Sorry to be gone so long; it's been a wild summer. My first-ever series of posts on this blog was a look at poverty, and an admission that I am deeply conflicted about the issue. Today's Charleston newspaper has a story in it which fired me back up again to think about another related issue--buying a house. It seems that Charleston (my hometown) leads the nation in the disparity between whites and minorities in mortgage rates. Today's story is about a sympathetic young man who is married, has some kids (and twins on the way), works as a teacher and track coach (so my radar perked up immediately), and is having a very hard time buying a house. He also happens to be African-American, so he fits the narrative of Charleston as a predatory, discriminatory place. Sadly, this guy makes about $27k teaching. That stinks, of course--and articles could be written on the topic of teacher pay, as well. He also owes about $20k for student loans, some of which are in forbearance right now because he hasn't had the means to pay them off. He has found a great house that would be perfect for his growing family for a little over $140,000 (which is a steal in the crazy Charleston market), but can't get a loan. Sad story. Now let's do a little math. If you make $27k, you'll lose 7.6% in FICA tax off the top, and here in SC, teachers drop 6% involuntarily into the state retirement fund. You'll basically pay no federal tax if you have 2-4 kids, so let's say he claims all his dependents and gets totally off the hook for federal withholding. State tax will still cost you something, let's say 5%. And then you'll pay a little something for your benefits package for health and dental. Full family coverage, even in the state system is rough. But let's low-ball and just assume that his total payroll deductions are 20%. So here's a guy with about $1800 a month in take-home pay. Assuming he gets the house he wants, at a great 6% rate for 30 years, with nothing down, you're looking at about $850 just for the loan, plus another $200 or so for taxes, insurance, and the PMI (private mortgage insurance) he'll have to pay as a penalty for not putting down 20%. So we're looking at maybe $1050 in house payment. Oh, and don't forget, he's still got the student loan, which should be a low rate over 10 years, maybe $150-200 a month. Sorry for all the math, but here's the point: If he has zero other debt--no car payment, no credit card, nothing--his family of 4 (soon to be 6) will have--at best--about $600 a month total for food, gas, car insurance, doctor visit copays, prescriptions, clothing, etc. It can't be done. I feel for this guy, but I wouldn't lend him $140,000. Not if he was white, black, green, or purple. He's a foreclosure waiting to happen. Now, since he's been in the paper, somebody will likely write him a loan for the good publicity. And they will do him a disservice. A buddy of mine just got the same treatment yesterday (he's self-employed, and happens to be white). He's got non-standard credit due to his business and personal debts being all mixed up together. He was minutes away from signing the papers for a house, and they tried the old bait-and-switch: we can do it, but for an 11% adjustable sub-prime rate. Translation: "you are more risk, and you'll have to pay through the nose for a loan." Wisely, he told the banker to shove it. But again, as much as I love the guy, and I would trust him with my life--I wouldn't bank him. There's a reason the bank building is so much bigger than my house: they don't lend money that is likely not going to be repaid, on time, without drama (at least not without sharing that risk through higher fees and interest).
So, does this mean that there's no racism in Charleston, SC? I sure wouldn't say that. But in this case, at least, the math is the best reason not to write the loan. And on the other hand, if this guy was debt-free and made $75,000 a year, I'll bet he could walk in and buy this house if he was purple with green spots. So what's this fellow to do? I don't know. You could say, "why are you having so many kids if you make so little?" But it's a little late for that, now. Rent for a family his size is going be rough. The good news is, if he keeps on doing what he's doing, he'll get a raise and a step increase every year through the schools, and will gradually make a repsectable salary, and he can work over the summer (I think he already does) for extra. It's sad that a college-educated teacher should have to do that to put food on the table, but again, that's a different topic. I do know for sure that Charleston is a rotten place to be trying to buy a house--it's one of the worst real estate markets in the country, as an average house can't be afforded on an average local salary. The out-of-state retirees who come here have driven up values beyond the means of most "local" people, and unless you were in the market over 10 years ago before the big run-up and have ridden the equity elevator, it's darned-near impossible to not be house-poor.
So what's the moral of the story? Two-fold, I think. First, there might be a very could reason besides just evil, predatory businesspeople why some folks can't get a loan. But second, there's a lot more to the story than just lazy bums who won't get a job demanding handouts. This guy works his butt off doing a hard job from dark 'til dark, and I'm sure brings papers home to grade (and goes to track meets on weekends). And he did what it took to get a "professional" job--stayed in school, went to college, jumped through the innumerable hoops to get a job as a Charleston teacher. He's married, trying to provide for his wife and kids--and it's not like his wife can just leap into the workforce with 2 kids and twins on the way. It's folks like them that keep me awake nights. If you're reading this and have a clue, tell me what you would do.