CalHFA Reverses Policy Forcing Unnecessary Foreclosures

October 28, 2011

In response to a recent request from Senate President pro Tempore Darrell Steinberg and Senate Transportation and Housing Committee Chair Mark DeSaulnier, the California Housing Finance Agency (CalHFA) has agreed to temporarily stop foreclosing on borrowers who remain current on their mortgage payments.

This issue came to light through a report released earlier this week by the Senate Office of Oversight and Outcomes entitled, “Good Deeds Punished: California’s State-Run Mortgage Lender Forecloses on Californians Current on Their Loans.”  The executive summary and full report by the Senate Office of Oversight and Outcomes can be found here.

“The agency is making the right decision during difficult economic times” said Senate Pro Tem Steinberg (D-Sacramento). “Struggling families who are working to do the right thing in meeting their obligations shouldn’t be saddled with an extra, unnecessary burden. I commend CalHFA’s  administrators for working to strike a balance between their policies and the needs of California’s hardworking families.”

The report chronicles many instances where borrowers with growing families or other changing life circumstances run afoul of CalHFA’s stringent policies when the family moves to more suitable housing. Those borrowers are faced with huge losses if they were to sell in a depressed housing market, so they temporarily rent out their CalHFA financed home while still making their monthly mortgage payments. Unlike housing finance agencies in most other states which are more flexible in their policies, CalHFA is giving those borrowers an ultimatum of moving back in, repaying the loan in full, or facing foreclosure. Each foreclosure costs CalHFA approximately $50,000 in uninsured losses.

“I applaud CalHFA for acting quickly to correct this situation in the short term,” said Senator Mark DeSaulnier (D-Concord). “I encourage CalHFA to correct this policy permanently at their January Board of Director’s meeting.  CalHFA serves predominately low income, first time home buyers.  These Californians should not fear foreclosure when they are doing everything right.”

The Senators’ initial letter, sent to the executive director of CalHFA, urged the agency to “revisit its owner-occupancy policy with an eye towards formulating a more flexible approach.” While CalHFA bases the current policy on its interpretation of Internal Revenue Service code requirements, the Senators’ letter went on to state, “It’s hard to imagine that lawmakers and the Internal Revenue Service had borrowers like these in mind when they wrote the laws and regulations governing tax-exempt bonds.” Please find a copy of that letter attached.

In response, CalHFA wrote the Senators stating, “We have asked that the CalHFA Board of Directors review the rules regarding owner-occupancy at their next meeting in January 2012 . . . In the interim, we are temporarily ceasing foreclosure procedures against anyone who has received a Notice of Default due to non-monetary default, i.e. those who may be renting out their residence while staying current on their payments.”  

Please find attached Monday’s letter from the Senators and CalHFA’s full response.

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