun i.. garden in f~ or
nwclkal !'oding.
The sU<TPss "f this program comes in great pan from
the cnq,"ra i<• paiiners Bill has anrar-tPd to rlw "rgan.ization . i\landwster BiclwPII has collai>"ratPd with major
!'Oq)()ration;-; including BayPr. B..\SF. ~teP]f'aS<', l\laJTiott,
Juan C. Sandwz
eBay and II Pinz to design programs tailorPd tu matf'h
Comnnul.iiy Affairs OnicPr
FEDERAL
RESERVE
BANK
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OF
ATLANTA
one
Can Housing Be Green and Affordable?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AS THE GREEN MOVEMENT IN
sible and profitable building.111e LEED program . whiC'h
created national grPen i>uilding standards, encouragPs
HOMEBUILDING TAKES OFF
integrating green prauices Llu·oughout the design and
construction proc<>ss.
NATIONWIDE , AFFORDABLE
One oftlw larg<•st national players in tlw a!Tordahl P
hoLISing imlLL-;try, Enterprise Comm wuty Partners lnC'.,
HOUSING ADVOCATES ARE EAGER
lmmched its Gr<>Pn Cornnnuuties ltutiaril·P in :200-l. IL
aims to make gr<>Pn building and susrainahl<> <i<>1·<>lop-
TO EXPLORE ITS ADVANTAGES .
mern a mainstrPam phenomenon in the affordablP hou-.;ing indLIStry tlmlugh the CTeation of national standards.
111e criteria pstahlislwd for Green ComnnuutiPs <Ira\\'
Although grPt>n housing still acco unts for only a
heavily on s tm,dards <i< 1·eloµed for the LJ.:: ED program
0
s m a ll JWJTPntagP of the tota l housing markt-'!, tlw
and a re com patii>I <> with other state a nd loC'a l grPPn
~ational HomPl>ui ldPrs Association St>es it as ilw \n11·p
huilcl ing pn ,grams.
Green Com nnuuties ,·1ite1ia address thrPP kPy arPas:
of thP futtu·P.
GrePn building and affordable housing arP natmal
energy and resmUTP consetYation. healthy PmiromnPllls
pan1wrs. _.\.ffordal>IP how,ing adYocaLPS fonIS on many
and commLuuty ('hara('L<>Ji5tics. 111ese areas an' sul.xli1·-
of th P sanw issuPs as a<h·ocates for grePn buildin g-
idecl into S<>l'<>n <'atPgories : integrated design . lo<'ation
enstuing long-tP1111 hmISi.ng affordability. <Teating neigh-
and neighl>orhond fabric. sire imprm·emPnts. Pnergy
borho<xls of c·hoiCP and limiting rn-L>an sp rawl.
efficiency, water ,·uns<>1Yation, materials !>P1wfi<'ial
Many ass um e tha t green approaches to ho nwl ,uLJ din g,
to th e en vironment. a nd operation and rnaint e na n<'t-•.
which ofrt>n ('Ost more at the outset. a re not ap prop1iatP
111ese guidPlines rPpresent the 11rst set of cumpr<>hensi1·p
for affordal>IP h<>LL5ing. Howe\·er. a gro\\ing l>ody of P1i-
c1ite1ia for building low-income sustainable hmL-.;ing.
dencP speaks to the contrmy. Ad\·ocates f< ,r tlw greening
Working \\ith tlw National Resotu-ces Oefens<> Cowwil.
of affordal>le hoLL-;ing argue that it is actually more P<·o-
Enre1v1ise has; plP<lged ,$:.55 million to the GrePn Commu-
nomical IJPCmISe m·er Lime lo\\·-income homeowners \\ill
1uties Liutiatil·<> m·er tlw next 5 years. Their goal is Lo
benefit Crnm lowPr utility bills . fewer main t,,nmwe costs
provid e traini ng. te<'hnkal support and policy adl'<H'a, ·y
and healthi< r emironm ents.
to create >3.i'iOO grPen affo rdable homes.
What is green building?
building sta ndan Is . For example, the EarthCraft llmtw
0
State and local organizations have also creatP<I grePn
111e mnsL ,·ommon perception about green l> ui ld ing L-;
was created i,y :-;outhface and the Greater Atlanta Home-
that it u-;es ernironmenrally sensitil·t> building matetials
builders ,\ssociation lo promote healthy. SLL-;tainal>IP
in e1wrgy-, ·!Tici<'nt d esigns. Howe1·er, grPPn i> uilcling
deve lopnwnt and affo rdable hotL5ing . Tlw EarthCraft
also e1wompasses tlw character of the ,·ommunity Lo
program. \\·l1id1 l>Pgan in ,\tlanra. has now ('enifiP<J m·<'I'
consider proximity ro trnnsponation. inJra-c;o..,rrw·p,jobs
1.500 homes in tlw Southea-.;r.
a nd services. Gn·Pn building is a holistic stra!Pgy for
sustainalJ IP devPlopmenr that aims to redU<'P utili ty
costs. impnwe housing conditions and the lwa lt h o f
Costs and benefits of building green
111e affordable hoLISing indushy is assuming a n impor-
the comm uni ty n•sid ents, and limit url>an s prnwl a nd
tant rol e in tlw gn •en bu ilding movement a-s an incr<>asing
poorly planned <Jp1·elopmenr.
munber of affordable housing cle\·elopers adopt grPen
111e green building rating system of 11w Leadership in
building tffhniques . Huwe1·er. only limited rPsearC'h
Energy and Ernirnnm ental Design (LEED ) rerngnizes
has b een co nclud ed a bou t the costs and lw1writs of'
the c.:-;. GrPPn Building Cmmcil (L'SG BC) a5 tlw national
green afforda l>I P housing . Research thus far fontsPs
leadPr in promoting lwalrhy. ernirorn1wntally rPspon-
mainly on green practices in com mercia l and indLL<;Ltial
FEDERAL
RESERVE
BANK
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OF
ATLANTA
three
de\·dopmenl. where results consis tently indicate that
Starting llw design process with grPe n p1incipl PS in mind
long-tPrm benefits exceed the upfront capital costs.
is much mor<--' etlkiern than U)ing to acid U1em into the pro-
Hcm-,ing affordability is usually nH'a5Lfff-'<.I hy the initial
ject after it is designed.
constnwtion costs. Green building often n__.qujres addi-
A serund recomm endation is to fo ll ow an integra ted
tiona l up fro nt !'osts and so d oes not ap1wa r to promote
de:;ign a 1>1,rnach tha t involves all rn em l,ns uf the develop-
affo nlal>ility. NPW Ecology li1C . n•cently co mpl<'i ed a
nwnt team from tlw L>egiruun g of the proce::;s to set green
study of 1(i grePn affordable hoLL5ing projPcts a nd f0tmd
goals an< I idPnti(y a plan for aclue,ing them.
a small green ··premiwn ·· of :2..J:2 pPt'<'ent of total de,·elop-
To assess the true affordability of green building prac-
mPnt costs. RP:sear ch by the Honw Depot Fmmdarion
ti cPs . proponerns argue fo r a life-cycle app roac h that
indir-atPs that green buHding plt'Slws costs up :3 to 5 per-
acc0tmts for both upfront capital cusls and lon g-term
cent. hut it also sho,,·s thesP costs arP rpc·ouped rJu·ough
operating <-'>..1>ensc--'S to measme affordability. Case studies
reclU!'<--'d P:Kpenses in less than !'i years.
conductt->d l>y New Ecology fow1d that energ_v and ,Yater
The lwnefits associated with gn•t--' ll l>uikling a r e far-
costs fo r grt·en h ousing were significan tly lower than for
reach.ing, and many can be achiPV<·d without s ign il1cant
co nve nti o na l hous ing. 171ey contend tha t tlws<--' savings
initial , >utlays. While it is easiest to quanti(v smings on
could pol<·ntiall y o!Tset a dditi onal upfront costs for
energy and other utilities. homPm,1wrs also profit from
gr<--'e1ung tlw proj<--'<.:t. When other benefits an__. factorPcl
the LL-;P of morP, ILu·able mare1ials that rP<IU!'<--' mainre-
in. the smings m·er time are likely to be sig1ufican1.
nan!'e and repla!'Pment costs for the honw. Energy and
wat, ·r ,·ffkien!'y. indoor air quality, and d Lu·al >ility generatP llw hjghPst financial rerw·n. a nd ilw r<--'fore tlwy are
the most com mon goals in gr een bu ildin g.
