Today’s announcement by the IRS that it is canceling the debt indicator is very significant.

The debt indicator is what made the refund anticipation loan possible. Without it, banks would never have been able to tell if a tax filer had outstanding tax liens. Now that the IRS is ceasing to provide the debt indicator, the future of refund anticipation loans seems dim.

RALs were a big business. More than 470,000 North Carolina households spent almost $50 million on RAL fees in 2006 (according to research we did with the IRS’ SPEC data).

The IRS’ complicit involvement in the RAL business was undermining (more…)

The foreclosure crisis is not getting worse, but it is not getting much better. Foreclosure filings from the North Carolina Administrative Office of the Courts show that homeowners continue to struggle.Across the state, North Carolina is on pace for a 3 percent rise in foreclosures relative to 2009. Compared to the last ten years, the rate is up 53 percent.

The problems are most severe in three types of communities: in the kinds of beach and mountain communities that attracted the construction of vacation homes, in large metro areas, and where the loss of textile and tobacco jobs have not been replaced by new growth.

In some communities, foreclosures are actually down, even compared to the years before the real estate bust. More surprisingly, most of those counties are not well off at all. I have numbers from the last 13 years. I’ve tried to compare the rates in 2010 (annualized from the shortened calendar) to the average levels from 2000 to 2009. Unless otherwise noted, the two figures show the rate in 2010 compared to the decade average, and the increase from 2009 to 2010.

Big Metros with rapid population gains

Mecklenburg (Charlotte): up 60 percent over the last ten years, but down 18.1 percent this year.

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It turns out that making a contribution to your individual retirement account (IRA) is pretty hard. Only about 1 in 14 tax filers in North Carolina takes advantage of the opportunity to protect your income from taxes.

This number comes from data that I found through the IRS.  Only 7.4 percent of filers made an IRA contribution in 2007. That number includes people who made any kind of contribution to either a ROTH, a SEP, or a traditional IRA.  During 2006 and 2007, contributors were allowed to put $4,000 in a Roth if they were under 50, and $5,000 if they were older.

The IRA is one of the two main ways that middle-class households are able to protect their earnings from taxes. The other most common way is through the home mortgage deduction. For the well-off, there are all kinds of vehicles to protect earnings. For people that don’t make that much, there are very few incentives designed to stimulate savings. Individual Development Accounts (IDAs) sometimes provide matching funds to savers, but those are not able to reach a wide portion of the population.

Savings is an important problem facing our country. Until recently, we had a negative savings rate. In fact, during 2006 (for which those 2007 returns were filed), our national savings rate was -0.5 percent! We’re probably doing better now. It is hard to spend when your credit limit has been slashed.  A cash economy is a constricted economy, even if the money supply is exploding. By comparison, Business Week has a few estimates on savings rates elsewhere:

• Europe (average) 20 percent
• Japan 25 percent
• China 50 percent (estimate credited to International Monetary Fund)

In the short-run, our spending can act as its own stimulus. Unfortunately, the long-term repercussions are significant. The lack of available capital in our banking system servers to make sure that we will not reinvest in our businesses. For individuals, it means that many households will have a hard time retiring.  The Employee Benefits Research Institute estimates that 63 percent of households that include a person of more than 55 years old have some kind of debt. The average debt among seniors is over $70,000.

The IRA number (share of filers making a contribution) is probably even lower now, as people are now tightening their belts and trying to get through this recession.

The North Carolina Department of Commerce announced the full list of recipients for the state’s NSP grant program. In all, the state awarded $48.85 million to mitigate foreclosures in the state.  The funds come from HUD.  Nationally, approximately $4 billion was allocated to the program.

At a time when the Federal Reserve is printing one billion dollars every hour in new money, putting only $4 billion on foreclosures seems like a huge mis-allocation.  For North Carolina, with the nation’s tenth largest population, the funds will be useful but more certainly could have been utilized.  In fact, Commerce received more than $100 million in requests for its NSP funds.

Just think how much we could spend to repair our neighborhoods if we could get bonuses like those executives at AIG.  Even if we don’t know how to make a huge money losing bet on a credit default swap.

Wake County is the big winner.  It took home a bit more than 20 percent of all funds granted by the state.  Both the City and the County were awarded their own grants.  As well, Passage Home and St. Augustine’s College CDC (no web page) each received more than $2 million.  The two non-profits both plan to put the money into the Southeastern Raleigh area, a neighborhood that border’s on downtown Raleigh and its convention center.  It appears that the City also intends to put its funds in that area.  This would do a lot to shore up the capital, although the capital is hardly reeling.  In fact, a report out today shows that the Raleigh-Cary MSA is the leading city in the country for in-migration, sparked by the availability of good jobs in government and technology.

Some of the large metro areas were largely shunned. The City of Durham received $2.1 million.  Non-profits and the City had applied for approximately $5 million. At CRA-NC, our project was turned down.

Lexington and Gastonia and Henderson, all relatively small cities, each got $2 million.

For those who are shut out, some of the intermediary funding could still be a savior.  The North Carolina Community Development Inititiative got $3.5 million.  It will re-allocate a portion of those funds.  The North Carolina Housing Finance Agency got $4 million.  Self-Help Credit Union, one of the state’s most successful development agencies with operations in metro areas in most of the “greatest need” areas, only got $2.5 million.

Self-Help plans to use the money to create loan opportunities for families that want to buy these properties after they are redeveloped.  This is a different strategy, and one that should serve to enhance Self-Help’s balance sheet.  There loans will come with some guarantees, they will receive interest on their loans, and they will be collateralized.  Other recipients will spend their funds, Self-Help will add the money to its working assets.

North Carolina is waiting on the news, upcoming any day, on the awarding of NSP grants.  The North Carolina Department of Commerce’s Division of Community Assistance had indicated that decisions might be announced this week.  The DCA plan for HUD proposed contracts by March 1st, with a caveat that it could be subject to change.

The state plans to distribute the money through three channels – one for non-profits, one for local governments, and one for set asides to community development financial institutions and the NC HFA.  Charlotte has a specific allotment, on top of its competition in the pool for other dollars.  HUD’s NSP grants will total $3.92 billion.  The Stimulus included language to add another $2 billion in funds.  In the first $4 billion, North Carolina was alloted $52.3 million.  That money can be used in the 23 counties designated for greatest need.  Here is the points system:

• Demonstration of Need: 50 points (statistics on the level of foreclosures, housing quality, poverty)
• Treatment of Need: 20 points (appropriateness of the proposed strategy in mitigating those cited needs)
• Capacity of agent (non-profit, government, or cdfi/HFA): 20 points
• Green status: 1 point
• Mitigation of fraud: 4 points
• Socioeconomic factors: 5 points