The San Mateo County Community College District Board of Trustees has agreed to review its employee home loan program, following allegations that the offer could be seen as predatory.
The district began offering the program in 2001 to help employees looking to buy a home in the increasingly expensive Bay Area market. Those who work for the district can borrow up to $150,000 as a down payment, interest-free for the first five years and at a low rate for the next five years.
But a couple who used the scheme to buy their first home in 2018 said their $130,000 loan had since soared to $182,000 – an effective interest rate close to 20% – leaving them with monthly payments that he found it difficult to respect.
“In some circles, it’s called predatory lending,” said Mary Taylor Fullerton, a county public mental health therapist and district adjunct faculty member, who along with her husband took out the loan.
She said the increase was due to the shared appreciation component of the loan agreement, a stipulation that requires borrowers to pay the district a portion of a home’s appreciation that occurs during the term of the loan agreement. ready.
The couple are urging the district to reconsider the policy, which they say contradicts the program’s intent to equitably reduce housing costs. They said that since April they have applied for leniency on their loan to no avail.
According to district figures, he has lent more than $3 million since the program’s inception to 43 borrowers, of which $2.5 million has been repaid. Seven borrowers are still repaying their loans and at risk of default.
Nearly $400,000 was collected from the participation fee, which is due if the employee sells or refinances the home, quits their job with the district or at the end of the 10-year loan term, according to the guidelines of ready.
“It’s a shared risk, shared reward model,” said Mitchell Bailey, vice chancellor and district chief of staff.
At their July 27 meeting, the trustees had mixed responses to criticism of the program.
“I think this program has done a lot of good for a lot of people,” said board chairman Richard Holober. “I really want to caution against accepting the idea that this is a predator in any way.”
He pointed out that standard mortgages amounted to almost 6% and that second mortgages like those offered by the district had rates closer to 8% through conventional lenders. The district’s loan interest rate after five years is currently 3.22%, he said.
“I’m a big believer in consumer education,” he said. “Advice is so vital that people really need to understand what they’re getting into.”
Others, however, were more critical. Administrator Maurice Goodman said that while the program was “obviously…very good”, there was room for improvement. He said he had heard from other program participants that they felt he was predatory, with some even considering legal action.
“It’s not something new that we’ve heard from current or former employees in our district,” he said.
Board Vice Chair Lisa Petrides said the district should look at how much shared capital fees have been adding to loans in recent years, given soaring home appreciation.
“I don’t understand how this is fair and helps people afford homes that haven’t been able to afford them in the past, so maybe we could consider these programs in those types of markets,” a- she declared.
Median home prices in the county have increased by more than $1 million over the past decade, up to $2.1 million this year from $779,000 in 2012 and $637,000 in 2002, according to data from the California Association of Realtors.
For a $1 million home that has appreciated by $250,000, a $100,000 loan from the district would yield a shared capital charge of $25,000, based on the formula provided by the district.
For his part, administrator Thomas Nuris suggested that if the program comes under scrutiny, the district should stop offering it.
“It seems that no good deed goes unpunished,” he said. “In order to avoid these kinds of discussions in the future, let’s just eliminate them, and then we can just do what we do and people can figure out how to borrow money for their own homes.”
Petrides pushed back on the comment. “Saying we can’t improve at something we do just because we’re being criticized…is the exact opposite of what I’m trying to argue,” she said.
“Why did we try to get a multi-million dollar grant to build student housing? Why are we considering teacher housing? That’s what we’re in the business of doing,” she added.
Michael Claire, the district chancellor, agreed that shared capital charges should be considered against the interest charges associated with standard loans.
“[It’s] a good time to review a program that I think has actually been a hit for a long time,” he said. “If we’re completely out of whack, and indeed predatory, if that’s what you want to call it, then yes, I think an adjustment is in order.”
Referring to the Fullertons’ leniency request, he pointed out that as Chancellor he was unable to make adjustments to individual loans.
“We’re doing things right, so even though I feel like ‘hey, the district isn’t moving,’ I currently don’t have any mechanism to make adjustments,” he said. he declares.
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