17w PtKirornn ental gains a'SSociat<-'d with grn•n building
Overcoming obstacles
0
n1en__. a rl' sp\•eral reasons why gr<--'en build ing practices
have not lwen widely applied to affordab le h oLL'S ing. 171e
biggest ol>stade in both the com·entiona l and a!Torclable
are not as easil y quantified, bur th<'y arP no l,-·ss imµor-
ho us ing market is the prevailing em phasis on keeping
ranr. Emirornnentally liiendly cons lrudion c·onst--'tYes
upfront r·rni,-,tructio n costs as Jo,,· as possibl <-' . Tlus issue
resmuTPS l>y LL'Sing rnare1ials \\ith rPC'y<'IKI ('Ontent. elirni-
L'S particularly arnte in the affordable housing indusny.
natf-'S excess \\"aste t!u·ough eHkiPnt LL'>P of construction
,,·hid1 tends ro focus entirely on getting low-incomP
rnate1iab and enc·oLu-ages p eclesuian-fti Pn< lly neighbor-
people into the hum es. and nor on the long-term costs
h oods that reducP automobile ci<-'IH'llden('P.
of livin g in them.
Finally, a d voC'ates arg ue that tlwsP pra('ti('cs produce
signifi n1nt lwa lth benefits that stand
to
lmYPr m edical
exµensPs for green housing resid<--'nts .
The first-year report on EnrerprisP's Gr<-'<-'ll Communit i<--'s Ini tiative o!Ters strong edd<-'tl<'e of llw perks that
Green am >rda L>l e housing is aL'So indirectly dbcomagecl
by the hunw financP industly. Lenders use only the pLu·chase pti!'P of tlw home in Lmden,1iting tl1e mortgage. 1l1e
potPntia l lo ng-te1111 sa,ings on other monthly e>..1wnses
associated ,,ith green building practices a re not factored
comp with bui lding green : The 1,::ioo 1w11ding Green
inro the assessment of the b01To,w1.-s repa:,,1nent capacity.
Commu1uties homes ,,ill saYe families and aµa rtm enr
ThLL'> some homPbuyers are nor able to quali(Y for the
o,,1wrs up
$1.:3 million in energy hills, Pliminate more
m ortgage ammmt required to pay for a green home, e,·en
than 5,000 tons of gr eenhous e gas t•rnbsion.-,; and r educe
though low,·r 01w mling eAT,>enses could of[-,et Uw l1igh er
water LL-:;e by :30 million gallons.
mo,tgage paymen t.
Making green building more affordable
housing rPsllict green building by imposing ··per Luut'·
to
Fina ll y. many rub li c subsid y programs for a!Torclable
Ath·, war PS for greening atTordal>I<-' hoLL-;(--'S idPnti(y SPY-
de,·elopnwnt costs caps. 171e caps limit upfront de\·elop-
eral ways to make- it more economi('al. !\lost irnp01ia nt for
m ent costs and dis(' OLu-age de\·eJopers fr om tak ing on
<·nst-<-'IT(-'('ti\·<-'1Wss , they say. is in\'orporation of grePn
any additional exµenses. including those for green build-
l>uilding prac-tic-Ps from the beginning of tlw project.
ing that \\"oLLld reduc·e long-renn operating costs.
IoFRASER
ur
Digitized for
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Federal Reserve Bank of St. Louis
VOLUME
16,
NUMBER
2
Strategies for expanding affordable green housing
OYercoming barriers and e>.--panding green afford-
lenders would use a life-cycle approach to determine the
motigage amount a boJTower could afford.
ab le housing calls for both public and private sector
Some financial institutions are beginning to explore
in volvement. State ho using finance agencies and the
creative products for tmdenviiting green building, inclucl-
lending industry are two important potential partners
i.ng energy-efficient m01igages. FHA now offers a program
for rhis effort.
for botTowers ro ptu-chase new energy-efficient homes
State Housing Finance Ag encies. Most affordable
how,ing requires som P for:rn of goverm11ent assistance,
or to make upgrades thar improve rhe efficiency of existing h om es. Bor rowers a r e able to fold the additional
costs of green features into the mortgages if they can
provide e\idence that the impro\·ements will lead to
MANY STATE FINANCING AGEN-
energy savings.
Fannie Mae, too, offers mortgage products fo r
CIES ARE STARTING TO INCLUDE
enviro1m1entally sound affordable hom;ing, prO\iding
energy-efficient mortgages that qualify borrowers for
INCENTIVES FOR MEETING GREEN
a higher amotmt if they ptu-chase a home with Pnergyconserving featm es. They recognize that potential energy
BUILDING CRITERIA.
saYings will compensate for higher house payments.
Famue Mae also offers smati-commute mo1igages: Borrowers who live near pu blic transp01iation qualify for a
and state and local govenunents can promote green prac-
larger mortgage on the basis that the homebuyer will
tices rlu·ough the public subsidy programs they admin-
save money on rransponation e>.1wnses .
ister. TI1e Low Incom e Tax Credit is the most im p01iant
Even though such products are avail able, they haYe
somce of fina ncing for affordable multi-family housing,
not been widely embraced by the lending ind ustry. Addi-
and many state financing agencies are sra1iing to include
tional research on the actual long-renn cost smings
incenth-es for meeting green building ctite1ia in rhe Quall-
afforded by green building practices may. howe\·er.
fied Allocation Plan (QAP) u-;ed to allocate tax credits.
A study by Global Green USA. late in 2005 examined
encourage greater flexibility in morigage lmderWiitin g and
more widespread u-;e of creative mo1tgage products.
the QA.Ps in all states to detennine the e>.'ient of green
building c1ite1ia in fom categ01ies: srnati growth. energy
Conclusion
effi ciency. resorn-ce conservation and health protection.
Many synergies exist between green building and afford-
The study fotmd most states gave some preference in
able housing. In fact, the affordable housing industJy could
the QAP ro projects that met sman growth and energy
become a leader in green development. But additional
efficiency requirements .
research is needed to ease some of the barriers to the
TI1e study cited Georgia as one of the top five states in
gree1ung of a ffordable housing . More extensive trairung
the cotmtry for encomaging green building practices.
is also irnpotiant to e>.--pand cost-effective green strategies
It pointed to several requirements in the Georgia QAP
among builders and in the affordable housing industry
that could setve as m odels for states across the cotmtry
generally. Despite the challenges, promoting housing that
to develop rnuversa l green building requiremen ts for
is healthy and sustainable as well as affordable seems a
affordable housing.
natural progression for an industry that has long focused
The lending industry. The lending indush-y al-;o has
an irnpotian t role to play ir1 promotir1g green affordable
on improving the lives of low-income indi\iduals and
their comm u1uties.
♦
housir1g. Few lenders have pmsuecl new opp01twuties to
help finance green housing. Green building adYocates
argue that green affordable hon-;ing would proliferate if
FEDERAL
RESERVE
BANK OF
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ATLANTA
This article was written by .Jessica LP\'een Farr. regional
community cle,·elopment manager in the Atlanta FPcl "s
Nashville Branch .
f i Ve
Soaring Insurance Costs
Make Housing Less Affordable
TODAY'S DISCUSSIONS OF AFFORDABLE HOUSING ARE LIKELY TO TURN TO THE TOPIC
OF INSURANCE. IN SOME HOT REAL ESTATE MARKETS LIKE SOUTH FLORIDA, ESCALATING HOME PRICES OVER THE PAST FOUR YEARS HAVE OVERSHADOWED THE ROLE OF
TAXES AND INSURANCE IN ERODING HOME AFFORDABILITY.
Across the cotmtry low interest rates have masked
the effect of rising taxes and inslU'a nce cost5 on m onthly
housing payments. But as the real estate market cools
down, interest rates continue to rise, and catastrophic
losses reveal th e exposw-e of vulnerable geographies,
attention is shifting to the volatility of insurance underWiiting and pricing.
Affordable insurance is critical
Many remedies have been proposed to address insw-ance concerns. The cli5prop01tionate impact of Htmicane
Katrina on the poor and the uninsw-ed has prompted
community gr oups in hurricane and Hood zones to
increase outreach and education regarding the availability and benefit of both hazard and Hood inslU'ance.
hikes in premituns. For the tminsw-ecl. establishing cov-
Educational eff01is and financial assistance a lso aim
erage can be difficult without prior insurance history.
to mitigate damage through repairs that will protect
Personal credit scores are now used across the inclu5t1y
properties from future st01ms and keep them from dete-
to approve and price insw-ance, and this practice may
Iiorati.ng fwiher. Unfo1iunately, in Flmida and a long the
adversely affect low-income homeowners.
Gulf Coast many homeowners are facing the 3006 htmicane season without having completed repairs to damage
from stonns in 2005.
Insurance tab drives housing costs upward
h1 higher-risk markets such as California, Texas, Fl01ida
Access to affordable insurance will ultimately deter-
and New York, coverage has become more restrictive
mine the success of commwuty-based outreach to protect
and ded uctibles have 1isen. msome areas the mm, ber of
homeowner assets. Those already insw-ed will have to
companies underwriting insurance is dwindling. In
keep up with the motmting e>..'])ense of insw·ance and
Fl01ida, for example, some insw·ance companies hm-e
1ising deductibles brought on by shocks to the inclustiy
been a llowed to leave the state and others have become
that have resulted in special assessments and significant
insolvent, so there are fewer providers. Lack of compe-
six
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Federal Reserve Bank of St. Louis
VOLUME
16,
NUMBER 2
tition combined with the increased market risk is fueling
events that meet certain damage or market t!u·esholds.
double-<ligit increases in premiums there.
