LINKING LENDERS AND COMMUNITIES SPRING 2008

PUBLISHED QUARTERLY BY THE COMMUNITY AFFAIRS DEPARTMENT OF THE FEDERAL RESERVE BANK OF ST. LOUIS BRIDGES www.stlouisfed.org

X Exploring Teaching What’s in Your Credit File? Innovation in

DE Teens about 6 Community N Entrepreneurship An IDA for Youth on Their Own I 4 8 Development Reverse Mortgages—the Next Hot Spot?

By Heidi Kaplan According to the National Senior Community Affairs Analyst Council on Aging, the develop- Board of Governors ment of the reverse mortgage Federal Reserve System is an important tool for seniors intending to live at home as reverse mortgage is a they grow older, also known special type of home as “aging in place.” These A loan that allows eli- loans can provide seniors with gible homeowners to convert a vital income for home mainte- portion of their home’s equity nance, taxes and health care. into cash. Despite recent Some older adults use reverse troubles in the national mort- mortgages for indulgences such gage market, reverse mortgages as a second car, family gifts or are growing at a rapid rate. lavish vacations. Expansion of this hot spot in The American Association for mortgage lending is expected Retired Persons also supports to continue with increasingly reverse mortgages as a valid flexible products, new sources financial option, but urges of capital and a growing supply borrowers to carefully consider of potential borrowers. As the Reverse mortgages are row against their home equity whether the reverse mortgage is reverse mortgage market devel- characterized by the payment to create a tax-free source of the correct product to meet their ops, it is important that poten- flow: Rather than making income while they continue needs. To that end, borrowers tial borrowers are educated mortgage payments, the bor- living in their home. Borrow- should determine whether there about this complex product to rower receives cash from the ers have no monthly repayment are less costly options to access protect them from taking out lender. A reverse mortgage obligation until the home is no unsuitable loans. enables senior citizens to bor- longer their primary residence. continued on Page 2 Reverse Mortgages HECM and Home Keeper are requirements; greater princi- lenders and consumers. As continued from Page 1 adjustable rate mortgages. Fees pal amounts, including jumbo noted, the reverse mortgage for these products include clos- reverse mortgages; more flex- can enable older adults to “age needed cash, make a long-term ing costs, a monthly servicing ible rate structures, including in place” on a fixed income. As plan for managing assets, and fee and, for HECM, an insur- fixed rates; and lower fees. the industry grows, consumer develop a clear understanding ance fee. For both products, However, the majority of new will potentially be of the reverse mortgage product. the loan principal increases products do not include mort- driven by the increase in prod- with each payment, as inter- gage insurance. uct options, including jumbo The Reverse Mortgage Explained est and other charges accrued loans, fixed rates and more The reverse mortgage market are rolled into the total funds Growth in the Market flexible eligibility options. Fur- is dominated by the Home advanced to the borrower. The introduction of reverse thermore, the growing number Equity Conversion Mortgage Borrowers are not required to mortgages was marked by a of reverse mortgage lenders has (HECM), a product admin- repay a reverse mortgage until period of very slow growth brought increased competi- istered by the Department of a “maturity” event, namely the from 1990 to 2002, followed by tion to the industry, which is Housing and Urban Develop- death of the borrower, sale of exponential growth in recent resulting in lower pricing and ment (HUD) and insured by the property or violation of the years. Reverse mortgages additional product innovation. HUD’s Federal Housing Admin- mortgage agreement. Although represent only 1 percent of Consumer growth in the istration (FHA). HECM loans borrowers are not required to the overall mortgage-lending reverse mortgage market is are originated by private lenders make payments until they no market, but these loans are expected to continue rapidly and purchased by . longer inhabit the home, they expected to expand by as much due to national demographic With 90 percent of the reverse are required to maintain the as tenfold in the next 20 years. changes. Today, there is mortgage share, HECM has property, pay property taxes According to HUD, since 1990, already an estimated $4.3 tril- led this market since becom- and pay the . senior citizens have taken out lion in home equity held by ing active in 1989. In 1995, Borrowers and lenders are more than 308,000 HECMs, Americans age 62 and over. As Fannie Mae introduced the protected from payment risk which represent nearly 90 baby boomers quickly become initial HECM competitor with a with both HECM and Home percent of the reverse mortgage age-eligible, this number will proprietary product known as Keeper loans. HECM loans market. And, between 2000 increase dramatically. the Home Keeper Mortgage. carry FHA insurance that and 2006 alone, there has been Lenders’ interest in the HECM and Home Keeper ensures that the borrowers a tenfold increase in the num- reverse mortgage market also share characteristics that have will receive all payments due ber of HECMs. is increasing as additional defined the reverse mortgage and the lender will receive full More recently, bigger players capital becomes available from market to date. Both products repayment of the loan balance. in the mortgage market have the development of a second- require borrowers to be at Fannie Mae guarantees Home gained interest in reverse mort- ary market. An established least 62 years old and have a Keeper loans. gages. As a result, the latest secondary market for reverse substantial amount of equity in Despite the dominance of growth in the reverse mortgage mortgages would provide their principal residence. Each HECM, proprietary products market has occurred across increased liquidity and could product uses a formula to deter- have been entering the reverse products, with new propri- broaden the lender distribu- mine the maximum amount mortgage market. In 1999, etary products slowly pilfering tion channels and expand the of principal a homeowner can Financial Freedom Senior market share from the estab- investor base. Securitizing borrow. Neither product sup- Funding Corp., a subsidiary of lished HECM market. Overall, these products is complicated, ports “jumbo loans,” loans that IndyMac Bank of F.S.B, intro- approximately 90,000 reverse but the market is slowly adopt- exceed $417,000. duced the first private-sector mortgages, totaling $10 billion ing techniques to do so. Borrowers can draw down reverse mortgage, known as in loans, were originated in In 2006, the Lehman Brothers payments in monthly install- the Cash Account. 2006, doubling the number issued the first HECM-backed ments, lump sums, lines of The onset of new products from 2005. securities to investors. Later credit or a combination of is bringing more consumer Interest in reverse mortgages that same year, Ginnie Mae these options. options, including lower age continues to grow by both announced that the organization

