Credit and the poor

smaneck · Dec 12, 2014

One of the things the Prophets, from Moses to Muhammad, have condemned without exception is the exploitation of the poor through charging interest. Yet it is virtually impossible to rise out of poverty without access to affordable credit.
I've been thinking a lot about this lately as I've been taking advantage of the real estate market crash to buy houses at about 30-35K which I then rent, often as Section 8 housing to the tune of $800-$900 a month. I do this without spending any money whatsoever on advertising, other than the cost of a sign in the yard. People are begging for nice houses to live in, yet there are vacant homes all over town.
Former President Carter appeared on the Daily Show talking about Habitat for Humanity. He explained that they built housing for the poor then sold them at fair market value, with mortgages amortized over twenty years but with no interest charged because as he put it, "the Bible prohibits charging interest to the poor."
I couldn't help but think however, that at least here in Mississippi, there might be a better way to help the poor. As I indicated, nice houses can be found in Mississippi for less than 40K. You certainly can't build a house at with that amount, even when the labor is largely free. If the poor could get mortgages on these homes, they would have payments of only $200-300 a month payments. Not very many people are so poor they couldn't afford that! The problem is that lenders will not write mortgages for loans of less than 50K. What that means is that if homes drop below that amount only investors who pay cash can buy them.
Now I'm making a lot of money out of this situation, but not without some pangs of conscience. I could lower the rent, of course, but my experience is that the less you charge for rent the harder it is to find good tenants.
It seems to me that what we need is non-profit organization willing to write micro-mortgages at either no interest or at today's standard interest rates. It would have to be non-profit because there is no money to be had in mortgages that small even at standard interest rates. But I think it would bring a lot of people out of poverty, giving them dignity instead of charity.
This may very well be off-topic for this forum, but I'd like to know what the rest of you think?

dcalling · Dec 12, 2014

I don't think it is a Christian idea that we should not charge interest. My understanding is in the time of Torah, interest charging is bad because the productivity is low and charging interest puts one in great danger of default and other harms.

When Christ come he give the commandment that "Love your neighbor as yourself" is the biggest law of all and all others hang on, so as long as the activity is based on love, it is OK. In this case given a loan to a family so they can live in a house otherwise would take them 10 years to live in is good.

Arthra · Dec 12, 2014

There is an organization for micro loans called Kiva.. My wife has invested a hundred dollars in the last couple of years ... It was paid back five or six times... She's convinced it does some good..

http://www.kiva.org/about

There's a Baha'i group in Kiva....

smaneck · Dec 12, 2014

dcalling said:
I don't think it is a Christian idea that we should not charge interest. My understanding is in the time of Torah, interest charging is bad because the productivity is low and charging interest puts one in great danger of default and other harms.

That's still what happens to the poor today who can only get credit from payday or title loan places or pawnshops.
Loaning at interest was still prohibited in Christianity up until the early modern period when banking for commerce became so important. But usury (charging excessive interest) was still disallowed. When I was a kid credit cards in California couldn't charge more than 12% interest. The credit card companies got around that restriction by operating out of other states. Payday loan places can even get around bankruptcy laws because they are short term loans that are automatically renewed. They can end up charging 300 to 3000% interest per year.

Recently the Southern Baptist Convention came out condemning predatory lending as unbiblical. I applaud them for that.

Jane_the_Bane · Dec 13, 2014

When you see how American credit card companies deliberately encourage people to slide ever-deeper into debt by encouraging people to pay back a minimum amount (thus increasing the amount they owe on a monthly basis, with interest), it's impossible to see any kind of Christian (or other) "love" behind it, except perhaps for a love of Mammon.

The same applies to most banks, basically. Employees are often deliberately encouraged to sell products to their customers that will ultimately benefit only the bank.

Interest in and of itself is a problematic concept, because it pretty much means that the rich will grow richer all the time just by sitting on their money, while the poor are denied access. Most people PAY more interest than they receive - even indirectly, through rent, product prices, etc.

dcalling · Dec 13, 2014

To smaneck and JaneBane,

predatory is unbiblical, because it is against the rule of Loving your neighbor.