However, a federal pool of fLmds would distJibute i11SLU--
1-I ow,ing advocates, who have been battling soming
ance cost nationally, as does the market-based risk
hom P prices with ela borate layers of Cinanring to mak e
mitiga tion :;trategy fo r traditional ins m a n ce mod els.
ownership aITordable for low- and modera te-income fam-
Distribution of costs raises one of the most conten-
ilies. are now con.fronted \\1th the se\·ere impact of insrn·-
tious points of dispute in the i11Srn·ance clebatP, namely
ance premirnn. on the monthly mortgage payment. \Vhile
whether low-1isk markets should be requil·ed to lwlp ftmd
a few thousand dollars diITerence in the price of a home
losses in higher risk mar kets. While this idea ha.· been
can de1ennine whether a family \,ill quaW:v for the mmi-
broached across the coLmhy smce Hrn1icane Andrew il1
gage. a few hLmdred dollars· in insmance cost can have
1992 , the i11SLu-ance industry has responded to 1--:atrina
the same effect. Moreover, while a fixed-rate mortgage
wi th the decL5ion that prernitm1s ,vill go up nationally to
will maintain the same principal and interest payment
help cover losses sustamed il1 the 2005 hrn1icane season .
over the life of the loan, insurance premirn11s change
Many li\ing outside high-1isk markets- especially U1ose
aimually and therefore can rn1expectedly jeopardize the
outside hurricane-prone markets - understandably
family's ability to stay in their home.
oppose an industzy-based 1isk sha ring model prefening
The insrn·ance dil emma has e\·en more far-reaching
i11Stead a market-. pecific Jisk p1ici.ng model. However,
implications. While homeo\\11er insrn·ance supp01is mon-
changes il1 the e>..-posme to 1isk and in the types of 1isk
gage rn1derw1iting by protecting the prope1iy's collateral
have compelled the il1dustJy to find altematiYes for meet-
value, insm ance company investments in both bonds
mg demand while protecting profi ts and solvency.
and mmtgage-backed sectuities maintain the liquidity of
TI1e state-based focus on regulation and pricing has
the mo1tgage lending industzy. Insmance companies sell a
kept larger il1SLU-ance companies from adequately spreacl-
va1iety of products with vmi a ble risks a ncl payouts. TI1e
il1g costs and 1isks tlu·oughout theu- market areas, creatil1g
premiums they coll ect are split between building up
il1Stead concentratio11S of 1isk il1 vulnerable geographies.
rese1Yes to meet shmt-tenn payout demands ancl gener-
Tilis dynamic is especially impo1tant for large il1sLu-ance
ating im·esonent income ,\1th fLmds dedicated to long-
companies that are not able to reinsme their e>..-posme
range rettU11S. TI1Us the solvency and profitability of the
effectively. Tlu·ough reil1smance smaller companies are
il1Sw·ance il1clushy- whether cornidered nationa lly or in
able to buy their own il1Smance policies to protect t\md-
specU1c rnarkets-<:lfrectly influences the mo1tgage il1clus-
ing of their claims in the event of significant covered
tJy and affects the availability of residential and commer-
losses. But larger companies, and more im po1iantly those
cial real estate financing.
with cle11Se ('Oncentratio11S ill high-risk ma rkets, a re not
To frnther complicate the issue, govenunent has been
attempting to work with the insmance indushy in high-
able to access reil1Smance at all or caimot do it profitably.
TI1e Florida legislatLu·e created a state i11Smance pool
risk and high-cost markets to keep homeowner insw·-
to provide coverage to homeowners as i11Smers fled the
a nce accessible and afforda ble. These measures have
state follow ing J-lLu-ricane Andrew. Citize11S Property
traditionally focused on state-based negotiatio11S \\1th
h1Sw·ance has always operated on tight rnargi11S and ha.
il1Smance providers. but support is growing for a federal
periodically faced significant sho1tfalls to coYer claims.
resporne similar to the 1968 Nationa l Flood lnsman ce
most r ecently a fter th e active 2005 hu rricane :;eason.
Program. Insmers are requesting that legislators allow
Although access to tl1e state il1Smance is limited to those
claims to be ftmded with pre-tax rather than post-tax
who carn,ot obtail1 p1ivate coYerage, that list is growing
rese1Ye dollars.
as more irnLu-ance companies become i11Solvent, opr to
lilnit coverage geographies, or leave the sta te altogether.
Insurers seek new solutions
Another proposal would create a federal il1Sm ance frn1d
to help companies pay clailns resulting from catastrophic
FEDERAL RESERVE BANK OF ATLANTA
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
As a result, the latest session of the Florida legi lature
had to approve a state-fLmded bailout of the pool, which
res ulted in premirnn hikes for the insmed.
seven
Governor .!Pb Bush is now asking the lawmakers
to consid er cr ea ti on of a second insurancP pool to
help small businesses as commercial windstorm
mcorne families without a ny itismance . the prospect of
rebuildiI1g may seem hopelessly challenging.
TI1e Flood Disaster Protec tion Act of 197:3 made llood
insurance has become prohibitively expensi\·e or
iiistu-ance mandatmy iI1 Ilood-prone areas for prope1iies
completely unavailable.
financed by federally regulated lending i1istituti011S or
tlu·ough federal assistance. A 200:3 study by the Rand
Emphasizing the importance of insurance
Mar ket pene tration is anotlw r issu e for the ins ur-
Corporation fotmd that-!9 percent ofsiI1gle-farnily homes
in s pecia l flood hazard a r eas (SFHA) nationwid e are
ance indus try as homeown ers and r enters opt to "self-
cover ed by flood ins urance. while in the So uth. the
insw·e .'' that is. to cover their o,n1 losses rather than
figure rises to over 61 percent.
include insmance co tin a tightening household budget.
However, the SFHA designations, whi ch are delineated
Education and cow1seling may help many homeowners.
on maps produced by the .'.'Jational Flood l.tismance Pro·
especially low- a nd moderate-income fami lies or those
gram, are based on a munber of asswnptions " ·hich are
with otherwise limited savings . to consider the advan-
now being questioned. such as the eA'tent to which levees
tages of obtaining some level of itismance.
will protect .'.'Jew Orl eans from flooding. Households
TI1e propmiion of homeowners without Hood iiismance
outside the designated flood zones and not compelled
in New Orleans stu-plised many. On average. itistu-a nce
to pw-chase Ilood insmance by their mortgage lend er are
covers more than 60 percent of losses after a natLu-al
much less likely to opt for the covera ge. despite its
disaster: in New Orl eans. it is eA7)ected to co\·er less
relative affordability. The Rand study fow1d that only
than half. Lack of fl ood coverage will make the New
l percent of homeowners in non-SF HAs purcha. ·e
Orleans recovery that m uch more costly. For lower
fl ood insuran ce.
TI1e potential for natlu-al and man-mad e disasters is
eA'Pected to remain high for the neAi 20 years. Commu-
Flood Insurance Coverage
nity organizati01is must contmue to ed ucate and iiuonn
Owner·occupied homes with severe flood damage
as a result of Hurricanes Katrina and Rita
the wunsmecl a bout the benefits of iiisw-ance. the im portan ce of building a cash rese1ve for d isaster recovery,
and the availability of commwuty loan programs to miti-
14
gate potential losses by repairing homes. t1immiI1g trees
12
and installing safeguards . At the sam e tim e. clisctL-ssion
rnw,t m ove forward about how to control the rise in
10
iI1stu-ance premiwns for the aYerage homeowner wlule
keepin g high-risk mark ets reasonably profitable for
insuran ce compa nies.
♦
Tilis articl e was written by Ana Cruz.Tatu-a. regional commu•
1liiy cle,·eluprnent director in th e Atlanta Fed 's Miam i branch.
Mississippi
Louisiana
L _ ~ _Flood Insurance
■
No Flood Insurance
Source: Federal Em ergency Ma nage ment Agency and Depa rtm ent of
Housi ng and Urban Development.
ei FRASER
ght
Digitized for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
VOLUME
16 ,
NUMBER
2
CRA Revisions:
Flexibility and New Choices
DEPARTMENT OF THE TREASUP·
I
CHANGES IN THE COMMUNITY
REINVESTMENT ACT (CRA) WILL
V,ltile the regulatory ··facelift," \\·hich acknowledges
banks· acthities in Lmcle1~serYecl. disn-essed and d isaste,~
affected areas, is good news for financial institutions, it
\\ill doubtless create challenges as ban.ks and regulators
ALLOW BANKS MORE FLEXIBILITY
adjLLsi to the reYisi>d c1ite1ia .
TO SATISFY REQUIREMENTS THROUGH
A BROADER DEFINITION OF COMMUNITY DEVELOPMENT ACTIVITIES.
