Real Estate Investing

This is a real shame. It seems the affordable housing program in Napa Valley, California is falling victim to the mortgage crisis. Two of the homes were recently foreclosed upon, one of which will bring the city of Napa’s Housing Authority a financial loss to the tune of about $56,000. In one of the foreclosure cases, the homeowners had previously used about $100,000 in home equity to pay off consumer debt and fix up the home.

Altogether, the city’s Housing Authority owns 230 properties for low-income, first-time homebuyers. Most of the mortgages are fixed rate, but the two foreclosures were on properties with adjustable rate mortgages. The mortgages reset to a higher rate, while the values of the homes simultaneously declined by as much as $100,000. Those two combined factors proved to be a crippling blow that the homeowners could not overcome.

The Housing Authority has learned from this little setback. All future low-income first-time homebuyers in the program will be required to take a 30-year, fixed-rate mortgage. No more ARMs. Furthermore, city council members are asking the organization to place restrictions on when and for what reasons participating homeowners can refinance their homes.

Here’s the really interesting part: The Housing Authority’s purchase limits for qualifying “low income, first-time homebuyers” is $532,000. At least one of the foreclosures involved a house worth about $430,000 after the value had dropped significantly. Wait, are we talking half-million dollar homes here? I’m low-income, sign me up!