More On The “Affordable Housing” Fiasco

In addition to whispered – and so far unconfirmed – reports of county employees who’ve sold their market-rate home for a huge profit and then taken advantage of the county’s affordable housing program, we have examined further the findings of the recent audit of the County’s Affordable Housing Program.

Some of those findings include the observation that although rental restrictions prohibit program participants from earning income on affordable units, such homeowners continue to earn income from partial rentals, including “exchange student” programs that, at this point, are not prohibited.

Another observation is that, “Restrictions over deed transfers and additions to title are ambiguous. Affordable units should stay deeded with the originally qualified owner(s) with exceptions for subsequent marriage and divorce. Clear rules for prohibitions against transfer to trusts or other non-person entities [corporations, LLCs, etc.] should be developed and documented. Transfers to non-spouse family members or friends should be prohibited.”

Something that we touched upon in this editorial space last week was that according to the recent audit, only a “small minority of the existing covenants address refinancing of the primary mortgage debt on the property or execution of subordinated home equity loans.” That taxpayer-subsidized homeowners over-borrowing is not addressed in the program indicates either bureaucratic ineptitude or collusion.

Here’s more, taken directly from the audit: “Current restrictive covenants vary on whether Program participants may concurrently own additional real property [italics ours]. Similar to rental income generated from affordable units, concurrent ownership of additional real property by affordable unit homeowners creates inequities in the Program. Certain Program participants have used their affordable units as an income source or asset base [italics ours]. Restrictions against concurrent real property ownership are necessary to prevent Program participants from using County shared assets as an income source. A policy regarding inherited property should be separately addressed.”

Note To Supervisors: Dump This Program Now

The audit’s conclusion? “Prior to the development of future restrictive covenants,” it states, “we recommend that the HCD, County Counsel, and the Board of Supervisors determine the overreaching goals of the Program. A conflict exists between the public interest of achieving an increasing inventory of affordable units and the private interest of individual property rights [italics ours]. These differences should be evaluated and considered during the determination of the specific Program goals and objectives to create a Program that is fair to all involved parties.”

Other findings include the observation that “a number of covenants include an equity share provision whereby the homeowner may sell the unit, at any time, at fair market value and share in the appreciation with the County.” Once that happens, the unit is removed from the program.

Do you want more evidence of county mismanagement of its “Affordable Housing” program? How about this: “Management has failed to develop policies addressing the risk of foreclosure upon affordable units. Once a unit is foreclosed upon, the lender resells the unit at market value to the general public, resulting in the loss of an affordable unit to the Program [italics ours]. The first deed of trust position given to the primary mortgage lender provides an unintended incentive to unscrupulous lenders to extend excessive levels of secured debt to Program participants. High levels of homeowner debt increase the risk of foreclosure and the lender’s ability to obtain a highly valuable asset for a price well below market value. There is effectively no risk to the lender to extend significant amounts of secured debt to under-qualified participants [italics ours].

And, finally, what should be the conclusive determinant against continuing this county employee windfall profit program: “We tested a randomly selected sample of 30 affordable unit homeowners’ cash-out refinancing or separate home equity loans. We noted 12 of the owners [40%!] sampled have executed one or more equity transactions in excess of their original mortgage amounts, the majority of which occurred in the past years. The total monetary value of the equity transactions in excess of financing was approximately $1.5 million for the 12 owners. There is no evidence of HCD management approval of any of these transactions [italics ours].

Our message to the Board of Supervisors: Honestly folks, there is no reason to continue this program. Dump it. Build or buy homes and rent them out to your favored clients if you must, but stop this open-ended home-purchase giveaway now.

93108 Open House Directory

We’ve begun with a “soft” opening of what will become a comprehensive and descriptive weekly Open House Directory for the 93108 area. If you are a broker, Realtor, or homeowner with a property on the market in 93108 and are holding a public Open House, you are invited to include it in our free listing (found this issue on page 31). Send it to realestate@montecitojournal.net and get the information to us by Tuesday 2 pm.