CRA's revised definition of corn nnmity de,·elo1 ment,
which applies to all bank , offers financial institutions
credit for activities that revitalize or stabilize comm unities
designated as clistre:;secl or w1der-se1ved, n ornnelropolitan, middle-income census trac ts. A financial instiiuti on
In addition, a new category of small ban.ks will have
can also receive credit for disaster recovery ac tiviti es
more latitude in ch oosing asses ·ment criteria. The
that re,italize or stabilize a federa lly designated dbaster
r eYi. eel act a lso addresses the im pac t of dis crimina-
area in its assessnwnt range.
tion and other illegal credit practices on an institution·s
Areas that qualify as distressed and uncler-serYed,
nonmetropolitan , middle-incom e censu:; trac ts will be
CRA rating .
Re,ision of the CRA was published as a joint fi nal
cleterminecl by federal regulatory agencie and listed
rnle of the Board of Governors, the Ofl1ce of the Comp-
annually on the Federal Financial Institutions Examina-
h·oller of the CwTency. and the Federal Deposit Insur-
tion C0tmcirs ,\·ebsite@ www.ffiec.gov. Designated
ance Co1voration in August 2005 and became effective
disaster areas are identified by the Federal Emergency
in September 2005.
~lanagement Agency (FE IA).
RESERVE BANK OF ATLANTA
FEDERAL
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
nin e
The range of activities considered revi talizing or sta bil-
The FFIEC website will indicate a rn1ua lly which des-
izing for commwuties will vaiy depending on the geo-
ignated distressed or underse1ved census tracts are in
graphy. In distressed. nonmetropolitan. middle-income
their lag pe1iocl.
geograplues, activities ,,ill be reqLtired to serve the primary purpose of comnnuuty development by helping
to attract and retain residents and b wsinesses (including
The CRA revis ion also created a new categor y for
through job creation). They can a lso qualify if they
financial institutions with assets between $250 million
are part of a bona fide plan to revitalize or stabilize the
and $1 billion. Under the new ruling they are now con-
geography. Banks must demonsh·ate that their endeavors
sidered "intermediate small banks." and they will be
provide long-term direct ben efit to the entire commu-
relieved of some regulatoty burdens and presented with
nity, including low- and m oderate- income ind ividuals
new ch oices.
and neighborhoods.
For areas designatecl as Lmder-se1Yed. nornneh·opoli-
TI1e joint final rule exempted banks in this category
from CRA Joan data collection and reporting obligations.
tan, middle-income geograplues. examiners ,vill deter-
It also made these institutions eligible for evaluation
mine if banks' activities help meet essential commrnuty
Lmder the small bank lending test combined with a new
needs, including those of low- or moderate-income indi-
commwu ty development test in lieu of subjecting them
,riduals. Financing for the construction. expansion.
to the lending. investment and service tests used to eval-
improvement, maintenance or operation of essential
uate larger banks.
inJrastructure or facilities for health services. education,
The recent change,~ remove holding company affili-
public safety, publi c services, inclust1ial parks or afford-
ation as a factor in detennilung which CRA evalua tion
able housing will be considered Lmcler these cJite1ia to
standards apply to a bank. The asset s ize of the holding
determine if they qualify.
company no longer has a beaiing on which test applies
The regulations distingLtish between activities that
qualify for consideration in Lmder-servecl geographies and
to a bank .
Regulators will now use a two-part test to assess inter-
those that qualify in distressed geograplues. Financial
mediate small banks: the perfo rmance criteria used to
institutions should contact their federal regulators to
evaluate small banks-those \vith assets lmder $250 mil-
obtain clear guidance about wluch activities will satisfy
lion-and a ne\\· cornmututy development test.
the c1iteria.
Disaster recove1y activities ,vill be evaluated a ccording
TI1e new commwuty development test examines how
well a fina ncial institution supports loca l developm ent
to the same gLtidelines that would be applied to a low- or
by meeting lending. investment and setvice needs .
moderate-income geography or a dL5tressed. nonmeh·o-
Perfonnance is assessed according to the nanu-e of the
politan, midclle-income geography.
conumuuty's needs and the capacity of the bank . n us
Since the goals of many commrnuty development acti-
test is designed to be applied tl exibly by regulators so
vities are only achieved over time. regulating agencies
banks can wse their resources strategically to foste r the
instituted a lag period of 12 months for both distressed
types of activities that best meet the commrnuty's needs .
and Lmder-se1ved, nonmetropolitan, middle-income
To obtain an overall satisfactmy rating. the financial
tracts. Revitalization and stabilization activities Lmder-
institution must earn a satisfactory rating for both tests.
taken by banks d uring th e 12 mo n ths follow ing the
Small intermedia te banks can still ch oose to b e
lifting of an area's unde r-served o r distressed status
examined as a large bank under tl1e lending, investment
will be assessed as if the area were still designated as
and service tests. A bank in tlus categmy should pet1'01m
distressed or tmder-served .
a self-analysis tmder both tests to determine wluch
Banks serving federally clesignatecl disaster areas will
approach to examination w ill be most favorable a nd
receive credit for disaster recove1y-rela tecl activities for
th en choose which examina tion process to undergo.
:36 months following the elate of designation by the
fecleral govenunent.
ten
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Although intennediate small banks ,vill no longer have
to repot1 CRA loan data arnrnally to federal regulators,
V OLUM E 1 6 , N U MBER
2
they will still be required to rep01t HMDA data if they are
tices in violation of section 5 of the Federal Tracie Com-
subject to th e rep01ting requirem ent-; of Regulation C -
mission Act. Senior management and compliance officials
Horne M01tgage Disclosme Act. A financial institution
at financial institutions will need to know the status of
that opt-; to be examined lmder the "large bank " c1ite1i a
an affiliate's record ,vith regard to these laws and regu-
rnust continue to collect and rep01t CRA loan data.
lations before deciding to include its CRA loan data as a
pait of the perforn1ance evaluation.
io a d he
- · le
I ~redit
A final major change in CRA relates to how evidence of
Considerations
a bank's CRA rating . Banks will not only be responsible
for their own compliance but will a ls o b e assessed on
the compliance of affiliates within th e assessment area.
111
the wake of
s
d iscrimination or other illegal credit practices will affect
Another CRA issue has been raised in relation to the
disaster areas created by Hlmicanes Kat1ina and Rita.
Many state member banks regulated by the Board of
Governors have asked if their activities assisting disaster
areas outside their assessment range, paiticularly those
A BANK'S CRA EVALUATION WILL
affected by Hurricanes Katrina and Rita , can be considered for CRA credit. The joint committee ruled that
ALSO BE ADVERSELY AFFECTED BY
EVIDENCE OF DISCRIMINATION OR
OTHER ILLEGAL CREDIT PRACTICES
BY AN AFFILIATE.
activities cont1ibuting to revitalization or stabilization of
these disaster areas by state m ember banks located outside the di-;aster areas-indeed for state banks anywhere
in the nation-will be evaluated favorably provided the
banks have otherwise adequately m et the needs of their
own assessment areas .
Activities assisting the disaster areas or individuals
affected by Katlina and Rita will be cons idered regardless of the m edian income of th e census tract or the
personal incom e of the individual. However , m ore
The final rule issu ed by the agencies states that evi-
weight will be given to activities that assist the entire
d ence of discrimination or evidence of credit practice
commwuty, including low- a nd m oderate-incom e areas
violations will have an adverse impact on a bank's CRA
and individuals.
pe1forn1ance. h1 addi tion, a bank's CRA evaluation w ill
aL-;o be adversely affected by evidence of disc1imination
or other illegal credit practices by an affiliate in corn1ection ,vith loans inside the bank's assessm ent area(s ), if
Co
m conclusion, financial institutions will have many
new considerations with regard to CRA guidelines, and
a n y loans of that affiliate have been considered in the
they should contact federal regulators regarding any
bank's CRA evaluation.
issues or lmce1tainties concerning the final amendments
Regulators will consider the following: evidence of
to the CRA regulation. Financial institutions categoiized
disc1imination against applicants on a prohibited basis
as inte1mediate small banks ,vill have special decisions
w1der the Equal Credit Opp01tw1ity Act or Fair Housing
to m ake as they review the pros and cons of b eing
Act; evidence of illegal refen -al practices in violation of
examined lmcler the intern1ediate small bank test versus
section 8 of the Real Estate Settlement Procedmes Act
the large bank test.
♦
(RESPA); evidence of violations of the Truth in Lending
Act concerning a consluner's right to rescind a credit
transaction seemed by a principal residence; evidence of
This arti cle was written by Gary Clayton, senior consumer
a ffa irs examiner in the Atlanta Fed 's Sup ervision and Regulation Division .
violations of the Home Ownerslup a nd Equity Protection
Act; and eviden ce of lmfair and deceptive credi t prac-
FEDERAL
RESERVE BANK OF ATLANTA
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
eleven
Reverse Mortgages Provide Answers
for Some (but Not All) Seniors
MUCH HAS BEEN WRITTEN ABOUT "HOUSE RICH , CASH POOR" SENIORS WHO CAN
NOW TAP INTO THE LARGE AMOUNTS OF EQUITY IN THEIR HOMES.
