Thursday, August 2, 2007

Poverty Redux

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.


Lori Fitzgerald said...

A lot.

Paul Murphy said...


bekster said...

I agree that this is not an issue of race; it’s an issue of numbers. The article made it sound like minority groups are getting the raw end of the stick, but really the thing is that minority groups for whatever reason (that would be another post altogether, and I think you have already covered it before) tend to be poorer than white people in general, and obviously if you have less money you are going to have a harder time buying a house. However, I can personally vouch for some white people who do not yet have the money to buy a house either, but it isn’t the fault of the mortgage brokers or whoever. They don’t have any control over how much money anyone else has. True, in the case of the guy in the article it is incredibly unfair that he does not get paid more for being a teacher, and it is somewhat unfair that houses in the area are more expensive than they should be, but this has nothing to do with race.

The answer? Well, for this guy I would say continue to rent. (I mean, it’s not like he’s homeless. Whoever said that everyone is automatically entitled to own a house?) Yes, it is inconvenient to squeeze all of those kiddos into a small apartment, but he should have thought of that before he impregnated his wife. We have said this many times before, but if he thinks he can afford the payment that he would have had to pay for the mortgage, he should still pay that to HIMSELF (minus whatever his rent is) in savings or some kind of mutual fund until he can afford to put down a decent down payment on something later, and by that time he surely will have gotten pay raises and had a chance to pay off more of his student loans, etc. THEN he should be able to get a loan. Someone may say, “that’s all fine and good, but what about the money he is throwing away by renting?” To that I would answer that if a bank were to give him a loan NOW, he would end up paying a heck of a lot in interest anyway for that kind of a loan, so he should wait until he is in a better position and he will likely not have to pay as much in interest (especially if he shells out a sizeable down payment).

SO, to sum up, I think that people need to stop blaming other people for their own inadequacies, and people need to practice PATIENCE and lose the attitude that everything is entitled to them.

"Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much. So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches? And if you have not been trustworthy with someone else's property, who will give you property of your own?” —Luke 16:10-12

Paul Murphy said...

John Locke said everyone was entitled to a house.

mbellison said...

You're obviously more familiar than I am with the issue, but there's one thing I'm not clear on. Obviously, people in precarious financial situations have trouble getting loans, BUT...I was under the impression that the study that found racial inequality in mortgages controlled for income, meaning that on average, a black person ended up having to pay more than a white person in the same financial situation. Am I wrong on this? (I might be)

Coach Sal said...

I don't know the methodology of the survey. All I do know is that this particular guy spotlighted by the paper the next week didn't have a racial problem, he had a math problem. You know the old line: "the plural of anecodote is not data." Once again, I'm certainly not claiming there's no racism in Charleston. But if I were guessing, rather than conclude that Charleston has the most racist city in the USA (doubtful, there's always Mississippi), I would wager that the combination of income disparity and the crazy value of Charleston real estate make something of a "perfect storm" for such results to appear.