Posts filed under ‘Economy’

UPDATED: Busy day in DC..sort of

July 16, 2014 at 8:55 am Leave a comment Edit

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citigroup over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 9:23 am Leave a comment

Busy day in DC..sort of

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citi Bank over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 8:55 am 1 comment

Pres: We Need More Banking Reform

In a recent interview, President Obama suggested that what the country needs is more banking reform. Speaking on MarketPlace Radio last Wednesday, the President was asked whether Dodd-Frank had worked since mega banks are as big as ever? After going through the usual litany of Dodd-Frank accomplishments – i.e., the CFPB and so-called “living wills,” as well as increased capital requirements, the President changed his tone:

“Here’s the problem, the problem is that for 60 years, we’ve seen the financial sector grow massively. Now, it’s a great strength of our economies that we’ve got the deepest, strongest capital markets in the world, but what has also happened is that as the financial sector has grown, more and more of the revenue generated on Wall Street is based on arbitrage — trading bets — as opposed to investing in companies that actually make something and hire people. And so, what I’ve said to my economic team, is that we have to continue to see how can we rebalance the economy sensibly, so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them. That is an unfinished piece of business, but that doesn’t detract from the important stabilization functions that Dodd-Frank was designed to address.”

Now, to be clear, politics being politics the White House quickly got out the word that the President’s comments didn’t mean that another push for banking reform was on its way. And there was speculation as to whether the President actually meant what he said or if his comments were simply intended to preempt criticism of Dodd-Frank in advance of its upcoming anniversary.

But the President’s comments reveal an inconvenient truth of which anyone who has tried to implement Dodd-Frank is aware: Congress and the President have done precious little to prevent another financial crisis. The too big to fail banks are still too big and with finance taking on an increasingly important role in the economy as a whole, reform of the banking system – such as reinstating boundaries between investment and commercial banking – are now all but impossible to achieve. The President had his chance, and he did not go far enough. For my money, it will go down as the greatest failure of his Presidency,

Unfortunately, credit unions are still left with the financial burden of complying with Dodd-Frank inspired mandates that are making it increasingly difficult for them to provide the types of products and services that got them into the business in the first place.  In the meantime, the reality that major banks are “too big to fail” does give them a competitive advantage over their smaller counterparts. To steal a favorite political metaphor, the banks went through the car wash with the windows down and credit unions got wet.

True banking reform is not going to happen, but maybe, just maybe, with both Republicans and Democrats criticizing aspects of Dodd-Frank now’s a good time to push once again for mandate relief. At the top of my list would be an outright exemption from Dodd-Frank mortgage requirements for all credit unions. There is no evidence that credit unions caused the financial crisis, yet there is lots of evidence that Dodd-Frank is increasing costs for credit unions. There is also no good reason why credit unions should have to bear the costs for institutions that Congress doesn’t have the stomach to truly regulate.

Employment Numbers

The government reported stronger than expected job growth in June with the economy adding 280,000 new jobs. In addition, the growth was spread over a large cross-section of industries providing the best evidence yet for those of you who see the economic glass as half full. About the only negative I could find in the report is that the workforce participation rate was unchanged. People are already arguing that the jobs report is a signal that the Fed should move up its timeline for raising short term interest rates. There are some great arguments for why this approach is short sighted, but the blog has already gone on longer than I wanted.

Good luck making it through today after a nice long weekend. My advice: more coffee – lots and lots of coffee.

July 7, 2014 at 8:50 am Leave a comment

What The HELOC Is Going On Here?

There are some things that just make no sense to me. For example, why can’t a country of 270 million sports loving citizens, many of whom grew up playing soccer, find 23 people good enough to make us one of the best soccer teams in the world? I’m sorry, there’s only so much pride I can take in beating Ghana.

Another mystery of more practical concern is trying to figure out how great a risk resetting Home Equity Lines of Credit (HELOC) pose to financial institutions in particular and the economy as a whole. Since the start of the Great Recession, pundits have been predicting a second wave foreclosure crisis as the draw periods on HELOCS come to an end. With so many people still struggling and interest rates likely to rise, it seems logical to assume that problems are on the horizon. But, so far, the worst case scenarios haven’t materialized.