RP\'<'J'SP rn<>1igages enable many s<'niors t<> stay in their
samP honw. ln-.;t,·a d o f paying the lend Pr, as borrowers
h<>nws with increased retirenwni inc<>nw ratlwr than sell
n5ually do. tlw horneO\\l1er typically rPcei\·PS P<[Ltity pay-
tlwm <>Lil of 1wcPssity to maintain rlwir standard <>fli,ing
men ts from tlw IPnder. The payments may lw struc-
or pay for lwalth care. :\lost of th<>S<' wh<> <>pt f<>r rP,·erse
turNI as a lump sum distributed at tlw iransaction·s
probably USP tlw P<[Ltity f<>r lwalth-relatecl
inCP[lti<>n, as pa:,1nents that e)(tencl for the 1nm <>f the
mortgagPs
\\-ill
P>-1 ><·ns,•s, h<>nw n°pairs or senicPS thal 1\ill a ll<>w them
loan, <>r as a litw of credit that may bP drawn upon at
!<> !iv,· at h<>nw in,Jt,pendently l<>ngPr.
th e l>orruw,-,r's dis,' r Pti on.
Th,-, n·v, ·1-s<' m<>rtgage is repaid through llw sa l,· <> f the
A new product on the rise
honw wlwn th,-, hom eowner mo,·es or di Ps . Fai lure to
RP\'Pt'SP m<>rtgages are desig1wd t<> gin, honW<>\\11ers
meet <'<>ntradual ob li gations such as maintaining the
f>:2 <>r <>Jd,-,r tlw option of rPmaining in tlwir homPs by
residPnC<' <>r paying property taxes can also end the
m.,ans of a ··m<>rtgage in reYersP··-.,ss<'tHially a loan
agre.,ment \\·ith the lender.
s,-,cur<'d l>y tlw hotTo,,·er·s resid<-'11<"<-'. Tlw loan is nor
twelve
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
rPpaid i'<>r as l<>ng as the
I>< >IT< ,w,-•r continues
l<> li vP in the
l11P rnunl>,-,r of n'\·erse mortgages \\littcn in tl1P United
~taiPS has nc,·pJ,•ratecl dramatically-from 7,781 in :2001
to :37,8:2~) in 200-1. BPtween 200:3 and 200-1 a lone, the mm1ber of lh<'s<· loans na tionwide jumped 100 I><'rc,-, nt. Th is
hugP in,-rr•as,-, has !>Pen push ecl by rapid ly appr,-,ciating
propPrly niluPs and the aging of the population. Th e
llonH' EqLtity Com·ersion 1\Iongage, a re\·Prse rnongagP product insmecl by the U.S. Depanment
rban Den,Joprnent
of I-l ousing and
since 1989, accOLmts for 90 1wrcent
of the reverse mortgages written,
according to the Na Uonal Reverse
M01tgage Lenclei-s Associa tion.
"Aging in place" benefits
seniors and government
coffers
One of the mosi compelling arg LU11 Pn ls for reverse
VOLUME
16,
NUMBER
2
mortgages from a social perspecrive is rha t the funds
strategies ro continue living independemly become more
can l>e w;ed io suppmi long-term care at home. Accor-
complex . Many cou ld remain in their homes if ilwy
cling to a srudy relea5ed by 171e National Cmmcil on Agin g,
received subsidies or grants for repair a nd mainienann'
reverse mortgages could help over 1:3 milli on Arne1icans
and som e basic caregiving services. Il umP repair pro-
pay for lo ng-term care e>-.'Pense at ho nw, thus allowing
grams are availabk from local, state a nd f('(leral fi.mding
them to remain independent and in their homes longer.
soLu-ces, hut the need greatly exceeds arnilable resomcPS.
17w study estimates that some 9.8 million elderly hou5eholds (aged 62 a nd older) deal \\irh an irnpainnent thar
Most of these programs repon a two-t o-rhree y<-'ar
\\·a itin g list.
makes it hard to li\·e ar home. It indicates these house-
Social senice organizarions offer limited caregi\ing
holds co uld access as much as .$695 billion through
such as meals on wheels or personal ('are sPnice•s. and
re\·ers{-' mortgages. 1l1ese fLmcls could go toward family
som e home maintenance senices base ff•es on in('onw:
caregi\ing and other long-term care e>-.'Penses typically
but again the need grea tly outst1ips availal>le resoun·Ps.
not cm·erecl by Medicare. Medicaid or priva tP insLu-ance.
In so me instances , households without 1wcess to sut'h
Access to these fLmds would enable many seniors to post-
services will have to leave their homes du P to tlw phys-
pone rPlocation to an assis ted care facility or avoid it
ical condition of the propetiy and a lack of ftmcls to make
altogt>tlwr. allo\\ing them ro "age in plact>".
"l'se YoLu· Horne to Stay at Home: Expanc ling the Use
of Re\·Prse l\l ongages ro Pay for Lon g Term Care: · a
repon t\mded by the Centers for Medi care a nd Medicaid
repairs.1l1ey may hm·e little choice but to mow io suhsiclized renral. · or assisred li\ing faciliries.
When they are feasible. re\·erse mongages can also
serw as a wol to com bat preclarory lt>nding praciin--s
Seni('es a nd the Robert Wood Johnson Fmmdation.
that ta rget low-income elderly housPl1olds. UnlikP high-
shows how r everse m ortgages ca n alle\iatP fin ancia l
cost hom e equit y loans. reverse mmigages proteci eld t'rly
pressme not only for indi\iduals and families. but also
hom eowners against for ecloslU'e and other ptwlatmy
for s tate Medicaid programs and the federal government.
practices . Re\'erse mortgage progra ms also rPqLti rt• pr{-'-
IncrPasing the market for reverse mortgages could save
approval coLmseling for potenrial applica nts to dete11ni1w
i\ledkaid :j;:L'l billion arn1ually by 2010.
if the product is appropriare for mePiing rlwir JWE-"ds.
Cow1seling. whi ch is usually concluctPd hy non profit
Low-income homeowners face challenges
\\'hat a re the implications of reverse mortgages for
low-income and very low-income elderly households?
For those with significanr equity in their horn PS, revers e
cotisLuner credit organizarimis . prmicles seniors \\irh an
oppornmity to a5SPSS their overall financial circLUnstancPS
and apply for othPr assistance if they ,wed ir.
Reverse mmigagPS could rhLL5 deter high forecloslU'{-'
m01igages may help to e11Stu-e continued independence
rates and clisi1westment clue to preda tory practicPs in
and quality of life. 1\vo-thirds of households head ed by
lower income neighborhoods. Targeting neighborhoods
inclhiduals 75 or older are h eaded by single persons,
\\ith these demographics for educational programs on thP
ancl thrPP-quarters of these are female. Many lh·e on
adva ntages of re\·erse m01tgages could prm·e benefi cia l
extremely lo w incomes.
to both elderly homeown ers and conumulities in general.
If thPir hom es have substanrial equity. reverse mort-
gages could be the key to lifting these women out of
pm·eny and helping them liw independently. However.
Some concerns for policymakers
Despite the adrnniages ofrewrse rno1igages for elderly
many low-income households are in either urban core
households, the product raL5es some concerns. One is its
n eighborhoods or rmal a reas where property values
possible impact on im ergenerationa l wealrh tran. ft>r.
have not a ppreciated. In some instances va lues have
Studies indica te that hom e equity acco unts for about
actually clt>clined clue to the condition of the propetiy or
80 percent of the nonpe11Sion wealth of old Pr hoLL5ehoi< ls.
general disinvestment in the SLUTotmcling neighborhood .
If a substantial arnOLmt of household eqLtity is consLUnPd
For homeowners whose prope1ty has slipped in value,
dwing the homeowne1's lifetin1e. the potential for wealth
RESERVE BANK OF ATLANTA
FEDERAL
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
thirt ee n
transfer to subsequent genera lioru; will be dim inished or
building strategies s uch as contributions to individual
eliminated. Because these products have only been in
and employer-sponsored retirement plans . As real estate
tL5e for several years, this aspect of r everse mortgages
plices have esca lated in many parts of the United States,
has ye t to be a nalyzed, but it could become a n issue in
homeown ers have LLm1ed increasingly Lo th e equity in
their homes as a p1immy asset-building tool for retire-
the future.
Som e financial planners s ugge:;l that potential losses
men!. In U1e event of a regional or nationwide downtlm1 in
to heirs can be mitigated if the homeowner uses a por-
real estate values . this approach could prove disastrous.
tion of the proceeds of the reverse m01tgage lo buy a life
As the nation's households age, the popularity of
reverse mo1tgages seems destin ed to increase, a nd policymakers will have to consider the i5Sues raised by these
A RISK EXISTS THAT HOUSEHOLDS WILL
products as the ma rket evolves. Reverse rn01tgages will
clearly be a useful asset management tool which, wh en
RELY TOO HEAVILY ON REVERSE MORT-
used properly, may assist elderly households in m eeili1g
daily living e>..1)e11Ses. financing health care, and main-
GAGES TO THE DETRIMENT OF OTHER
taining the physical condition of their homes.