LINKING LENDERS #2 AND COMMUNITIES is in the process of creating a counseling options have faced HECM program. some challenges. With its new program, Ginnie First, the quality of the Where To Find Information Mae intends to deepen the avail- reverse mortgage counseling A number of reputable organizations with information ability of HECM lending, create available appears to vary greatly. on reverse mortgages are available. The following a broader secondary market for HUD-certified counselors and web sites were used as sources for the accompanying HECM loans, reduce the costs to their counterparts face differ- article and are a good place to begin a reverse mort- borrowers and broaden options ent standards for counseling. gage investigation. available to lenders and home- HUD-approved agencies are, at owners. Private investors are a minimum, required to focus American Association for Retired Persons anticipated to be players in the on product suitability for the www.aarp.org/money/revmort reverse mortgage securitization borrower and the possible alter- Fannie Mae market in the near future. natives. But even within this www.fanniemae.com/homebuyers/findamortgage/ certified circle, there is still a reverse/index.jhtml Consumer Protection great deal of variety, as counsel- Mortgage Bankers Association Reverse mortgages are a ing may be offered by video, www.mortgagebankers.org new and complicated financial telephone or in person, and National Council on Aging product that are being offered sessions may range from www.ncoa.org/content.cfm?sectionID=321&detail=1795 at an increasing rate to the 10 minutes to two hours. National Reverse Mortgage Lenders Association nation’s seniors. With a grow- Second, counseling has been www.reversemortgage.org ing number of products offering a troublesome issue from time a variety of rate structures and to time due to a lack of avail- Department of Housing and Urban Development www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm features, it is increasingly diffi- able counselors in some loca- cult for borrowers to determine tions, particularly those areas which reverse mortgage, if any, with an increased volume of is a suitable financial option. reverse mortgages. Currently, Furthermore, most people lack the need to train counselors familiarity with the reverse who specialize in reverse mort- mortgage market, leaving eligi- gages is competing with the ble borrowers exposed to loans national surge in training for that they might not understand counseling. or that might not be appropri- Third, anecdotal evidence ate for their needs. suggests that there is an Accordingly, it is critical that increase in predatory lending potential borrowers of reverse practices around reverse mort- mortgages get adequate informa- gages. As a result, counselors tion and, preferably, counsel- must be even more equipped ing. To take out a HECM or a to educate borrowers regarding Home Keeper loan, borrowers mass marketing for high-cost are required to complete HUD- products, sales pressures and certified counseling. However, general financial planning. insurance. Because of the high increasingly important option with private products that do not One practice that has raised cost of reverse mortgages, using for accessing additional cash as require counseling, consumers particular concern is a tactic this product to purchase annu- they age. Sound information are increasingly left on their own to advise reverse mortgage ities or insurance is almost can inform borrowers whether to determine product suitability. borrowers to bundle their always financially unsound. a reverse mortgage is a suitable Government and industry loan with a second financial Despite the risks, reverse product for them. efforts to increase quality product, such as an annuity or mortgages offer consumers an

ON T H E INTERNET AT #3 WWW.STLOUISF ED. ORG Young Entrepreneurs An Investment in Our Future

