By Cory Gaines | Commentary, Colorado Accountability Project
I wrote earlier in the week about Impact Development and taxpayer-subsidized mortgages. That newsletter is linked first below if you’re interested.
I have an update of sorts to share. It’s not so much the program I outlined earlier, more a related program run out of Colorado Housing and Finance Authority (CHFA).
The program is called the Schools to Home Program. The CHFA website for this program is linked second below. I’ll run through the details and a quick example here, but as I do, I do not want you to lose track of something.
Hidden in all of the graphics and words are the following: public money is given out on loan to the people who are in the program, and they get generous terms on their loans that others would not. All of this largesse is courtesy of our state legislature which created this program by law (see the third link below for the bill).
Returning to the CHFA website, the program overview is attached as screenshot 1.
As with the program from the earlier newsletter, this is one intended to help public school educators** buy homes.
Further down the site, there is a helpful graphic illustrating how this works. That’s attached as screenshot 2.
Given that it took me a few reads to understand, let me help illustrate with another example. Say you’re a teacher. You want to buy a home in a particular neighborhood that costs $200,000. You can’t buy it at that price.
CHFA steps in and helps by buying down the purchase price to $150,000. That is what you can qualify for. Now you have a mortgage at a traditional lender for $150K. CHFA took $50K out of the Public School Permanent Fund and now you have a second mortgage for that amount.
If you pay off the loan, sell the home, or refinance later, the value at that time determines what comes next.
Let’s say after 10 years you want to move so you sell your home. It sells for $275,000. You got $75 more than you paid. That full $75K isn’t yours, however. You owe $50K for your second mortgage.
AND (this is what they mean by shared equity), you also owe some of that $25K extra equity. In fact, you owe 50k/200k = 25% of it or 25000 x 0.25 = $6250 with the remaining $18750 yours to keep.
CHFA gets their money back (with the shared equity as interest), you got a home, the Public School Permanent Fund gets made whole, everyone’s happy.
Except… Except that there was no graphic on the website showing what happens in a less rosy picture.
Take my example from before: the $200K home with a $150K first loan and a $50K second mortgage. What if you want to sell but the house is only worth $225K? What if, God forbid this happens to anyone, the house goes to $140K?
Or, what if the buyer defaults? What if they skip out on the loan and it goes into foreclosure, selling for only $180K at auction?
I put those questions to the CHFA spokesman and got the following back (quoting from my email):
“The down payment assistance/closing costs second mortgage loan, plus the shared appreciation payment, is due when the borrower pays off the first mortgage, sells or refinances, or when the home is no longer the borrower’s primary residence. Monthly payments on the second mortgage loan are not required. In the event of a foreclosure, the second mortgage is forgiven and not repaid to the PSPF, unless there are surplus funds. In response to your second question, in the event of no appreciation or depreciation, the borrower will not owe any shared appreciation payment. but haven’t heard back.”
Would that we could all get such generous terms on our debt: there’s no downside for them in this gamble. Heads I win, tails you lose.
In other words, let’s hope no one defaults and/ that there will be sufficient appreciation. If not, those that supported this effort have taken money out of the school fund with no way to ensure that it gets replaced.
There’s one last thing to mention. I wanted to share some summary statistics about the program. The same spokesman told me that the program started on July 1st of this year (per the law) and that, as of Monday 7/27, there were 28 loan reservations totaling $8.4 million, with $2 million in down payment assistance.
As part of my research into this and other related topics, I came across an interesting report out of the state treasurer’s office about novel uses for the Public School Permanent Fund. I think that that report is motivating a lot of what you see here and in my earlier newsletter.
Keep your eyes peeled for a look at that report.
**Private and parochial school educators, you’re out of luck. Perhaps because you don’t have a union funneling money to politicians.
Quoting: “CHFA Schools To Home is for any individual employed by a preK-12 Colorado public school, school district, charter school, institute charter school, board of cooperative educational services, or innovation zone, who is classified as a full-time employee by their employer.” and then later “Please note: If multiple borrowers are on the loan, only one borrower must be a full-time public school employee.”
https://coloradoaccountabilityproject.substack.com/p/colorado-schools-are-losing-16000
https://www.chfainfo.com/homeownership/chfa-schools-to-home-program
https://leg.colorado.gov/bills/sb25-167
Related:
READ THE FULL COMMENTARY AT THE COLORADO ACCOUNTABILITY PROJECT
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