The specter of foreclosures reared it’s head in Chico this week as the City of Chico Mortgage Subsidy Program (TMP) was presented it’s first default scenario… unfortunately not the last they’ll encounter.
The TMP is a well intentioned and popular program that in recent years has assisted numerous first time buyers of homes within the city limits of Chico in obtaining no-to-low interest second mortgages to help in dealing with upward spiraling entry level home prices. The program, administered by the Chico Housing and Neighborhood Services Department has been so popular in fact that it was recently discontinued as a result of all of the available funds having been loaned out. The first-blow to the program came on Monday of this week as the committee overseeing the program was presented with a ‘short-sale’ proposal from a defaulting home-owner.
Short-sales are a procedure designed to prevent foreclosure. Whereas foreclosure means that all loans other than the first mortgage are wiped out as the bank acquires the home and create a long-lasting credit hit for the borrower, a short-sale allows the home-owner to attempt to sell the home prior to the foreclosure (usually with the help of a real estate agent), saving the first mortgage lender the cost and risk of taking back the property, offering the chance of some return for second mortgage holders, and salvaging some of the borrowers credit.
At issue in regards to the TMP is the question of ‘some return for second mortgage holders’. With home prices depreciated by as much as 50% in some areas, when it comes time to sell the home there is not enough value to even fully repay the first, let alone ‘some’ funds leftover for the second. This second-place is the unsavory position that the TMP now finds itself in.
Options for the City are few. If the Home is foreclosed upon the City can pay off the first mortgage and take possession of the home, hoping to re-sell it and recoup some it’s investment, but this is a very risky proposition. The City will have costs involved in the purchase of the home, The City will find itself in the home ownership business and there is no guarantee that the City will be able to find another buyer for the home willing to pay more than the City itself has purchased it for. If, on the other hand, a ‘short-sale’ occurs the price may very well be so low that the City receives either nothing or only a token repayment.
Monday’s meeting focused on the first of at least two short-sale proposals before the city. The first scenario involves a $30,000 loan, the second, scheduled for consideration in late January for $50,000.
To be continued.
The TMP is a well intentioned and popular program that in recent years has assisted numerous first time buyers of homes within the city limits of Chico in obtaining no-to-low interest second mortgages to help in dealing with upward spiraling entry level home prices. The program, administered by the Chico Housing and Neighborhood Services Department has been so popular in fact that it was recently discontinued as a result of all of the available funds having been loaned out. The first-blow to the program came on Monday of this week as the committee overseeing the program was presented with a ‘short-sale’ proposal from a defaulting home-owner.
Short-sales are a procedure designed to prevent foreclosure. Whereas foreclosure means that all loans other than the first mortgage are wiped out as the bank acquires the home and create a long-lasting credit hit for the borrower, a short-sale allows the home-owner to attempt to sell the home prior to the foreclosure (usually with the help of a real estate agent), saving the first mortgage lender the cost and risk of taking back the property, offering the chance of some return for second mortgage holders, and salvaging some of the borrowers credit.
At issue in regards to the TMP is the question of ‘some return for second mortgage holders’. With home prices depreciated by as much as 50% in some areas, when it comes time to sell the home there is not enough value to even fully repay the first, let alone ‘some’ funds leftover for the second. This second-place is the unsavory position that the TMP now finds itself in.
Options for the City are few. If the Home is foreclosed upon the City can pay off the first mortgage and take possession of the home, hoping to re-sell it and recoup some it’s investment, but this is a very risky proposition. The City will have costs involved in the purchase of the home, The City will find itself in the home ownership business and there is no guarantee that the City will be able to find another buyer for the home willing to pay more than the City itself has purchased it for. If, on the other hand, a ‘short-sale’ occurs the price may very well be so low that the City receives either nothing or only a token repayment.
Monday’s meeting focused on the first of at least two short-sale proposals before the city. The first scenario involves a $30,000 loan, the second, scheduled for consideration in late January for $50,000.
To be continued.
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