Nevertheless, if I was a regulator, I would be a little nervous, which is why I’m not surprised that a joint guidance was issued yesterday instructing financial institutions, including credit unions, to take steps to mitigate against the risks posed by HELOCS which are coming to the end of their draw periods. Among other things, examiners will generally be reviewing how cognizant your credit union is of its HELOC portfolio and the risks posed by pending repayment periods. The amount of scrutiny will vary depending on your credit union’s size, but examiners will be reviewing, among other things, if your credit union is:

  • Developing a clear picture of scheduled end-of-draw period exposures;
  • Ensuring a full understanding of end-of-draw contract provisions;
  • Evaluating near-term risks;
  • Contacting borrowers through outreach programs;
  • Ensuring that refinancing, renewal, workout, and modification programs are consistent with regulatory guidance and expectations, including consumer protection laws and regulations;
  • Establishing clear internal guidelines, criteria, and processes for end-of-draw actions and alternatives; and
  • Documenting the link between ALLL methodologies and end-of-draw performance.

This is not a definitive list, but you get the idea.

Why are our regulatory overlords releasing this guidance now? For one thing, resets on HELOCS are expected to accelerate this year and peak between now and 2017, according to this article in National Mortgage News which warns that there is little the Government can do if the housing sector experiences a wave of second-lien induced foreclosures.

Then, of course, there is the fear that rising interest rates will squeeze consumers since most HELOC payments are tied to interest rates.  Last, but not least, is the reality that people are again turning to HELOCS to tap equity in their homes. According to the WSJ, HELOCS are up 8% this year and “While that is still far below the peak of $113 billion during the third quarter of 2006, this year’s gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen. Some lenders are even reviving old loan products that haven’t been seen in years in an attempt to gain market share.” Oh, boy.

Is this yet more proof that consumers and many lenders didn’t learn a darn thing from the last seven years? You bet.  Enjoy your Fourth. I will be back on Monday.

 

 

 

 

July 2, 2014 at 8:41 am 1 comment

Guess Who Has The Most Stable Housing Market In America?

Buffalo, New York, has the most stable housing market in America. According to research conducted on behalf of Bloomberg.com, Buffalo is followed by Pittsburgh, Louisville, Nashville and Raleigh, NC.

Working with Zillow, Bloomberg analyzed housing prices since 1979 for the 50 largest housing markets using a five year rolling average to calculate changes in home prices. The result shows that you may not strike it rich buying that home in Buffalo, but you won’t lose your shirt either. The data shows that over the last 35 years, Buffalo homeowners had “virtually no chance” of losing money on their house. In contrast, the same can’t be said for Hartford, Connecticut at the bottom of the list.

Some of those areas on the least stable list are awfully nice places to live so what’s the difference? One agent pointed out that your typical Buffalo buyer is planning to stay in the area for the long-term. Buffalo isn’t where you go to invest in a second home or flip houses.

By the way, in commenting to NCUA many NY credit unions argued that NCUA’s proposed risk weightings for mortgage concentrations were too severe because they didn’t take into account a credit union’s track record in making well performing mortgages. This research provides one more piece of evidence that not all mortgage loans are equal. Hopefully, NCUA will take that into account in finalizing its RBC framework.

Court Says Localities Can Block Hydro-fracking

Remember when high powered hydro-fracking was a big issue, with New York’s Department of Environmental Conservation analyzing the potential impact of its widespread use in the Southern Tier? There hasn’t been much movement on the issue since the Department of Health was tasked with analyzing its health effects in 2012 and has yet to reach its conclusions. In the meantime, a statewide moratorium on the process remains in effect.

But yesterday, the NY Court of Appeals — our highest Court — ruled that localities could use local zoning laws to block hydro-fracking even if the state authorizes it.

This may be another setback for drillers or it might actually allow the state to lift the moratorium because only towns that want the drilling are going to get it. Remember, the issue is important to credit unions that should insure their interest in mortgaged property is adequately protected in the event that a member wants to lease out their property for oil drilling.