However, federa l, state and local policies ,viii continue
ASSET-BUILDING STRATEGIES.
to be crucial for th e quality of life of the m any seni or
homeowners living in pove1ty in ow· urban core neigh-
insurance policy (single cash payment) to offset the loss
borhoods and rural areas. Without significant increases
of equity. Anecdotally, how,ing cow1Selors report that
in fw1ding for home health care and programs to rehabi-
most potential heirs support the use of reverse m ort-
li tate a ncl maintain housing, many of these seniors will
gages to improve the lives of their eld erl y rela tives.
b e forced to give up independent livin g b efore more
Whether widespread use of this product could actually
a f11 uent househo ld s with access to home equity a nd
decrease the asset value of households who nonnally
reverse mortgage products . ♦
would have received an inhe1itance remai11S to be seen.
A lisk also exists that households will rely too heavily
This article was written by Jan et Ham er, reg ional conununiiy
rlf'velopment manager in ihe Ailania Fed's Jacksom~II P branch.
on reverse mortgages to the del1iment of other asset-
earning Conference
Conference speakers include Arizona Governor Janet Napolitano
(invited), CFED President Andrea Levere and Sandra Braunstein,
Federal Reserve Board . More than 50 conference sessions will
feature experts on:
Individual Development Accounts and other matched savi ngs programs
Financial education
· Overcomi ng racial disparities in wealth
· Tax policy and the Earned Income Tax Cred it
· Programs to encourage children's savings
· The federal government's over $350 billion budget for assets and how
it is spent
· Excerpts from finalists of the Federal Reserve System/CFED Closing
the Wealth Gap research competition
Roundtable discussion from the authors of "The Color of Wealth"
fourteen
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Federal Reserve Bank of St. Louis
01n e I on apa o Cliffs Resort
Phoenix, Arizona
Don't miss this opportunity to share leading asset-building
research, policy, and practice; visit with old friends and make
new connections; and help shape a broader vision for asset
building. See you in Phoenix!
www.assetsconfer ence.org
VOLUME
16,
NUMBER
2
Recruiting Retirees Calls for Careful Planning
... ,
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RETIREES ARE ON THE MOVE, AND THEY ARE TAKING THEIR SPENDING
POWER WITH THEM. MANY RURAL COMMUNITIES INTEND TO BENEFIT
FROM THIS MIGRATION BY APPEALING TO SENIORS WITH ACTIVE ADULT
COMMUNITIES AND OTHER AMENITIES.
According to the Pew Resea rch Center, the graying
some of this mobile wealth, many rmal commrnuties are
of the baby boomer generation will cr eate an 18-year
including pla ns to recruit retirees in their economi c
smge of retirees . Beginning in 2006. economists anti-
development policies in hope of boostin g lo cal econ-
cipate abou t 4 m illion people will r etire each year.
omies. Disadvantaged rural a reas characterized by a
They project at least 400 ,00 0 a yea r will m ove to
low-skilled la b or fo r ce and s ignificant 1,memploym ent
another state, bringing on average $320,000 to pur-
stand to b en efit fro m th e service and r etail jobs that
chase a retirement hom e.
retirement commrnuties generate.
More than half of total U.S . consumption can be
Three types of retirees tend to migrate . The first are
a ttributed to this diverse crowd of highly educated
seeking a m enities such as warmer clim ates . lak es .
r etirees, who part with about $2 .3 trillion annually.
beaches or mmmtai.ns. TI1e second type. retrnn migrants.
According to USA Today. baby boom ers· large dispos-
move back to their hom e states to be clo er ro r ela-
able incomes have been fu eled by in creasing home
tives . Depend ency migrants, the third type. moYe to
equities resulting from ballo01ung property values . fat
be closer to families or others who ca n help care for
J0lk ftmds and inhelitances.
them. Commrnuties seeking to attract retirees typically
Projections indicate that as many as 20 percent of the
70 million retiring baby boomers ,\ill migrate. To captme
FEDERAL
RESERVE BANK OF ATLANTA
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Federal Reserve Bank of St. Louis
target coupl es in good h ealth who possess abo\·em-erage d is1 osable incom es .
fift ee n
What communities stand to gain
Immigrating retirees can spark growth in multiple
ln Alabama the state pension fund sponsored the
Rob ert 1)·en t J o n es Golf Trail, includin g 18 public
markPts. Industries as var ied as housin g, Pnle rtain-
courses a nd munerous hotels. TI1e project catapulted
nwnl, banking, finan cial services, transportation,
tourism in come the re-from $2 .5 billion in Hl!-10 lo more
lwallh se1YkPs, inslu-a nce. ulililif,s, household goods,
ihan $7 billion last year.
and food a ll sta nd to gain from an intlu x of we ll-
Success depends on careful planning
lw<-'lf'd seniors.
:-;inre most rdir ee incomP
i;-;
from transff'r pa y-
Thoughtful plannj ng is key in implementing a suc-
nwnt;; . pensions and other non-wa ge r pvenuP, ii is
cessful retiree recnutment strategy. Lo,-al go\·enun ents
not affectPu hy ef'onomic downturns. An ex panding
must enlist a ski ll ed staff and coll ect s uJficient data to
tax base provid es municipalitif's with m ore fundin g
dew lop a plan tha t will benefit the comrnuruty. Strate-
for slate and Inca! services, with little or no strain on
gizing ro r retirees is more specializPd than traditional
soc ia l serYi<·Ps, rriminal justi<- P servic- Ps or sf' hools.
economic d evelopnwnt, so local govenrn1ents in a reas
Finally, retirees exponentially boost a f'om m unity's
that lack e>..7)ertise ma y face plarnung chall enges.
tour ism indus try.
A 198G study by the Federal RPSt'tYe Bank of Kansas
City fOLmd that retirement-basecl n u·al commLLI1Hies have
out-paced a ll otlwrs in per capita inconw growth. Nonnwtro roLmties identifi ed as reti rement sites have a lso
wit1wssPd tlw largest increasPs in pe rsonal inr-ome and
nnploynwnt. The study fo und tha t retirees' incom es
hm·e a high multiplier effect on employ nwnl in local
e,·onomie;-; sincP their disposable wealth is largely LLsecl
for goods and services. Tiw eronomir impar-t of one new
retiree household is ec1ual to :3.7 new manufactLU-Lng jobs,
afford ing to Pl'nnomists Green and Schneider in a 1989
IN ADDITION TO PROJECTING
INCREASES IN LOCAL WEALTH,
PLANNERS MUST BE MINDFUL
OF MEETING THE NEEDS OF AN
OLDER POPULATION THAT WILL
study. TI1ey att ribute the dispality to --leakages" in wage
em ployment such as federal and s tale inf'nme laxes and
MOST LIKELY "AGE IN PLACE."
ilwom e e>qJorled to commuters.
Retiree ref'ruitrnent efforts in the Sixth Di:slrid support the notion tha t migrating seruors can benPfit local
In a ddition to proj ecting increases in local wealth,
ef'onomies. l\lississippi has led the way \\ith its official
plantw rs must he mindful of m eeting the n eeds of an
retiree attraction program, Hometown Mississippi Retire-
old er popula tion that will most lik ely --age in place."
ment . Th e major compon eni uf the pro gram is the
Buildin g nursing hom es will b e important in these
"f't"1i il1ecl retirement city" where the state screens cities
comm unities . Acldilionally, the economic status of the
on certa in criteria such as afforda bility, lnw taxes and
rPtirePs will eventua lly decline clue to fa iling h ea lth, the
, 1uality medical care.
loss of a spouse or both. As r etirees age, the n eed for
According to a 2005 study 1,y Mississippi State Uniwr-
govenu11ental sPrvices such as h ea lth care and eld erly
sity. the program has cost the state $200,000 per year, brn
assistance will increase. Strategies to recnut reti rees
has netted 1warly 7,500 additi onal retirePs. In addition. it
mLL5t consid er t!1Pse changes and the demands they will
adds some $19-l million per year lu the• state's tax f'o!Ters
im I,ose on the comm rnuty and local governm ent.
and ge1w ratPS 2,:320 jobs arn1ually. Thjs project also helps
Loca l governments should a lso be a ware that inten-
local officials in the 19 certifi Pd l'Otnmunities lo show-
tionally aging a rnm1muuty can result in the dominance
l'ase tlwir arPas lo retir ees.
of the retirement population. a nd indigenous locals may
sixteen
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Federal Reserve Bank of St. Louis
VOLUME
16, NUMBER
2
be act,·ersely a!Tectf'Cl. For example, e)q)anding a housing
market to accommodate retirees will raise the cost of
publi c services for old and new residents as demands on
Uw community's infrastructw·e incn..asP.