By Kathy Cowan is done to the vehicle before Community Affairs Specialist a 10-day redemption period Federal Reserve Bank of St. Louis expires. “Bentrail currently comes ay close attention to how on Monday and Wednesdays, to spell the name Bentrail but it’s his business,” Temple PMilow. It is a name you says. “He calls the shots. He will see in the future. knows when we need the job This 16-year-old entrepreneur completed, and we trust him to from Tunica, Miss., launched complete the job.” After seeing Milow’s Custom Car Wash the quality of Bentrail’s work Service last fall and immediately on the bank’s vehicles, some landed his first customer: First bank employees have become Security Bank. The bank hired his customers. Bentrail to wash and detail its Alt.Consulting did not have repossessed vehicles. to sell James Dunn, executive While it may be unusual for director of the Tunica County a 16-year-old to have his own Community Development business, there are thousands Bentrail Milow washes a repossessed vehicle at First Security Bank in Tunica, Miss. Coalition, on its idea for the of young people in the United Bentrail, 16, is owner of Milow’s Custom Car Wash. youth entrepreneurship pro- States like Bentrail who want gram. After working with to be their own boss. A recent of all new jobs. By 2004, these of First Security Bank, attended alt.Consulting to provide survey by Harris Interactive, an businesses employed 21 million the graduation ceremony and services to small businesses in Internet-based market research workers. The statistics confirm says he was so impressed with Tunica, it was Dunn’s vision to firm, polled 2,400 people the value of nurturing a spirit Bentrail and his presentation implement alt.Youth. between the ages of 8 and 21 of entrepreneurship among the of his business plan that he Dunn says he wants about entrepreneurship. Forty country’s youth. But how does hired him on the spot to clean young people to know they percent said they wanted to a young person get started? the bank’s repossessed vehicles do not always have to work start their own business. Bentrail did not “go it alone” that are offered for resale. for somebody—they can be That news is encouraging, when he went into business. At the graduation, Temple self-employed. considering the importance He had help from alt.Youth, an says, Bentrail was well-dressed, Tunica is a thriving commu- of entrepreneurship to the entrepreneurship program for well-spoken, maintained eye nity with lots of opportunities, American economy. According young people. Bentrail was contact and simply wowed the Dunn says. to the Small Business Admin- among the first graduates of the audience—all skills taught by “As the community grows, I istration, from 1988 to 2004, program, which was conceived the alt.Youth program. am interested in seeing more businesses with fewer than 20 by alt.Consulting, a nonprofit When First Security Bank minorities start businesses in employees accounted for 90 management consulting firm repossesses a vehicle, Temple order to share in the rewards of percent of all U.S. firms and based in Memphis, Tenn. alerts Bentrail so he can sched- the community’s growth,” he created more than 97 percent Kerry Temple, vice president ule the job. However, nothing says. “The program offers the

LINKING LENDERS #4 AND COMMUNITIES skills kids need to know so that each step of the feasibility study. both of alt.Consulting, served they can plan as early as pos- They analyze the available as facilitators for the program. Resources sible and know how to manage market, startup and monthly On the first day of class, their finances.” operating expenses, earning there were 16 participants. for Young Dunn approached Billy Willis, potential and necessary manage- At the end of Level 1, there director of the Tunica County ment skills. At the end of Level were 10 participants. By the Entrepreneurs Recreation Commission, about 2, participants use the study end of Level 2, there were only the program. Willis decided to results to assess the feasibility of five to graduate. At the gradua- Ewing Marion Kauffman offer it to teens who had suc- starting their businesses, review tion, the participants presented Foundation cessfully completed the city’s lessons learned and make a business plans for a candy www.kauffman.org/ summer job-training program. decision to launch or not. shop, a baby-sitting service, a Alt.Youth goes beyond After completion of levels 1 cleaning company, a hair braid- entrepreneurship.cfm training young people to start and 2, which last a total of 12 ing salon and, of course, a car and manage a business. The weeks, there is a graduation wash service. Four of the five McKelvey Foundation program actually helps them ceremony where each partici- graduates decided to launch www.mckelveyfoundation.org/ launch a business. There are pant presents his or her busi- their businesses. And who was entrepreneurial three levels of training. ness plan to the audience. the first? Bentrail Milow. Level 1 is an introduction In Level 3, all the young The second session of the to entrepreneurship and basic entrepreneurs receive up to 40 alt.Youth program started Jan. 7, Mind Your Own Business business training, money hours of one-on-one assistance 2008, with 12 aspiring entre- www.mindyourownbiz.org management and self assess- as they start their business and preneurs who had a variety of ment. Speakers from the busi- 20 hours of additional coaching ideas for businesses. Barbara SCORE Resources for ness community share their after the business is launched. Young wants to design shoes— experiences with the young Parents receive training on the tennis shoes, flip-flops, boots— Young Entrepreneurs entrepreneurs. Participants tax implications of the new busi- all kinds of shoes. Demaris www.score.org/resources_ look at their strengths and ness. In addition, each business Black plans to start a business young.html weaknesses. At the completion owner can apply for an equity designing rims and tires for of Level 1, participants should investment in the business. cars. And Sherica Conway’s SBA’s Young Entrepreneurs have an idea about the type of The first session of the idea is for a nail shop/restau- www.sba.gov/services/ business they want to start, an alt.Youth program ran from rant. Sounds like an odd com- specialaudiences/young idea they can work on immedi- September to November of bination? Maybe so, but before entrepreneurs/index.html ately and a sky’s-the-limit idea. 2007. Twice a week from you judge, you might want to Level 2 focuses on the feasibil- 3:30 p.m. to 6:30 p.m., Mark read her business plan. ity of the young entrepreneur’s Hudson of the Tunica County For information about the National Federation of idea and on creating a busi- Community Development alt.Youth program, call Vonesha Independent Business ness plan. Participants receive Coalition and Cynthia Nor- Mitchell at 901-312-9796. Young Entrepreneur one-on-one coaching through wood and Vonesha Mitchell, Foundation www.nfib.com/page/Young EntrepreneurFoundation “It is gratifying to see that American youth Youth About Business aspire to not just take a job, but to make a job.” www.youthaboutbusiness.org

Dennis Cheek, vice president, education Youth Venture Kauffman Foundation www.youthventure.org

ON T H E INTERNET AT #5 WWW.STLOUISF ED. ORG It’s Not Just a Number, It’s the Number

