Talking in Memphis: Groups Create Educational Programs to Tackle Foreclosures, Bankruptcies

Financial literacy has become a key initiative in recent years for several nonprofit groups in Memphis, Tenn. Spurred on by an excessive number of bankruptcy filings, an increase in the number of home foreclosures and a growing concern about predatory or abusive lending, the groups have taken up the challenge of financial education for consumers.

The increased activity became evident in 2000, after the American Bankruptcy Institute reported that Tennessee led the nation in the relative number of personal bankruptcy filings. In addition, judges in Tennessee carry one of the heaviest bankruptcy loads in the nation.

Bankruptcy filings occur for a number of reasons, including job loss, medical bills, extensive credit card debt and gambling problems. Since 2000, Tennessee has seen minor improvement in reducing bankruptcies. In 2004, the state ranked No. 2-Utah is now ranked No. 1. An article in The Commercial Appeal, Memphis' daily newspaper, indicated that the number of bankruptcy filings in Tennessee is declining, in part because judges are transferring cases filed in Memphis by Mississippi and Arkansas residents to their home states. The U.S. Bankruptcy Court for the Western District of Tennessee, located in Memphis, currently handles more than 20,000 cases per year.

Foreclosures are another growing concern. The events that lead to bankruptcy also result in home foreclosures. Additionally, foreclosures may occur when people buy homes that are a significant stretch for their income.

Some Memphis nonprofit organizations are addressing the foreclosure issue by offering education programs to first-time home buyers. The programs stress the importance of buying a home that is affordable and of maintaining a home.

For 10 years, United Housing Inc. (UHI) has been a key player in the Memphis market in providing affordable housing for families with low to moderate incomes. Tim Bolding, president of UHI, has seen firsthand the benefit of home-buyer education, which the organization requires potential home buyers to take. The UHI foreclosure rate is 2 percent, compared with 13 percent for homeowners with Federal Housing Administration (FHA) loans, he says. Additionally, in some instances, the result of working with families through home-buyer education is that they find out they are not ready to purchase a home.

Many first-time buyers also fail to consider the cost of ongoing home repairs and try to borrow the money when repairs are needed. Because many banks do not make home improvement loans, homeowners often secure them from home improvement contractors, mortgage brokers or other lenders who advertise through fliers, phone calls and radio spots.

Although many of these companies are honest, others are predatory and take advantage of homeowners in need by providing loans that have unfair terms and conditions. In many instances, high-pressure sales tactics are used, and a contract is signed before the homeowner has an opportunity to discuss the loan with a family member or other trusted adviser.

Randy Hutchinson, president of the Better Business Bureau of the Mid South, recommends that consumers always check with them to find out if a firm has a good record in dealing with its customers. "If you don't have a particular company in mind, we can provide you with a list of BBB members who are committed to treating you fairly," he says.

The Memphis Branch of the Federal Reserve Bank of St. Louis is collaborating with several groups on a variety of financial education projects.

Last year, the Fed, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Community Development Council jointly sponsored a community round-table on bankruptcy and predatory lending.

Additionally, the Fed has provided technical assistance for several years in support of the MemphisDEBT Collaborative, which develops consumer education programs. More information about the collaborative's work is available at its web site: www.memphisdebt.org.

"The majority of community residents we have worked with most closely, in public housing and affordable housing, in the work place and in neighborhoods, have had credit scores that were roughly 620 or under," says Saralyn Williams Crowell, program coordinator for the collaborative. "Many residents have no idea what their credit score is and, once told, have even less of an idea if that number is good or bad.

"This lack of knowledge, coupled with current advertising messages telling buyers that no credit and bad credit are OK, is leading to disastrous outcomes." These companies promote low monthly payments while downplaying or omitting high interest rates, lengthy repayment terms, and extra fees and penalties, she says.

Crowell says everyone should get a free copy of their credit report at www.annualcreditreport.com. The collaborative's home ownership brochure indicates that a score of "600 or higher, along with factors such as job stability and a good credit history, should get you an 'A' or an FHA-type loan. A score of 500-600 means you'll pay an extra 2 to 3 percent. Less than 500—Wait! You will not get a good deal on a mortgage loan."

Another project supported by the Federal Reserve Bank is the Leadership Academy Fellows. This program for midlevel managers has recognized the importance of financial education and has made this topic its primary focus for the next year.

The Bank also is a member of the Memphis/Shelby County Anti-Predatory Lending Coalition, a citywide group representing bankers, businesses, nonprofit organizations and community advocacy groups with a focus on housing, legal services and credit issues. The group came together last year following a Commercial Appeal report about senior citizens who had lost their homes after borrowing relatively small sums of money for home repairs.

It became evident to the coalition that education is the key to addressing predatory lending, bankruptcy and foreclosure prevention. It also became evident that the education needs to begin at a very early age. The coalition's education initiatives will focus on providing information to the faith community, public schools, local colleges and universities, neighborhood associations, and senior citizens' groups.

Many cities have a number of citizens who are facing issues related to bankruptcy, foreclosures and predatory lending. Hopefully, all of these cities have business leaders, faith leaders, educators, nonprofit leaders and others who recognize the importance of financial education and who are willing to take the time to provide the appropriate information where needed-since education is the key.