Many will stay put
Despite the projections for retiree mi grations , the
majority of the elderly decide to agP in place. In any
gi\·en fi\·e-year period, only about fi percent of those
over 60 make a long- distance mo\·e, according to a
study cond ucted by Sheilds, Stallman and Deller. Likewise, The Pew Resea r ch Center finds that roug hly the
same percentage of families live clo ·e to one another
now as in the late 1980s, when Gallup conducted a similar sLuYey. TI1ese studies suggest that
.S. society may
not he as mobile as it imagines itself to be.
-Jany retirees who r elocate will probably choose to
move to an active adult cornnnuuty not far from where
they cmrently li ve . Tn Herny COLmty, Ga., for examµle,
developer Steve Romeyn of Wind,·on g Properties fOLmd
that 60 percent of lus new hom es for active adults sold
to indhiduals who lived in the greater Herny COLmty
arPa. Local govenunent,;; would thus do well to consider
appealing to retirees already in their midst.
Not too early to start marketing strategy
A growing rnunber ofrw-al mwucipalities have made
attracting migrating retirees a key component of their
overall economic development strategy. The eiqJectecl
grow th in the nurn ber of old er migrants in th e next
decad e bodes well for those seeking to boost their tax
base ,,ithoui overly straining the existing infrastructme.
Consequently, many cornmwuties are seizing the opportwuty early to marker themselves as a retirement destination for the first wave of baby boom ers who will be
looking to relocate their roots and
wealth. ♦
This article was written by Sibyl Howell. regiona l cu rnnnmity
development manager at the Atlanta Fed.
FEDERAL RESERVE BANK OF ATLANTA
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
se vent ee n
Atlanta Fed Hosts Last in
Series of Asset-Building Forums
ACCORDING TO THE BUREAU OF ECONOMIC ANALYSIS, AMERICANS SPENT MORE THAN
THEY EARNED LAST YEAR, REGISTERING A SAVINGS RATE OF MINUS .5 PERCENT. THIS
NEGATIVE SAVINGS TREND PERSISTS IN 2006, RAISING CONCERN ABOUT HOW HOUSEHOLDS WOULD MANAGE AN ECONOMIC DOWNTURN OR INCOME INTERRUPTION.
To address these concerns, the Federal Reserve and
CFED (fonnerly the Corporation for Enterplise Development) hosted Innovations in Asset-B uilding Policy, Products and Programs, a broad partnership to explore
TAPPING EMERGING MARKETS:
FINANCIAL INSTITUTIONS'
ROLE IN WEALTH-BUILDING
market-based a pproaches to increasing the munber of
American fam ilies who are saving a nd building wealth.
A Forum Presented by the Federal Reserve System and CFED
Hosted by the Federal Reserve Bank of Atlanta
Between JLme 2005 and April 2006. this fom-part series
APRIL 19 , 2006
of forums across the country invited leaders in eco-
-
nomic policy, community development, philantlu·opy and
tlw financial industry to consider ways of prom oting
and supporting asset-b uilding activities.
The role of financial institutions in wealth-building
GROWING WEALTH.
The last of fom regional fonuns. ··Tapping Emerging
Markets: Financial Institutions' Role in Wealth Building."'
~
was held at the Federal Reserve Bank of Atlanta in April
2000. The day-long working meeting brought together
senior-level representatives from key financial institutions such as J.P. Morgan Chase, Citigroup, Bank of
OJ
8~ § E]
CM [RM] """' [M+~ (c~~EJ
America and Wells Fargo, in cluding those in product
development, community development, governm ent
the ro les financial institutions can play in eA'1)anding
affairs and related positions. Participants came from as
savings and investm ent products and services for low-
far away as Puerto Rico.
income individuals as a means of boosting thei r ma rket
The fonun 's objective was to inform financial insti-
share. Spotlighting practical, real-world innovations in
tutions about the characteristics of low- and moderate-
new product development, sessions focused on what
income savers and engage them a bout innovative ways
individual fina ncial institutions, a nd the sector as a
to reach this market segment. Participants expl ored
whole, can do to tap into new market opportuniti es.
eighteen
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Federal Reserve Bank of St. Louis
VOLUME
16 , NUMBER 2
Simplifying the application process
sector's commitmeni to Pngage a broadPr s Pgmenr of tlw
In a brief inroduction. Atlanta FPd Presidelll .lack
Guynn framed concern about assei-l>uilding tlu·ough the
experi ence of Hurricane I{atrina a nd tlw tragedy tha t
citizenry in mainstream financial senicPs.
Building on the morning's thought-pro\'Okin g prPSPntalion-; . forum pa11icipants hrnke into grn ups to idPnliry
can bPfall those who are most finan<"ially n Lltwrahl P
tlu·ee important idPas for mming th e fit-,ld for\\'ard. Tlw
afrer a narmal disas tPr.
follo,,ing ingrecliern..;; for progress emergf-'<_I:
PrPSP!Hations by narionally recognized experts on
reaching rhe w1banked follow ed. EIIPn SPidman from
First. financial institutions agreed chat reaching tlw
Lmbanked popLLlarion \\'as nor a "one-sizP-fits-all" propo-
ShorPBank Center for Financial SenicPs IJmoYation and
sirion . 'n wy called for more in-depth re,wa rch about ilw
Lisa :\li>nsah wirh ilw Aspen Insriru1P·s IJ1iriati\·e for
sub-po pLLlations \\'ho do nor LL5e traditional hanking.
Financial Secwiry fonL-;ed on the bLL-;i1wss opportmlity
offe1ing su ppon for a research agenda thar \,·mud pro-
for fi na nr ial institutions that captlffP tlw largely Lmtapp(J(I
vide critical information al ,out th e ha nkin g behavior of
profit in ihe LmbankPfi and und er-bankr'CI ma rket.
n on- ba nkin g s ub-popLLlations a nd effectivP ma rk etin g
:\lensah noted a rPcenl swYey which indicated almost
tactics for rPach.ing thPm. By s haring ch.is inJonnation.
rwo-thinis of those who bank use non-bank fmancial si>r-
each wuqui> institution roLLl<i de,·elop approp1iare 11nan-
,ices as \\'ell. :\lore SLU'J)lisingly in th.is agP of free rlwck-
cial strati>giPS and products.
ing. freP bill-paying a nd other banking incentives. tlw
Secondly. the groups sa\\' the need for a commwuca-
Lmbanki>d and LmdPr-banked popLLlation reponed rlwy
tion5 nPl\York ro sharP in.fonnarion. hrainstonn. idPnlify
wPrf> not oppo ed ro pa:,,ing for compe1i1i,·e senices that
best pranicPs and condu ct other com·prsations about
fit tlwir tweds .
financ ial si>nices fo r tlw Lm- and LmdPr-bankPd \\ilh tlw
Hay Boshara of Uw New Am e1ica Foundation fonts,,·d
on !oral. s tate and federal policies that promote asse t-
goal of sharp,·nin g tlwir own ins titution's s uccess.
FinaUy. alt hou gh rlwy belieYecl that gettin g to sca lf' wa.;;
building . He also desrribed the financial ind us try's
an e,·entual goal. tlwy agrf'Pcl that tlw imnwdiate 1wi>d
panicipation in program that can !)f' taken ro scale for
\\·as to cominue fLmding irn10,·ar ion and pilot programs
maximwn impact and profitability.
ro \\-i1U10\\' nlll \\'hat works from what doPs not.
O,·i>r ILmch the forum participants !ward presentations about banks· successful effons to ri>ach new markets . .. Bank on San Francisco ... a broad-based iI1.itia1i,·p
Board selects key participants to plan next steps
IJ1 preparation for the nPxt steps of thP CFED/FeclPral
:spcarlwacled by loca I elec ted offi cia ls, nonprofi ts a nd
Rese1ve ::>ysiPni's par!lwrslup. the Fed era l HPSPrVP Board
banks. enrollee! 10.000 Lmbanked fa m il i<'s into trad itiona l
ofGowrnors will select participants from tlw p revioLL"
bank accoLmts.
fotU' fonuns to de,·elop a futtU'e agenda to con1iJ1uP tlw
Tiw Yow1g Ame1icans Bank. a Dem·i>r-hasecl financial
,,·ork of promoting asset-building . Tiw in.i ria1i,·e. \\'IU<'h
instilution intnxluced by Ri chard i\laiiinez. is designP<I
also in rludes a research "call for papers," \\'ill presPnl
s pf'cifically for chi ldren and y0tmg adLLlts. It feanu·ps
findings from th e series at CFED's lii-a1rnual asset-
special accommodations char make banking accessible
building conference this year in Phof'nix. Ariz ..
10 yOLmg people. including pull-out steps that let a small
SeptembPr 19-:21.
person meet eye-to-eye with their tPller and kid-f1iendly
For morP inforn1atiu11 on the upcoming co1ueren<' P
disrlo. mes. TI1e bank now boasts 0\'Pr $14.4 mill.ion in
and tlw initia ti ve pleasP \isit CFED's we bsite at
as. 'Pl. and over l -l.700 actiYe custo m Prs from a ll !';Q
www.cfecl .org. If you or yom institution is irnerestPd in
states and 9 foreign countri es .
joi.Jung the i11.itiati\·e. please rnnract :--;ancy :\lontoya at
nancy.m on1oya@'atlJrb.org.