By Jean Morisseau-Kuni Information Institute’s web site, information to the credit- What’s in Your Credit File? Community Affairs Specialist www.iii.org.) reporting agencies. The agen- Consumers can request a free Federal Reserve Bank of St. Louis There is a lot of misunder- cies use an automated system to copy of their credit report from all stood information and mystery compile the data into individual three credit-reporting agencies on hat has the power to surrounding credit scores and consumer fles and evaluate the an annual basis at www.annual lower car insurance the credit-scoring process. fle by dividing the data into creditreport.com. In addition, the rates, rent an apart- Even fnancially savvy con- categories for analysis. numerical credit scores are avail- W ment and buy a cell phone? sumers may not know what The data normally include able for a nominal fee. It’s certainly not Superman or elements make up their credit payment history, outstanding People can also request a free Wonder Woman. The answer scores or how data is compiled debt, length of credit his- report by calling 1-877-322-8228 and going through a verification is a number—but not just any to create their scores. tory, newly established credit process or by completing the number. It’s the number: your accounts, number of inquiries online form and mailing it to the credit score. Taking the Mystery Out from creditors, and the types address provided on the web site. It’s hard to believe that a of Credit Scoring of credit used by the consumer. Once the report is received, number has so much effect on Fair Isaac Corp. (FICO), the Because personal characteris- consumers should check to what you can buy and where developer of the credit-scoring tics such as age, race, sex, edu- ensure all of the information is you can work or live. So, why system, defnes a credit score as cation or ethnic background correct. If there are discrepan- cies, the consumer needs to write do credit scores have such an automated statistical analysis are not included in the analy- to the credit-reporting agency infuence? And who creates of creditworthiness—a numeri- sis, credit-scoring systems are that provided the report and them, what information do cal profle to assess how debts believed to remove any illegal outline the inaccurate informa- they use, where does it come are repaid, how much and to bias from the analysis. tion. Credit-reporting agencies are from and why? whom money is owed and how Once the analysis is complete, required to verify the information At one time, mortgage responsibly available credit is the system assigns a number, and remove any information that bankers were the only lenders used. Some lenders refer to a between 300 and 850. The is incorrect. Some groups are more at who looked at credit reports. credit score as a FICO score. number is the credit score and risk when negative information In today’s world, landlords, However, FICO is not the represents the risk factor of appears in their credit scores. An employers, government agen- only credit-scoring system. the borrower. error indicating a late payment cies, and insurance, utility and Experian, TransUnion and According to Fair Isaac’s will not have much impact on the cell phone companies all use Equifax, the credit reporting web site, www.myfco.com, overall score for someone with credit reports to determine the agencies, also use credit-scor- 2 percent of the U.S. popula- established credit and a long his- character and creditworthiness ing systems. All credit-scoring tion’s credit scores are in the tory of paying bills promptly. How- of potential customers, tenants systems are similar and lowest range (300-499) and ever, for those without established credit or who have had credit and employees. Why? Because provide much of the same 15 percent are in the highest problems in the past, errors in the credit reports provide a quick information. However, the fle range (800-850). Other scores credit file have a greater impact snapshot of how people handle formats are not the same and are between 500 and 800, and can be the tipping point that personal fnances. the end reports have different with the majority, 27 percent, causes the person to pay a higher Studies have shown that appearances. falling in the 750-799 range. rate of interest. those with high credit scores act Lenders, utility companies, The median score is 723, For more information, visit: more responsibly in their lives department stores, land- meaning that half of scores • www.annualcreditreport.com • www.myfico.com and are less likely to fle claims lords and other players in the are below and half are above • www.fool.com than those with lower credit fnancial world electronically 723 and the average credit scores. (See the Insurance forward payment and liability score is 692.