However I would think nowadays the bigger problem for the poor is credit is hard to come by, forcing them to carry cash around, work more years to own a house. I still remember how hard it is for me to get a credit card when I first came here.

harvester77 · Dec 13, 2014

dcalling said:
I don't think it is a Christian idea that we should not charge interest. My understanding is in the time of Torah, interest charging is bad because the productivity is low and charging interest puts one in great danger of default and other harms.

When Christ come he give the commandment that "Love your neighbor as yourself" is the biggest law of all and all others hang on, so as long as the activity is based on love, it is OK. In this case given a loan to a family so they can live in a house otherwise would take them 10 years to live in is good.

I think in this case Islam has it spot on. The west well I am in the UK shops like brighthouse are exploiting the poor with extortionate interests. As a Christian this is not loving thy neighbour. Just greed. Loans within family can be good but charging stupid interest rates is not very Christian as it goes against loving thy neighbour. Check out causes of modern depression expoiting the poor. Money seems to be God for banks and such.

dcalling · Dec 13, 2014

harvester77 said:
I think in this case Islam has it spot on. The west well I am in the UK shops like brighthouse are exploiting the poor with extortionate interests. As a Christian this is not loving thy neighbour. Just greed. Loans within family can be good but charging stupid interest rates is not very Christian as it goes against loving thy neighbour. Check out causes of modern depression expoiting the poor. Money seems to be God for banks and such.

It is only true to some part. If u require full payment to own a house, that will be against the poor, since only the rich can own them.

It is relatively easy to regulate interest, in U.S. some states has laws to regulate interest to certain rates. However enen that can be problem for some poor as the bank won't lend due to risk. The real life problems can be too complex o be regulated by law.

smaneck · Dec 13, 2014

dcalling said:
However I would think nowadays the bigger problem for the poor is credit is hard to come by, forcing them to carry cash around, work more years to own a house. I still remember how hard it is for me to get a credit card when I first came here.

And that is precisely my point. The only kind of credit the poor can get is predatory lending. And it takes credit to move into the middle class. I probably owe ten times as much as someone who lives below the poverty line, but it isn't a problem for me because I don't pay more than 4.5% interest on any of it. Poor people need checking accounts, they need credit cards, they mortgages, they need car loans at reasonable rates. Above all they need financial literacy so they understand how money works. I'm always talking to the young men who work for me about credit scores, how to go about getting a good credit score and the importance of keeping them high.

Tobias · Dec 14, 2014

From my observation the poor people in America are poor because they spend more money than they make. Why would anyone have bad credit? Because they spent unwisely, defaulted on their loans, and nobody in their right mind is going to trust them with large sums of money again!

Compared to much of the rest of the world, America is filthy rich. Anyone down on their luck can find government and church programs to help them get back on their feet. You can live quite comfortably on welfare and food stamps. Not comfortably compared to the Joneses next door, but compared to the billions of other people on this planet who are in real eminent danger of dying from exposure or starvation.

Our problem is materialism. We are told a thousand times a day to "buy, buy, buy!!!" We believe that we can't be happy till we have_____________! So we mortgage our futures, and defile our good name by buying more stuff than we can afford. Those who don't default on their loans, spend a lifetime in the equivalent of slavery working to support a buying habit that promises to provide meaning for Life, but doesn't.

...Unless it's drugs or alcohol, then everything is sacrificed to that habit instead!

*Just some thoughts from a Missionary Kid that grew up overseas, and then spent his entire adult life living in the USA.

Jane_the_Bane · Dec 14, 2014

Tobias said:
Our problem is materialism. We are told a thousand times a day to "buy, buy, buy!!!" We believe that we can't be happy till we have_____________! So we mortgage our futures, and defile our good name by buying more stuff than we can afford. Those who don't default on their loans, spend a lifetime in the equivalent of slavery working to support a buying habit that promises to provide meaning for Life, but doesn't.

I completely agree with this paragraph, but not necessarily with the assessment that all poor people are just folks who can't handle money, and/or should be grateful for food stamps in one of the most prosperous nations of the world.

Everything you need to know about a society can be seen when you look at how they treat the poorest part of their populace.
People in some third-world country might have less amenities and disposable income than the poorest slum dwellers in the USA, but their quality of life might still be better if the society around them pools their resources and works together to make life a little better for everyone.

I'd rather be living in a straw hut in the jungle, surrounded by an expanded family of fellow tribesmen, than be a homeless person in Detroit, New York, or some other US city.

Heck, there are more and more places in the US where it is FORBIDDEN BY LAW to feed the homeless, the rich hide behind huge fences and private security firms, and counties place SPIKES on various potential sleeping places to prevent people from lying down there.

Jane_the_Bane · Dec 14, 2014

Weirdly enough, giving homes to the homeless would actually SAVE taxpayer money, according to a study.

smaneck · Dec 14, 2014

Tobias said:
From my observation the poor people in America are poor because they spend more money than they make.

How can anyone is America not spend more than they make if they have the smallest medical procedure? Here in Mississippi where they chose not to extend Medicaid, more than 40% of the population is still without affordable health care.

Why would anyone have bad credit?

Because they got sick? Most bankruptcies in the US are the result of medical bills.

Because they spent unwisely, defaulted on their loans, and nobody in their right mind is going to trust them with large sums of money again!

Very seldom did they have loans at a reasonable rate to begin with.

Compared to much of the rest of the world, America is filthy rich. Anyone down on their luck can find government and church programs to help them get back on their feet.

Except despite the fact we are 'filthy rich' we don't have nearly as many government programs as the rest of the developed world. Which government program will help someone pay off a forty thousand dollar medical bill for an appendectomy? Remember, in those states which refused to extend Mediaid, a large portion of the poor are still without health insurance. My in-laws are among them. He is a refugee from Afghanistan, she is from India. He works at a convenience store a minimum wage. His wife has a medical condition which prevents her from working. Their son was eligible for Medicaid. They were not. He broke his arm. How will he pay the bill? He probably won't. Ironically in India where he was living as a refugee previously, he had access to affordable health care.

The other kind of loan poor people might default on is student loans, but in no other country in the developed world would impoverished students be expected to go deep into debt to get an education. As a result most don't end up completing it.
Every other source of loans available to the poor are offered at usurious rates which make it virtually impossible for them to pay back

You can live quite comfortably on welfare and food stamps.

Have you ever tried it?

*Just some thoughts from a Missionary Kid that grew up overseas, and then spent his entire adult life living in the USA.

There is a difference between absolute poverty like you saw overseas and functional poverty that we have in the US. When I lived in India no one without a car could possibly be considered poor. Here, the poor may live in their cars! Functional poverty is where one lacks the means for earning enough money to pay for the basic necessities of life. Here in the US, where aside from a handful of major metropolitan areas a car is a necessity for holding a job, as is a phone. But perhaps more importantly the poor lack hope and dignity. That's why I think a program which offered micro-mortgages to the working poor could achieve so much more than programs like Section 8 which in my opinion help landlords like me because they keep the cost of rents up. Of course, this will only work in places like Mississippi where decent houses can be bought for less than 50K. And my guess is that this won't be the case for long, as the housing market would soon recover if the poor could get small mortgages. And the blight of empty houses would soon end. The housing payment for a 45K mortgage would be less than $300 a month and that is at 5% interest. If the poor are paying the amount, not to a a landlord, but to pay off their own mortgages, they would take pride in making that payment. They would have hope because mortgages provide a source of wealth for the future.
We are not talking about the type of mortgages which brought down the housing market in the first place, where initial payments were less than the interest charged on the loan, meaning they would get larger over time until borrowers could no longer afford them. Instead we are talking about mortgages so small no bank wants to deal with them, with payments less than what most people on Section 8 are expected to pay. Yet what they get out of it is the pride, dignity and hope which comes with home ownership.

smaneck · Dec 14, 2014

Jane_the_Bane said:
I completely agree with this paragraph, but not necessarily with the assessment that all poor people are just folks who can't handle money

However, financial illiteracy is definitely a problem with the poor. They don't know how to manage a checkbook, how calculate what they are paying in interest, etc. I teach at a historically black university which still largely serves the urban poor. We require a ton of general education requirements, most of which I consider unnecessary like music and art appreciation. I do think we need to have a required course in financial literacy, something that should be required in every high school but isn't.

,

and/or should be grateful for food stamps in one of the most prosperous nations of the world.

Ironically the homeless aren't eligible for food stamps.

