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First Time Homebuyer Loans Turn Into Economic Trap

Kent Brown
Friday November 07, 2003

The following letter was read during public comment at City Coucil’s Nov. 4 meeting.  


Honorable Mayor and City Council, 

I come before you tonight to ask for your assistance in bringing an end to the economic trap created by the City of Berkeley’s first-time homebuyers program that utilized HUD funding to provide $20,000 loans as down payment assistance. The laudable goal of providing assistance to low-income Berkeley families has been lost in an outcome that demands returns 10 times that of financing available on the open market. These fantastic returns were realized in part by disclosure practices that left first-time buyers unable to make an informed decision about the risk inherent in the city’s loans that effectively turn our homes into equity stocks. The loans grow at a rate that greatly outpaces the incomes of low-income families, creating an insurmountable debt that holds our homes hostage into perpetuity undermining our property rights. 

Homeowners are responsible for the astronomical maintenance costs of the mostly older rundown homes that often need thousands of dollars in repairs and are loaded with lead paint and other toxics. “Sweat-equity” upgrades work against homebuyer’s by further raising the value of the home. Currently the $20,000 loan on my home has ballooned to $50,000 in just five years. Another family is on the hook for over $81,000! Long-term residents are at the greatest risk to the hidden balloon payment upon repayment of the first mortgage that would likely lead to the loss of the home by then elderly owners. Based on the city loans past performance, it could demand hundred of thousands of dollars by then. 

These terrible loans work at cross-purposes to the mission of low-income assistance. I understand that the city will be considering adopting Oakland’s anti-predatory lending law. I ask that you start your work at home by amending the city’s FHAP loans to forgive the equity stranglehold after between five to 10 ten years as is done in most municipalities, providing for a proper recapture period without abusing low-income homeowners forever. 


Kent Brown