 

 

July 1, 2014 at 8:33 am Leave a comment

New York Atty. Gen. Scrutinizes Use of Applicant Screening Services

Yesterday afternoon, New York Attorney General Eric T. Schneiderman announced an agreement with Capital One Bank under which the bank has agreed to stop using ChexSystems to review the payment history of persons seeking to open an account.  Instead, the system will simply be used to assess fraud risk.
“No one – least of all struggling New Yorkers – should be forced to rely on high-cost alternatives to banks just because they bounced a check or were a victim of identity theft,” Attorney General Schneiderman said. “Equal access is the least we can do to ensure that all New Yorkers have access to widely used services such as our nation’s banking system. I commend Capital One for stepping up and working with us to help eliminate an unnecessary barrier to opening a checking or savings account. I would hope other banks will step up and join us to do the same.”
This is a very carefully worded announcement. Although the AG hopes that this agreement becomes a model for large banks and credit unions, many of which use ChexSystems or other similar services for applicant screening, Capital One is not accused of engaging in illegal conduct nor is there anything illegal about reviewing an individual’s paying history when opening an account. Clearly, however, the AG is concerned that such practices may have a disparate impact on low-income New Yorkers. At this point, I wouldn’t change any of my account opening practices, but if I used ChexSysems or similar services I might want to take a quick look at the criteria being used to screen out potential applicants and make sure it is necessary.

Keeping in mind that this is just one man’s opinion, while the millions of unbanked across the nation is a serious problem, I find it hard to believe that basic account due diligence is a major contributor to this dilemma. If the Attorney General had statistics showing otherwise, I would love to see them.

IMF Forecast Sluggish U.S. Growth As Far As The Eye Can See

For those of you into this kind of thing, the International Monetary Fund released its annual assessment of the U.S. economy and it predicts sluggish growth of 2% for the next several years. This means that the IMF doesn’t see much reason to expect interest rates to spike anytime soon. It would also like to see policymakers take steps to improve the nation’s infrastructure, education and tax systems.

On that cheery note, have a great day.

June 17, 2014 at 8:09 am 2 comments

Are HELOCS a growth opportunity?

This might seem like a strange question given the downward revision of first-quarter GDP (more on that in a moment) and the general sluggishness of the housing market, but according to the WSJ:

“Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a year since 2009. Inside Mortgage Finance noted the bulk of the home-equity originations were Helocs. While that is still far below the peak of $113 billion during the third quarter of 2006, this year’s gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen.”

You will have to excuse me for being just a little confused: If I got this straight the American consumer is once again using her home as an ATM, Fannie and Freddie are still in business and we still have banks that are too big to fail. It looks like the more things change the more they stay the same. The full article is available at: http://online.wsj.com/articles/borrowers-tap-their-homes-at-a-hot-clip-1401407763

Are things worse than they appear?

Damn lies and statistics. Yesterday, the government released revised GDP figures for the first quarter of this year and instead of things being really bad they were really, really bad. According to the government’s Bureau of Labor Statistics GDP actually contracted at an annual rate of 1.0 as opposed to eking out growth of 0.1 percent. This revision will hardly be surprising to the credit unions I talked to about a month ago who watched a bitter cold winter keep people indoors rather than go shopping for big-ticket items.
One interesting note about the report. Cutbacks in government spending continue to be a drag on economic expansion. When economists look back for lessons about what we are going through right now one of the questions that will be debated is how smart is it for the same governments that are trying to increase economic activity to be cutting back spending on that economy? Here is the report:

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Is the government using banks to choke off legitimate businesses?
In an earlier blog this week, I talked about a disturbing trend in which prosecutors and regulators were increasing pressure on financial institutions to stop doing business with legal merchants. Yesterday, the House Oversight Committee released a report detailing just how aggressive and far-reaching the Department of Justice’s efforts to pressure financial institutions is becoming. According to the report the most immediate target of these for enforcement efforts is payday lending activities. Congressional investigators also question whether the Justice Department has the legal authority to carry out its program.
In general, I believe everything that comes out of the House committee on Government Reform and Oversight should be taken with two grains of salt. It is an election year and one of the primary purposes of the committee is to make the administration look bad. But even with that caveat the scope and aggressiveness of government efforts to use financial institutions to clamp down on business activities that prosecutors don’t agree with is certainly an issue worthy of further discussion. Where exactly is the government drawing the line? Should financial institutions be put in the middle of what are essentially consumer protection disputes? Inquiring minds want to know. You can get the full report at:

http://oversight.house.gov/wp-content/uploads/2014/05/Staff-Report-Operation-Choke-Point1.pdf

On that note enjoy your weekend. I will be back on Monday as my bid for the Los Angeles clippers was apparently not good enough. By the way, how would you like to be punished by selling a team for $2 billion?