People in some third-world country might have less amenities and disposable income than the poorest slum dwellers in the USA,

Actually they may have more, because in countries like India, the poor hoard gold which they use for weddings and such. And yes, because they often live in joint families expenses and wealth are shared. Typically all the members of the household hand over their paychecks to the mother, who then decides how best to distribute it.

dcalling · Dec 14, 2014

Jane_the_Bane said:
I completely agree with this paragraph, but not necessarily with the assessment that all poor people are just folks who can't handle money, and/or should be grateful for food stamps in one of the most prosperous nations of the world.

Everything you need to know about a society can be seen when you look at how they treat the poorest part of their populace.
People in some third-world country might have less amenities and disposable income than the poorest slum dwellers in the USA, but their quality of life might still be better if the society around them pools their resources and works together to make life a little better for everyone.

I'd rather be living in a straw hut in the jungle, surrounded by an expanded family of fellow tribesmen, than be a homeless person in Detroit, New York, or some other US city.

Heck, there are more and more places in the US where it is FORBIDDEN BY LAW to feed the homeless, the rich hide behind huge fences and private security firms, and counties place SPIKES on various potential sleeping places to prevent people from lying down there.

Not really. Would you want to be a rich man in the 1700s where if you had tooth problem you have to do it without amnesia?

Even the poorest people today are better off compare to the rich guys in the ages of old. It is all about perception and how you think.

When my friends come to US, most have less income than the social security given to the poor. If the US teaches people to be responsible for themselfs instead of given money to them and tell them how badly they have been treated, that would be a better way for the poor, let them work with dignity instead of taken hand outs.

You should gurranty them a JOB instead of guaranty them hand outs.

Jane_the_Bane · Dec 14, 2014

dcalling said:
Not really. Would you want to be a rich man in the 1700s where if you had tooth problem you have to do it without amnesia?

I would be very surprised if any dentist considered memory loss an essential part of his treatment - then or now.

If the US teaches people to be responsible for themselfs instead of given money to them and tell them how badly they have been treated, that would be a better way for the poor, let them work with dignity instead of taken hand outs.

You should gurranty them a JOB instead of guaranty them hand outs.

Oh my...

dcalling · Dec 14, 2014

Jane_the_Bane said:
I would be very surprised if any dentist considered memory loss an essential part of his treatment - then or now.

See, a foreign guy with VERY bad spelling and no money can make a comfort middle class life in US.

Jane_the_Bane said:
Oh my...

Yep. That might sound somewhat communist but it is true. If people can support themselfs, at least they can have some pride.

Most of people in US or Europe don't really know what poor is. Me and many of my friends have picked left over burned coal, sub zero with few cloth and no AC at all, food from left overs (that was in US when I was still poor). Many others has experienced much worse. The poor in US are truly lucky. If they ever experienced the conditions in other countries, most of them can leap out of poverty in no time, just like their immigrant counter parts (not some recent ones though, for some reason they come here and got on social security right away...).

dlamberth · Dec 14, 2014

dcalling said:
You should gurranty them a JOB instead of guaranty them hand outs.

That would be nice. But who's going to create those jobs? The Government? We do need an infrastructure re-build, what we have is falling apart. But it's politically not possible right now.

.

Jane_the_Bane · Dec 14, 2014

It's a disgrace that there's even such a thing as "working poor", i.e. people who work full-time, and yet can hardly afford the bare necessities of life.

Any job that pays so little is basically an act of theft conducted by the employer, who steals his employees labour power without sufficient recompensation. And the worst part: society even REWARDS such ruthlessness by subsidizing such workplaces, letting the community pay for food stamps etc. to keep the victims afloat.

Of course, we cannot let people starve - but we totally should but an end to such exploitation.

AskTheFamily · Dec 14, 2014

Jane_the_Bane said:
It's a disgrace that there's even such a thing as "working poor", i.e. people who work full-time, and yet can hardly afford the bare necessities of life.

Any job that pays so little is basically an act of theft conducted by the employer, who steals his employees labour power without sufficient recompensation. And the worst part: society even REWARDS such ruthlessness by subsidizing such workplaces, letting the community pay for food stamps etc. to keep the victims afloat.

Of course, we cannot let people starve - but we totally should but an end to such exploitation.

Minimum wage was suppose to fix this, but, minimum wage hasn't been keeping in up with inflation.

Credit and the poor

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