LINKING LENDERS #6 AND COMMUNITIES The Bottom Line Consumers can improve in some cases, changing the Alliance Helps Nonprofit Consumers with established low credit scores by changing minimum amount payable credit histories, who pay bills the way they handle personal each month. Lenders Report Credit in a timely manner and use finances. Payment history and Whether credit scoring is a Histories credit responsibly, generally outstanding debt make up 65 good thing depends on who have higher scores. Those percent of a credit score. By you talk to. Some say there is Many low- and moderate-income without established credit his- improving payment history, a strong case that it is unfair individuals understand the value of tories or who have liens, collec- lowering the amount of out- to low-income, historically good credit and diligently pay their bills on time. However, if they have tions, foreclosure, standing revolving debt and underserved people and those a mortgage or microloan through or a history of paying their bills limiting the amount of avail- without established credit. a nonprofit lender, their credit files late will have lower scores. able credit, a consumer can sig- Others say it gives consum- may not reflect that diligence. Credit scores below 620 are in nificantly raise a credit score. ers greater access to credit by The reason is that major credit the high-risk range. Consumers Those who have trouble mak- providing fair, fast and thor- bureaus do not accept credit with scores in that range will ing credit card or other loan ough information. Either way, reports from low-volume lenders, generally pay higher interest and payments should talk to their in today’s world, credit scoring and nonprofit lenders often fall insurance rates. In addition, lenders. Most are willing to is a consumer’s link to getting into that category. Also, the high they also may be denied credit work with customers by chang- credit. For that reason, it is cost of creating and submit- or employment and may have ing billing dates, lowering the crucial for borrowers to under- ting electronic files to the credit problems renting a place to live. amount of available credit and, stand how it works. bureaus can be prohibitive. Credit Builders Alliance (CBA) has a solution for nontraditional financial institutions that want to Looking at the Components of FICO Scores help customers build credit reports. Credit scoring is easier to understand by evaluating the individual A nonprofit organization itself, Types of Credit CBA understands the relationships components that comprise each category and the emphasis given and Inquiries 10% that nonprofit lenders have with to each category when determining the score. Credit-scoring clients. As a result, CBA works companies generally use these categories: New Credit 10% hard to forge relationships with such as revolving accounts; and both lenders and credit-reporting Payment History s proportion of installment Payment agencies. Those relationships 35 percent loan amounts. History allowed them to create tools that 35% s account payment history for specific Length of help lenders collect, analyze and types of accounts, such as credit Length of Credit History Credit History 15 percent 15% submit reliable, high-quality data cards, retail accounts, installment on the unbanked and under- loans and mortgage payments; amount of time since accounts s banked families they serve. This presence of adverse public records, were opened; Outstanding Debt s 30% such as , liens and s amount of time since specific solution has earned CBA recogni- delinquencies; types of accounts were opened, tion as an innovator. s number of past-due items; and such as revolving accounts; and CBA was created through a s number of accounts paid as agreed. s time since last activity on accounts. SOURCE: www.myfico.com partnership of industry lead- ers: Central Vermont Community Outstanding Debt New Credit Types of Credit Used Action, RUPRI Center for Rural 30 percent 10 percent and Inquiries Entrepreneurship and AEO. The types and number of recently 10 percent s amount of money owed s Center for Financial Services on each account; opened accounts; s types of credit most frequently used; provided seed funding. s amount of money owed on specific s number of recent credit inquiries how many of each type of account is s For more information on CBA, types of accounts; by certain lenders; and used; and s number of accounts with a balance; s re-establishment of positive s how many recent inquiries have contact them by e-mail at info@ s proportion of balances on credit history following past been made. creditbuildersalliance.org, by tele- certain types of credit lines, payment problems. phone at 202-730-9390 or visit www.creditbuildersalliance.org.

ON T H E INTERNET AT #7 WWW.STLOUISF ED. ORG Special Savings Accounts Provide Safety Net for Youth on Their Own

“The main thing they helped me with is money management,” Fogelbach said of the program. “I worked seven days a week, and I would go and spend all my money. But right now I’m ahead. I have all my bills paid. I have money in the bank, and I still have some money to go out and have fun.”

St. Louis Post-Dispatch (MO), Dec. 5, 2007, author Greg Jonsson

t age 21, how many young savings then help them acquire us one day and wanted to do way to launch the program. adults can say that? assets such as education or more to help the foster children The creators knew working A Especially those who down payments on housing. in our region,” says Cassandra with youth in the foster care have just left, or “aged-out” of, Participants are recommended Kaufman, a community invest- system would not be the same the foster care system and by caseworkers and must ment director with the United as working with adults or even have no support system to fall complete 12 hours of financial Way of Greater St. Louis. “A other youth who grew up with back on. education. At the end of the piece had aired on their sta- a family support system. The “they” in the above quote program, if participants have tion about foster kids and how “Exponentially, the youth in is the United Way of Greater met their savings goal and taken tough it could be for them.” foster care have a much tougher St. Louis and the University part in budget and credit coun- The issue at hand was to time than other kids going out of Missouri Extension. “The seling, the savings is matched create a program to help youth on their own,” Kaufman says. program” is a ground-breaking by a participating sponsor. leaving foster care make a “These kids have many more initiative called The Youth IDA The concept of IDAs was successful transition to inde- stressors in life—they’re often Pilot Program. And Fogelbach developed by Washington pendent living. After learning younger, many are parenting is Mike Fogelbach, 21, who University Professor Michael about the IDA program for children, many need a place to recently aged-out of the foster Sherraden, who says that wel- adults and the work United Way live, need transportation, need care system in St. Louis. He fare policy should be based on had been doing with it, profes- education, they haven’t had the was featured in a St. Louis the concepts of saving, invest- sionals at KETC-TV Channel 9 resources to learn how to live Post-Dispatch article about his ment and accumulation of believed there was a possibil- on their own, low job skills, no experience in the program. assets rather than the model of ity to rework this program for money and they simply do not income, spending and con- youth. And in 2005, the Youth have the family support to fall What is an IDA? sumption that was the norm IDA pilot project was born. back on if or when anything IDAs are individual develop- into the early 1990s. In its role as convener, United goes wrong.” ment accounts that allow low- Way brought several agency Many statistics exist to sup- to moderate-income work- How the Youth IDA Project Began partners and the University of port Kaufman’s statements. ing people to participate in a “Basically the local PBS affili- Missouri Extension to the table Foster care studies have shown matched-savings program. The ate, KETC Channel 9, came to quickly to discuss an effective that four years after leaving

LINKING LENDERS #8 AND COMMUNITIES foster care, 62 percent have they’ve never learned to do. UÊ Ì œÃiʏˆÛˆ˜}ʈ˜Ê>ÊÀiÈ`i˜Ìˆ>Ê The classes were given in not maintained employment We try to make the classes as setting and participating two-hour segments and held for one year, 46 percent lack interactive as possible.” in transitional or indepen- periodically through the end a high school diploma, 42 dent living programs; or of 2006 and most of 2007. In percent have become parents Who Are These Youth and What UÊ Ì œÃiÊÜ œÊ >`ʏivÌÊÌ iÊ order for the participants to and 38 percent have been Happened Next? system, became homeless receive their matched savings or diagnosed with some sort of Each organization involved but somehow found them- to make a matched withdrawal, emotional problem. played a critical role in devel- selves back in the social the educational classes had to “We began working with oping this project. service system. be fulfilled. four local agencies that worked KETC-Channel 9 served as “Since this began, seven of with foster kids, and they told the initial convener, bringing The majority of those chosen the youth have reached their us what barriers existed for United Way and agencies that to participate were living in $1,000 savings goal, and four these kids once they aged-out,” serve foster youth to the table transitional or independent liv- have completed the program Kaufman says. “They were: around the aging-out issue. ing programs. and purchased their asset,” needing a place to live, saving The University of Missouri In July 2006, everything was Kaufman says. “Three of them money for that and help with Extension took the Jim Casey in place to start. The classes bought cars and one of them the transition into living on Foundation curriculum and for the program were set up used the savings toward first their own. We came up with tailored it specifically for this to begin that fall. The 40 and last month’s rent and a a curriculum we felt would project. They then had a total hand-selected young men and security deposit for an apart- really work for these kids. of three professionals teach the women met one day for the ment. Through January, 2008 We learned that their age and classes. United Way gathered kickoff event at KETC to learn these 34 youth have saved a circumstances made these kids the organizations together, pro- about the Youth IDA project. total of $14,700. more likely to be focused on vided the matching funds and During that day, they learned “To watch these kids under- the now, and not the future. provided program oversight. that they would need to take stand and realize they can make And we knew we had to try The four agencies—Cove- 12 hours of classes on financial it and that there’s help to do and help them understand the nant House Missouri, Epworth literacy, housing and nutrition. so—it’s been an amazing process importance of saving. Children’s Home, Family They also learned that through- to be involved with. I look for- “We were lucky enough to Resource Center and Youth in out the 18-month project they ward to this program expanding find the Jim Casey Foundation’s Need—determined which of would need to save $1,000. to serve more youth aging out ‘Building Assets for Your Future the teens aging out of foster If they did so, that savings of the foster care system in the ’ curriculum care would benefit most from would be matched 2:1. Each future,” Kaufman says. that they provide free-of-charge the proposed program and got youth would then use his The 18-month pilot period and we used it for a base. them involved. Each agency $3,000 or part thereof to make ends this spring. It’s been educational to see identified 10 youth to take part an asset purchase. these kids go through the in the pilot program. The only In October 2006, 34 of the classes, Kaufman says. “We’ve criteria given to the agencies original 40 began the Youth IDA seen some of the kids take was that the youth needed to pilot program by taking classes the test to opt out of the class, be working at least part time and opening savings accounts. and not do well—and you and have a source of earned “Most of these kids did can see the light bulb go off income to save. not have any kind of savings in their heads. They thought The youth involved came account,” Kaufman says. they knew the information and from one of three situations: “Another great partner in this didn’t. It’s also been great to project has been US Bank. UÊ Ì œÃiÊÀiViˆÛˆ˜}ÊV>Ãiʓ>˜- see the kids helping each other They were behind this from agement and living in a in the classes. Things we take the beginning and hold all foster home or residential for granted, balancing a check- of the savings accounts for setting; book for example, is something these kids.”

ON T H E INTERNET AT #9 WWW.STLOUISF ED. ORG SPANNING THE REGION The region served by the Federal Reserve Bank of New Initiative Offers $200 Million requirement. St. Louis encompasses all of Arkansas and parts of Illinois, To Refinance Mortgages in Illinois However, Indiana, Kentucky, Mississippi, Missouri and Tennessee. Illinois homeowners facing parti cipants must foreclosure have a new ally in have a credit score educational resource to inform The bank is open Tuesdays the fight to keep their homes. of at least 580 and agree consumers about the costs asso- and Thursdays. Funds are The Illinois Homeowner to attend mortgage counseling ciated with taking out a payday deposited each day at a local Assistance Initiative offers help through the Illinois Statewide loan. AAAPL is making copies First Tennessee Bank. Students through two components: The Foreclosure Prevention Network. of the video available to orga- keep records of all transactions. Illinois Statewide Foreclosure Funded by a grant from nizations that wish to use it for The bank’s employees are Prevention Network and the the Illinois Housing Develop- consumer education purposes. 10th-, 11th- and 12th-grade Homeowner Assistance Pool. ment Agency and with support To order a copy, contact students enrolled in the Bank- The foreclosure prevention from NeighborWorks America, Joy Buffalo, chair of the AAAPL ing and Finance Academy at network provides counseling The Illinois Statewide Fore- Education and Alternatives Trezevant. Students learn how to homeowners on the verge of closure Prevention Network Committee, U of A Cooperative a bank operates by rotating foreclosure about how to nego- is a coalition of 15 nonprofit Extension Service, 2901 W. every six weeks through various tiate with their lenders. The counseling agencies. Roosevelt Road, Little Rock, positions at the bank, including network also reports fraud and In addition, Illinois consum- AR 72204 or at 501-340-6650 application clerk, greeter, teller, deceptive practices. ers who call the national toll- or [email protected]. To auditor, security guard and The Homeowner Assistance free hotline, 1-888-995-HOPE preview the video, visit bank manager. Students also Pool is a $200 million effort (1-888-995-4673), will receive www.stoppaydaypredators.org. learn job readiness skills, such funded by four mortgage lend- counseling over the phone as etiquette, business protocol, ers—Chicago Bancorp, Guar- and, if necessary, a referral to a Memphis School System professionalism and money anteed Rate, Perl Mortgage and counseling agency for further Starts Student-Run Bank management. Professional Mortgage Partners. assistance. High school students at Trezevant Bank came about It will be used to finance new, For more information, Trezevant Career and Technol- after Principal Milton A. Burch- fixed-rate mortgages for home- visit www.illinois.gov or ogy Center, a Memphis city field II observed a student- owners facing adjustments to www.ihda.org. school, are learning money managed bank in New York adjustable rate mortgages or for management and employment City. He worked for a number those who cannot afford their Arkansas Coalition Offers skills in a unique program that of years to replicate the bank in fixed-rate mortgages due to a DVD on Payday Lending started Sept. 25, 2007. That’s Memphis. The venture received high interest rate. A DVD on the perils of when the school opened Treze- help from First Tennessee The new loans will be 30-year, payday loans is available from vant Bank, the first student-run Bank, Wachovia Bank and the fixed-rate mortgages with inter- the Arkansans Against Abusive bank in Tennessee. Memphis Area Teachers Credit est rates between 5.75 percent Payday Lending (AAAPL) Deposits on opening day Union. The bank’s advisory and 8 percent. The maximum coalition. exceeded $900. As of Jan. 7, board consists of representatives loan will be $417,000, covering The DVD was completed in 2008, the bank had 92 custom- of those financial institutions up to 100 percent of the value of cooperation with the Center for ers and assets totaling $2,424. and other community partners, the home. In addition, partici- Responsible Lending and high- Customers are mostly students including the City of Memphis pating lenders agreed to limit lights the stories of borrowers at the school, although services Division of Career Services and their fees to $1,000 or less. whose financial situations were are available to the community at the Federal Reserve Bank of The program is available to all further exacerbated by their large. Due to certain regulations, St. Louis, Memphis Branch. Illinois homeowners and does patronage of payday lenders. the bank offers only non-interest- Future plans for the bank not have a maximum income The 10-minute video is a quick bearing savings accounts. include partnering with local

LINKING LENDERS 0 AND COMMUNITIES Exploring Innovation

The region served by the Federal Reserve Bank of Exploring Innovation St. Louis encompasses all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

elementary and high schools to encourage saving, securing grants to allow the bank to pay Fed Celebrates Innovation interest on savings accounts, partnering with churches and in Community Development other community groups, and becoming a member of the LITTL E R O C K, APRIL 14 National Association of Banks. Events in several states will mark “Exploring Innovation in Community Development Week,” “Innovation in the Natural State” April 14 to 18, sponsored by the Federal Communities and organizations from across the state will be Indiana Network Reaches Out Reserve Bank of St. Louis. honored for their innovative approaches to community and to Those Facing Foreclosure economic development in a celebration at the Peabody Hotel. A new statewide initiative The Bank’s Community Affairs department has planned in Indiana is designed to help ceremonial events and informational meetings to recognize LITTL E R O C K, APRIL 16 “Creating a Road Map for Innovation” homeowners avoid foreclo- the important role of community development in American life. It also has invited organizations to organize events in sure. The Indiana Foreclosure Satish Nambisan, author of The Global Brain: Your Road Map their areas. for Innovating Faster and Smarter in a Networked World, will Prevention Network, a public- explore the critical role of innovation in the rapidly evolving The following celebrations are sponsored by the Bank and its private partnership, distributes marketplace. A panel discussion, book signing and reception branches in Little Rock, Louisville and Memphis. Anyone inter- information on how to avoid will follow. Location: Peabody Hotel. ested in attending should visit www.exploringinnovation.org, foreclosure through a media the St. Louis Fed’s new web site devoted to innovative ideas campaign, a toll-free helpline LOUISV I LLE, APRIL 17 in community development. A calendar listing of all events, “Closing the Wealth Divide … New Ways to Help and a web site. including those sponsored by other organizations, is available the Underserved Build Credit and Assets” The helpline, 1-877-GET- on the web site. John Hope Bryant of Operation HOPE, a nonprofit social HOPE (1-877-438-4673), is If you have questions, call the Bank’s community develop- investment banking organization, will deliver the keynote available in Indiana from 8 ment staff member in your area: St. Louis, 314-444-8891; address during a luncheon at the Galt House Hotel. Afternoon a.m. to 8 p.m. seven days a Little Rock, 501-324-8268; Louisville, 502-568-9216; or sessions will focus on innovations in credit building. week. The helpline provides Memphis, 901-579-4103. free, confidential financial M EMPH IS, APRIL 18 S T. LOUIS, APRIL 14 “The United Way Venture Fund: counseling over the phone for “Pursuing A Vision of Excellence” Planting the Seeds of Innovation” anyone who may be at risk of This event at The Old Rock House in the historic Soulard neigh- This luncheon at the Memphis Marriott East will recognize foreclosure. borhood will feature special guests, governmental proclama- the United Way of the Mid-South’s Avron B. Fogelman Venture The web site features an tions, a brief program, tours of The Art of Living Building and Fund and the contributions of the fund’s grant recipients. online education assess- food and entertainment. (By invitation only.) ment that helps homeowners C L E V E LAND, M ISS., APRIL 14 understand their options. Visit M T. VERNON, ILL., APRIL 18 “Innovative Solutions for Rural Communities” “Rural Community Development Forum: www.877GetHope.org for more Developing Innovative Strategies to Address A banker and community roundtable will focus on forging information. Unmet Community Needs” partnerships for better communities. There will be a panel The media campaign includes discussion on how CDCs and CDFIs can help to improve rural A reception and forum will focus on tourism and early child- billboards, newspaper advertis- communities. Location: Cedarhurst Center for the Arts. hood education as development strategies for the Lower ing and radio commercials. Mississippi Delta. Location: Delta State University.

ON T H E INTERNET AT # WWW.STLOUISF ED. ORG Bill Poole Retires from St. Louis Fed BRIDGES Bridges is a publication of the Com- ill Poole, president of the information on the topic to its Brown University in Provi- munity Affairs department of the Federal Federal Reserve Bank of constituents. dence, R.I. He joined the fac- Reserve Bank of St. Louis. It is intended St. Louis, retired March “It’s important to learn what ulty at Brown in 1974 and twice to inform bankers, community develop- B ment organizations, representatives of 31, 2008, after serving 10 years some communities are doing served as chairman of the eco- state and local government agencies and as Bank president. A search is well in order for us to bring the nomics department. He served others in the Eighth District about cur- rent issues and initiatives in community under way for his successor. knowledge back to our own on the economics faculty at The and economic development. The Eighth As president, Poole directed districts,” he said at a 2007 con- Johns Hopkins University from District includes the state of Arkansas and parts of Illinois, Indiana, Kentucky, the Bank’s activities at its head- ference convened by the Bank’s 1963 to 1969. He was inducted Mississippi, Missouri and Tennessee. quarters in St. Louis and its Community Affairs Office. into The Johns Hopkins Society Glenda Wilson three branches in Little Rock, The Federal Reserve Bank of Scholars in May 2005. Community Affairs Officer, Assistant Louisville and Memphis. In of St. Louis, one of 12 regional Vice President and Managing Editor addition, he represented the Reserve banks, serves the Eighth 314-444-8317 Bank on the Federal Open Federal Reserve District. The Linda Fischer Editor Market Committee, the Fed- regional Reserve banks, along 314-444-8979 eral Reserve’s chief monetary with the Board of Governors in Community Affairs staff policy making body. Washington, D.C., constitute the In recent years, Poole spoke Federal Reserve System. St. Louis: Matthew Ashby 314-444-8891 about the economic impact Before joining the Federal Jean Morisseau-Kuni of community development Reserve Bank of St. Louis, Poole 314-444-8646 Eileen Wolfington and about the Bank’s role in was the Herbert H. Goldberger 314-444-8308 gathering and disseminating Professor of Economics at Poole Memphis: Michael Minor 901-579-4106 Kathy Moore Cowan 901-579-4103

CALENDAR Little Rock: Lyn Haralson 501-324-8240 APRIL MAY JUNE Amy Simpkins 501-324-8268 14-18 5-7 8-10 Louisville: Lisa Locke 502-568-9292 Exploring Innovation Week Roadmap to Revitalization—Detroit Underbanked Financial Services Faith Weekly Sponsor: Federal Reserve Bank of St. Louis Sponsor: Brownfields 2008 Forum—Miami. Fla. 502-568-9216 www.exploringinnovation.org or see Page 11 www.brownfields2008.org Sponsor: Center for Financial Services The views expressed in Bridges are not of this publication Innovation necessarily those of the Federal Reserve 5-9 www.cfsinnovation.com Bank of St. Louis or the Federal Reserve 29-May 1 NeighborWorks Training Institute—Cincinnati System. Material herein may be reprinted 12 or abstracted as long as Bridges is credited. Overarching Strategies: Catalyzing Local, Sponsor: NeighborWorks Please provide the editor with a copy of State and Federal Financing Sources— http://nw.org/network/training/training.asp Foreclosure Counseling Training any reprinted articles. St. Louis Sponsor: Indiana Association for Community Sponsor: Council of Development Finance 30 Economic Development If you have an interesting community Agencies (CDFA) www.iaced.org development program or idea for an Homebuyer Clubs Webinar Training— article, we would like to hear from you. www.cdfa.net Indianapolis Please contact the editor. Sponsor: Indiana Association for 5-6 Free subscriptions and additional copies Community Economic Development Payments Fraud: Perception Versus are available by calling 314-444-8761 or www.iaced.org Reality—Chicago by e-mail to [email protected]. Sponsor: Federal Reserve Bank of Chicago www.chicagofed.org/news_and_conferences/ news/index.cfm