Brainstonning about the Mure
Li\·ply feedback and a multitude of :suggestions gen-
♦
nus anklP ,,a-, ,,1inen by :--:anry \ Iomoya. n. gional commtu'lit}
de\·elopnwm manager in tlw ..\tlama Fro·s );p\\' Or!Pm'l! hran<'11.
erated dming discll',sions dernonstratPcl the banking
FEDERAL
RESERVE
BANK
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Federal Reserve Bank of St. Louis
OF
ATLANTA
nineteen
SPOTLIGHT ON THE DISTRICT
GEORGIA
RE-ADAPTED HOSPITALS BOOST NEIGHBORHOODS
Obsolete but
historic hospitals
('an he an eyesorP
or an oppu1irnuty.
1\\·o <·omrn Luu ti PS in
a dP\·plopn 10 prmide ne\\. singlP-family hmL-;ing for rlw
comnnmity. rPfurliish the Oakhursl Busi1wss Distri ct.
rf'nu·n sonw pro1wrry to rlw tax rolls. and provide a
community <"PntPr for South DP< ·atu r.
Progn•s.-.;ivP Rt-><len-lopment In('. (PR [) and tlw I-l mL-;ing
GPorgia hmrp re-aclaplPd ahanclo1wd nwdical facilities to
Rf'sourct• Centn (HRC) respundPd. Central tu th eir
hons l 1wighborhood revita li zation prnj<•<·ls.
vision was tlw a< la J>live reuse uf thtc' :--;<•<>ltbh Rite ll nspital
and its two \\ings. Planners a lso proposed construction
Savannah project wins award
Retooling tlw 11.istork Charii_1,· ll ospi1.al was central
nf 1-l new a<TPssihle apartment units for dients of
the :--;1wplwnl Center (who han" temporary or per-
in :--;m•annah·s plan to bring 1ww life to tlw Cuyltc'r-
manent disabilit ies) as well as 1ww single-family
Brm\71,<;\ille neighhorhocx:l. Begirnung in HW7. the City
affordable honws .
list et I 1lw old 1wighhorhoocl on rlw Kaiional Regis;ter of
Hislori<- Places : tlwn it contracted with l\ler('y Hott<;ing.
a na ti o nal nonprofit hou-.;ing dPVtc'loper. I<> prmicle afforclal> le multi-fam ily housing.
II Pritage Place Ararl nwnts . whi<- h ope1wcl in 2002.
now prm·icles 88 affordable housing rental units to
low-income families. In December 200:'i, i\lPJTY I-lousing
op,•nffl l-le1irage Comer and He1itagP Hm\-. a collection
of 70 more homes located on sires scatlerPd tlu·oughout
tlw <lP\"PlopmenL
HecipiPnt of muneroLL-; awards. Heritage Plactc' :\pan-
Tlw ('nrnplf'ted rPnovation of tlw hospital prmid es
22.000 squar<" f<'et of commtc'JTial o!Ti<-t• spa('e for hoth
nwnts most rer·ently won an Afforda l>IP ll <>LL-.;ing Finam·e
non-profit anti for-profit tenants. indud ing tlw YWCA
RPade1s· Choice Award for ··Best i\lastt•r Planrn~ l Comm u-
of GrPa in Atlanta. the Comm unity Center of :--;nuth
nity." Comhi.ningaff<>n lal>IP hou;:;ing. hi;-;t<>rit- J>reserrntion,
DPcatm. an art ga llPry and an <>1>tnnH'trist. Tlw J>rop-
and twighhorhonrl re\itali zation. tlw dt•\·elopmPnt is an
<>riy is ful ly leasPcl.
PX("ell ent examp le of what can he acrnmplishecl tlrnx1gh
This projPd, whieh has pumpt>d life into hoih the
the eollalJorati\·e e!T01is of local go\·ernmPnt. nonprofits.
OakhLU-st rnmmLu1i1y and tlw OakhLu-st bLL<;iness district.
neighborhood associatiorn. ph.ilantlrn,pist:; and other
cust about -$:'i,000.000 . FLmcling canw from Regirn1,;:; Bank.
comnnu1ity groups.
a Ft'<lPral l-lonw Loan Bank EDGE loan. Dekalb COLmty
CDBG t'Lmtls. 1-listniic Tax Credits. a 1-lr>LL<;ing an< I Urban
Decatur hospital makeover
anchors community resurgence
RPhabilitatio n of the historic :--;<' o iti sh Hi tP I-l ospit<l l
Qp\·eJopnwnt I'll l grant, and 0\\11f'rs· P< JLLity.
This anid,·
\\ilS
,1,..,·.-lopnw111
♦
wri11t n i>y Sibyl ll <l\\PII. rt-'g ional ,·<>mm unity
0
managn ai tlw At la n ta
v...,1.
lw('a nw a critical pa1i of tlw City of DP(·atLu-'s 1997 plan
to n-'\·italize the Oakhmst .'Jeighl>nrhood. ·nw city sought
twenty
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Federal Reserve Bank of St. Louis
VOLUME
16,
NUMBER
2
TENNESSEE
ANTI-PREDATORY LENDING VICTORY
Ternw,,;.-,;ee ret'ently joined the growing mun her of states
with anti-predatory lending legislation. The Tennessee
Honw Loan Protedion Act of 2006, s ig1wd into law hy
Go,·pn1or Phil Bredesen in .JLme, camp after several years
of prompting by <·nnsrnner advocates r01wnne< l about
ledge they urn Ierstand th ey are r eceiving a hig h-cnst
exploitati,·<-> l<->n<iing practices.
loan a nd may I><-> eligi ble for a lower cost mortgage
Proponents of the bilL led by the Memphis Bran<'h of
depending on llwir ('reel it score and o tlwr loan va ri-
the NAACP in partnership with the i\lemphis/:-Shelby
ables. Tlw disclosure a lso ad,·ises the borrnwn tn
Cmmty Anti-Predatory Lending Coalition and other Ten-
speak to a HUD-certified home counse lor prior lo
nes.-;ee cunsLm1er ad,·ocacy groups. mounted a grass roots
signing the loan docum ents.
campaign< lLLiing 200{j to gain suppcni fur the legislation.
Aggressive lniJI >ying and intensive negotiations with the
Bill protects most vulnerable
Tennes:see Bankers a nd IVI01tgage Brokers Associa tion
Rosalind Ro l>in:on. president and fo undn uf Resi-
and the TPnnessee Association of Realtor:; resulted in a
dentia l Resour<'es Inc .. a nonprofit housing agency in
sh·ong anti-predatrny lending bill to pruted 'T'<->rnwssee's
Nashville, is on e of the leaders of the coalition r<->:spun-
most ,1.tlnPralJle homeowners . Pre,ious attemp ts tn pass
sible for Hus IPgisJatiw victory. She states:
such legislation had failed.
"I am e)(tremely pleased ""ith the passing of tlus mLwhneedecl legislation which will help protect the 1110:sl
Regulation of high-cost loans
EffectivP in .January 2007. the new law will r<->gttlate
financially ,1.i.lnerable members in otu- comnnmity-the
lmN-income. elderly and min01ities. It will be intere:sting
high-<'ost loans-those with over !'i per<'ent in points
to see the impact tlus legislation will haVP on the PS!'a-
and fees. Burrowers who opt for high-<' ost loans will
lating munher of mortgage foreclostu-es in Ternwss<-><-'...
receiYP t'Pl'tai n protections, including m easur<->:s that
We know tha t thb legisla tion will make thi ngs lwt!Pr
will restrid loan Oipping, pre-paynwnl penalties and
than before."
balloon pa:,11wnts.
Lend<->1-::; will lw prohibited from financing points and
She is also hou-;;ing committee chair for the Nas hvill P
branch of the N.t\ACP. ♦
fees that ex<·PPll 5 percent of the loan amount in t'Onnedion with tlw closing of the loan. They will also
have to assPs:s a borrower's ability to repay the debt.
111-is a n idP was \\TitlPn by J essica Le\-een Farr. regional
comm uruty de,·.., J, ,pnwnt direr-tor at the Atla nw FPd's
Naslwil! P l>rarwh.
Motigage paynwnts Jes.-; than 50 percent of the I>< >!1'ower's
income arP considered affordable. High-('ust loans that
resttlt in 1wgativP amortization will a lso be prohibited.
PtuT<->yors of high-cost loans will l>e 1H 1LlirPd to document that tlw borrower's credit score clisfjualifies them
fo r a lm\·pr <'<>st ]nan . Lenders will abo he directed to
provide a \\7ittPn clisclosme (in 12-point boldtace type).
TI1e stat<->nwnt. lo L>e signed by the bo1Tower. will acknow-
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