May 30, 2014 at 8:54 am Leave a comment

What Monopoly Can Teach Us About the Economy

There have been a lot of books written over the past five years arguing that the growing inequality and economic stagflation in this country is exposing a fatal flaw in the capitalist system (One particularly well written and radical critique I am making my way through is The Great Financial Crisis:  Causes and Consequences by John Bellamy Foster and Fred Maddoff).  The argument boils down to the belief that as people get richer, and companies get larger and more efficient, they have less of a need to invest the money back into new employees and new services.  They point to the record number of long-term unemployed and the historically low workforce participation level as evidence that the linkage between capital accumulation and jobs has frayed.  It’s a reasonable argument, until you play Monopoly.

As someone who believes that capitalism, while imperfect, is the best economic system around because it comes closest to harnessing human nature for the benefit of the larger society, I actually think there is a lot you can learn about people and the economy from playing the board game Monopoly.  For instance, anyone who has played the board game knows that there is usually one participant who plays with such intensity that he has clearly confused the colored dollar bills in front of him for real currency.  Then there is the peacemaker who just wants everybody to have fun.  She makes trades that spread the wealth and make the game more competitive while infuriating the cut-throat investment banker want-to-be.  These peacemakers are your future credit union executives.  There is also, as Jerry Seinfeld has pointed out, the future lawyer, the one person who has read the instructions on the inside of the box, thereby annoying both the investment banker want-to-be and the peacemaker since he keeps them from doing perfectly logical things that are not permitted by the rules..  The game is usually decided  by the most casual of players who ultimately has to make trades with either the future investment banker or the future credit union executive.  This person ultimately wants to have as much fun as possible playing the game without wasting the entire day.  This person represents America’s middle class.  .

I am waxing philosophical about Monopoly because this week I attended one of my favorite events in credit union land, SEFCU’s Annual Fundraiser for the Center for Disability Services. The fundraiser is a Monopoly tournament.  Not only does Monopoly ultimately reflect the mix of people and personalities that make the economy go, but its history demonstrates why the theories predicting its demise ultimately fall short.  You see, according to the economic historian Niall Ferguson in his book “The Ascent of Money,” the game we know as Monopoly was first devised by Elizabeth Phillips in 1903 and called The Landlord’s Game.  Phillips was  “a devotee of the radical economist Henry George.  Her utopian dream was of a world in which the only tax would be a levy on land values.  The game’s intended purpose was to expose the inequality of a system in which a small minority of landlords profited from the rents they collected from tenants.”

The original game had a rectangular path and Go To Jail corner, but did not allow participants to build hotels on property.  It was further popularized by a couple of university professors at the Wharton School of Economics and Columbia University who apparently wanted to demonstrate to their students the follies of capitalism.  However, an unemployed plumbing engineer by the name of Charles Darrow “saw the game’s commercial potential.”  He redesigned the board so that each property square had brightly colored bands and since Darrow was good with his hands, he was able to make games that included houses and hotels with which property owners could build wealth.

Here’s the part of the story I really love.  In 1934, with the Depression still going strong, he convinced Philadelphia Department Store owner John Wanamaker and FAO Schwartz in New York City to buy his game for the 1934 Christmas Season.  The game was so successful that by 1935, Parker Bros bought him out.  In other words, human ingenuity had converted a parable about the defects of capitalism into one of capitalism’s great success stories. . .and now you know the rest of the story,

There’s a lot that is wrong with the economy, but one of the many things credit unions and banks have in common is a belief that if enough individuals are given the ability to save and build their capital and invest in their ideas, they can be successful and everyone can benefit.  We can all disagree about the role that government policy and regulators should play in the economy, but let’s not forget that capitalism still is, like Democracy, the worst economic system except when compared to all others.

On that note, your faithful blogger is not posting tomorrow and will be back on Tuesday with another fun-filled edition.  Enjoy your long weekend.

May 22, 2014 at 8:28 am 2 comments

On Swiss Chocolate and Bad Performance Reviews

The Swiss are known for many things.  For my money, they make the best chocolate in the world and, as people have known for generations or at least after reading The Davinci Code, Switzerland is where you put your money when you don’t want anyone else to know about it.  Not anymore.

Yesterday, Credit Suisse copped a plea.  It admitted to systematically making illegal efforts to help wealthy citizens avoid paying U.S. taxes  Credit Suisse’s sins included assisting clients in using sham entities to hide undeclared accounts; soliciting IRS forms that falsely stated that sham entities were the beneficial owners of these accounts; destroying account records sent to the United States; and structuring transferred funds to evade CTR reporting requirements.

In announcing the deal, Attorney General Eric Holder called it “a major step in our ongoing effort to protect the American people from financial misconduct — and to hold accountable any individual, bank or other institution that violates our laws and abuses the public trust.”  Now for my commentary:

I wonder if the Attorney General really believes what he said?  The fact is that the financial crisis has been ongoing since 2008 and it has taken the Justice Department, filled with some of the brightest, most aggressive legal minds in America, six years to get one bank to plead guilty to a criminal offense in relation to issues that have nothing to do with the underlying banking issues that triggered the Great Recession.  If you think I am being cynical, then ask yourself if your credit union admitted to any of the offenses to which Credit Suisse is to plead guilty would it be in business today or would you be looking for a defense attorney?

. . . . . . . . . . . . . . . . . . . . . . . . .

The CFPB is conceding that its employment practices may have had a disparate impact on its minority employees.  Yesterday, the CFPB announced that it will no longer be using a five point scale to grade employees.  Why?  Because an analysis conducted by the agency indicated that more than 20% of White employees received the highest possible ranking last year compared with 9% of Hispanics, 10.5% of African-Americans and 15.5% of Asians.  The Wall Street Journal quotes Director Richard Cordray announcing “we have determined that there were broad-based disparities in the way performance ratings were assigned across our employee base.”  The CFPB’s employment practices are sure to get a lot of attention at a Congressional hearing later this week.

. . . . . . . . . . . . . . . . . . . . . . . .

Last but not least, every so often when I am reading up on the economy, I am reminded of one of my favorite lines from The Doors, “I’ve been down so ever damn long that it looks like up to me.”  Later today, a report will be released indicating that nearly 10 million U.S. households remain underwater on their mortgages and another 10 million households have so little equity in their house that they can’t meet the expenses of selling a home.  To be sure, this represents a dramatic improvement from the 31% of Americans whose homes were underwater in 2012, but the fact that 18.8% of U.S. mortgages are underwater shows that while there may be some light at the end of the tunnel, many Americans aren’t there yet.

May 20, 2014 at 8:29 am Leave a comment

Is A College Degree Worth It?

Since I successfully sold and bought a new home last fall, only after completing a process that was worse than root canal without Novocaine, I have wondered what is happening to the young, first-time home buyer who bid up the price of my former house a decade ago only to leave screech marks in front of it as they sped away to their next appointment 10 years later.  My experience isn’t all that unique.

Lawrence Yun, chief economist of the National Association of Realtors, explained earlier this year that “the challenges of tight credit, limited inventory, eroding affordability and high debt loads have limited the capacity of young people to own.”  According to NARS 2014 generational trends survey, of the 20% of millennials who took longer to save for a down-payment, 56% cited student loan debt as the biggest obstacle.

How big an impact are student loans having on the housing market? Historically, the college-educated first time home buyer had more debt but also greater earning potential so was more willing to plunk down money to own a home.. However, as recently summarized by the Federal Reserve’s Bank of New York’s Liberty Street blog post, the failure of young educated consumers to enter the housing market remains a puzzle.  “Whatever the cause of student borrowers’ reticence. the housing market rebound of 2013 appears to have preceded without the help of this skilled set of young buyers.”

Is it possible we are seeing evidence of a negative feedback loop?  A record number of people have gone to college over the last six years in hopes of getting a better, more secure job.  To do so, they have taken on more debt  Is it possible that we have reached a tipping point where the amount of debt taken out for a college degree is beginning to outweigh its benefit?  People are putting off first time home purchases not because they want to but because they have to.

This is more than speculation on my part.  Applications to second and third tier law schools has dropped dramatically in the past two years.  Leaving the lawyer jokes aside, young people look at the cost and benefits of a law degree and realize it just may not be worth it.  Given the saturation of lawyers, this is a very rationale decision, but if the same rationalization starts to be made about obtaining an undergraduate degree, the implications for our economy and economic inequality are going to be widespread.

May 19, 2014 at 8:12 am Leave a comment

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Henry Meier, Esq., Associate General Counsel, Credit Union Association of New York

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