Business analyst Mark Lacter joins KPCC once a week for an in-depth look at economic issues in Southern California.
Hosted by Steve Julian and Mark Lacter
Airs Tuesday mornings

Housing initiative; closed bank accounts

KPCC's business analyst Mark Lacter talks about what President Obama's new housing initiative measn for folks in the Southland; he also talks about why more low income families in Los Angeles are closing up their bank accounts.

Susanne Whatley: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, President Obama announced a new housing initiative yesterday that could make refinancing a little easier. Do you think it will do any good?

Mark Lacter: Well, it probably won’t hurt, but no one has much of a clue on how much it might help. The plan allows homeowners whose mortgages are either government-owned or government-backed to refinance, even if they owe more than their properties are worth (and that, of course, has been a huge stumbling block since the recession). The plan would also eliminate appraisals and all kinds of underwriting requirements. On paper, it would seem to be a step in the right direction, especially with interest rates so low and especially in places like California.

Whatley: But it’s not available to everyone, right?

Lacter: That’s the problem. Only homeowners who are current on their payments can apply, and that, of course, eliminates lots of homeowners – I’m just looking at the latest numbers from DataQuick, and last quarter in L.A. County notices of default, which is the first step towards foreclosure, were up almost 28 percent from the previous three months. In Riverside County, they were up 25 percent. So you see the problem Susane – and it really reflects the sort of push-pull we’ve seen with regard to housing policy. Everyone is agreed that the economy will continue to struggle until this huge backlog of properties gets thinned out, either by outright foreclosure or some sort of loan modification program – or, perhaps, by another alternative (and a whole bunch have been suggested).

Whatley: The idea is…You want to create some price stability…

Lacter: Yes, perhaps even price appreciation, so that you won’t have so many people owing more than what their house is worth. On the other hand, there’s reluctance by the holders of these mortgages to cut the cord because they don’t want to risk losing their investment return. That’s one reason there’s so much reluctance to agree on loan modification programs that cut back on monthly payments. In the middle of this you have the Obama administration that has only limited authority in determining how these mortgages are dealt with. In other words, the president can’t force JP Morgan or Bank of America to roll back mortgage payments. And for that matter, he can’t force homeowners to refinance either. So the White House is working around the edges. Perhaps it’ll do some good, but it’s certainly not the ultimate solution.

Whatley: Another bank issue: How to get low-income families to open accounts?

Lacter: That’s right – and it turns out that between 2009 and 2010 more lower-income households in L.A. were closing out bank accounts than opening them (that’s according to a new Pew Research survey). The reasons come down to minimum balance requirements and bank fees – and it’s happening despite a local campaign called Bank on LA that has encouraged folks to open accounts. This is a huge deal in L.A., which has more households without a bank account than any other city in the nation – and for reasons that reflect a community that has so many people who are new to the U.S., and often don’t speak English very well (or sometimes not at all), and have a general mistrust of big institutions.

Whatley: But you can’t function very well without a bank account…

Lacter: You can’t establish a credit record, or arrange financing on a home, and to pay bills you’re stuck using those storefront check-cashing outlets, which are expensive. Banks are also good for transferring money to families living in other parts of the world.

Whatley: So how do you bring in these people?

Lacter: Well, one obvious idea is to set up direct deposit programs for workers and for folks who receive public assistance. That way, they’re sure to have an account. And the banks can also do a better job of explaining fees and requirements. I mean, it’s really in their best interest to hold on to these customers – they build relationships for the future, and it spreads the word in lower-income neighborhoods where the reputation of traditional banks might not be all that great. But this is definitely a work in progress.

Whatley: Thanks, Mark.

Lacter:... Thanks, Susanne.

Whatley: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA