MortgageOrb recently reported on California's new $200 million Community Stabilization Home Loan Program, which is designed to assist first-time homebuyers who are seeking to buy homes in neighborhoods that were severely affected by the foreclosure crisis. As it is designed, the program provides eligible first-time homebuyers seeking purchases in foreclosure-riddled communities with below-market interest rate loans.
The California Housing Finance Agency (CalHFA), a state agency, is running the program, and it has announced that several lenders have already agreed to participate as partners by offering sales prices on bank-owned properties that are at least 12% below the estimated market value. CalHFA adds that anywhere from 800 to 1,000 first-time homebuyers will be able to gain new homes through the program.
This program needs to be commended and studied. Its importance can be stressed through three key concerns.
First, the program is actively encouraging the revitalization of the nonprime sector of the mortgage market. The first borrower sector to suffer in the current crisis has been the nonprime category. As any professional originator will attest, the concept of nonprime lending was never an issue – the problems came through the introduction of inappropriate products and industry-wide embrace of sloppy underwriting and abysmal risk management.
Hopefully, this program can spark a new look at encouraging nonprime borrowers to seek out loans. The fact that several lenders are already on board is very encouraging.
Second, the foreclosure crisis has signaled the possibility of a new brand of fraud, where fraudsters and flippers take advantage of today's crisis state by snatching up foreclosed properties at cheapo prices with the intention of pumping and dumping them at inflated values.
By having the program run by CalHFA (a progressive and highly professional entity), there is the guarantee that only the right borrowers are able to participate.
Third, the program should offer a quick stopgap solution to the deterioration of property values in foreclosure-infected areas. Gov. Arnold Schwarzenegger, in announcing the program, noted the acute challenge created by having a glut of vacant homes concentrated in specific communities.
‘We have taken a number of actions to help prevent foreclosures, but we also want to address the many already-foreclosed-on homes that sit vacant in our neighborhoods today,’ he said. ‘This program will not only make it easier for families to purchase their first home, but will also help stabilize neighborhoods that have homes sitting empty. No one single effort can solve our nationwide housing crisis, but together these measures make an important difference in California's neighborhoods.’
The program is slated to run until its $200 million budget is depleted. If there are more qualified applicants than the current funding allows, I hope it will be renewed without problems.
I also hope that other state governments and state housing agencies will pay close attention to the California example. By enacting a preemptive strike against foreclosure-fueled neighborhood blight while simultaneously encouraging a new wave of borrowers, the program is the ultimate win-win situation.Â
I believe the California program's concept can easily be adapted to other parts of the country – and considering the current crisis is showing no sign of abatement, perhaps this should be investigated and (if applicable) implemented with all possible speed.
– Phil Hall, editor, Secondary Marketing Executive.
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
