Kick-Down, With Conditions
Seaside offers down payment loans – with some hitches – for first-timers of modest means.
Thursday, May 7, 2009
State law requires cities to set aside about 20 percent of redevelopment funds for affordable housing. In Seaside, where the lack of water limits new housing construction, the city is complying mainly by offering down payment assistance (DPA) and home-renovation loans.
DPA loans of $50,000 to $75,000 are available for low – and moderate-income, first-time homebuyers who live or work in the city. Homeowners don’t have to pay it back, with 3 percent interest, until they sell.
The program has been in effect since the early ’90s, according to Seaside Redevelopment Project Manager Richard Glenn. But after almost 20 years, only about 20 loans are on the books, he says – and some $10 million is still languishing in the fund. The pace picked up in the past year, he adds, with five new DPA loans approved.
The slow uptake has a bit to do with the city’s strict standards. “We have to be at least as conservative as any bank, because we’re dealing with the public trust,” Glenn says. “To maintain the credit – worthiness is really challenging for low – and moderate-income people. But we’re trying not to be chintzy with these loans, because they ultimately come back into the community and recycle.”
Another factor may be that qualified homebuyers aren’t warming to the loan’s somewhat parental conditions.
For one, loan recipients can’t rent out any part of their homes. If they do, the entire loan balance becomes immediately due. That hasn’t happened yet, Glenn allows: The city doesn’t have the resources to police the program, and staff would only investigate if a tenant complains. Even if homeowners are caught renting out a room to help make their mortgage payments, they might not have $75,000 handy upon demand.
“If someone’s ready to become a landlord,” Glenn says sternly, “they need to drop out of the program.”
Secondly, if the home is sold in fewer than 10 years, the city collects a ratio of the equity proportionate to the loan, regardless of money invested to improve the property. For example, homebuyers who accept a $50,000 DPA loan on a $200,000 house – 25 percent of its value – and sell it five years later for $300,000 would have to repay the loan balance, with interest, plus 25 percent of the equity, or $25,000.
“Provisions in the [state] law direct us either to control the sale price or to come up with some kind of equity-sharing program,” Glenn says. “Seaside is the community of affordable housing. It’s a lot of trouble to hold down the value of houses.”