February 17, 2008

Sub-Prime Municipal Fall-out

As real estate was increasing every year, the city was lending out millions in loans that were given as grants from HUD. This is how it worked.

Typically a CDC sold a home, that they either renovated or built new, to a first-time homebuyer, Lets assume the sale price was $200,000 with a 1st mortgage for $150,000 that was paid back each month just like any other mortgage. On top of the 1st mortgage, however, there would be a $50,000 "soft" second mortgage. This mortgage would not have a monthly payment and after the "affordability period" expired, usually 15 years, the mortgage is discharged. The concept being that we are helping first time home-owners of low-mod income buy their 1st home while stabilizing targeted neighborhoods.

This all makes sense, but is based on the premise real estate always rises. What happens if real estate falls, like it has, and the home-owner in the above example stops paying the 1st mortgage forecloses? Nobody bids in this market since the property most likely is not worth the $150,000 that the bank is looking for and the property is taken back by the bank.

Two things happen. First the 2nd mortgage is wiped out. Second the owner is no longer a low to mod income person, which is a violation of the terms of the "affordability period" and HUD says the $50,000 needs to be paid back. Who pays it back? The CDC--NO. The City of Worcester does!!

Bottom line is this the City of Worcester, more or less, has millions lent out around the City of Worcester in the form of "soft" second mortgages and as these homes are lost by the original low to mod income 1st time home-buyer during the "affordability period", the City of Worcester could end up owing millions. Now the City of Worcester has a vested interest to help the person in the above example catch up on their original $150,000 mortgage, to save not having to pay $50,000 back to the Feds. Premise being it is cheaper to give $5,000 to help a person now to keep their house then have to pay back $50,000 later.

The City of Worcester never should have lent monies out like this without some type of indemnification from the underlying developer (usually a CDC) of the property. Just like we should not be in the airport or golf course business, we need to stop being in the real estate business.

5 comments:

Anonymous said...

God, I have a bad case of the winter blahs right now plus my head was spinning and throbbing when I awoke today.

Then I came out of my basement apt. and grabbed todays T&G and now I am even more sick to my stomach.

1. We got the head honcho of the citys free cable access channel(s?) who it appears is getting concerned about his lifetime great gig with the city and the big bad Charter Cable. Whatever happened to Community Auditions? If we want free municipal access to cable channels then let's get some volunteers to run it. We should my cable bill go up b/c the city wants free access to cable in order to showcase some of Paulies Pajama People.

2. The super bowl. get over it!

3. I got Bishop Reilly telling me we need more low income housing for Paulies neighbors and Christ I actually went to church yesterday after driving to Logan and tossed in a little extra b/c I have been in-abstenia of late. (Buying the Stairway to Heaven). Let the church or Holy Cross or Annna Maria or Assumption cough up the low income housing money and build it in Paxton or better yet open up a very rectories to the homeless. I maybe stopping by the local Episcopalian church and switching over, then I can play golf on East Mountain St and dine on Oak Ave.

4. NOt a Worc item but the local constabulary in Holden is almost homeless, too. I'll Let Diane have that column/commentary.

5. Again, a local item, but penned by an apparent Graftonite. The Pip Shelter East.....LOL....teh bus stop shelter at Fed'l Plaza or what's left of fed'l plazza after it gets Hanovered with my taxes. I sure hope the hell Palmieri doesnt find his way down there as the writer suggests hitching posts for shopping carts.

6. Pp B-1. Cops harrassment suit settled. My only questions are am I paying, is each cop paying 16,667, any heads be rolling? Someone please give me the other side of the story if there is one? Jahn does have sympathy for cops (not detail cops) who have to deal with the alleged underbelly of society...BUT !!!

Maybe kudos are in order for city Attorneys Moore and McGuiggan b/c we got outta this for what maybe short money.


7. Per Nick K, UMass Med School, Gateway Park (WPI?), Biotech Institute, Worc College Consortium, & Worc Chamber of Commerce (do we still have a chamber OR commerce?) are all lined up at the public trough for Beaconhill Biotech Bucks. What doo all these fine institutions have in common and is this the same city council who continually cries about Pilot payments then just opens the spigot for gov't money for these same esteemed institutions.

I got news for ya. Even if Biotech is highly successful in Worc, their factories are not as labor intensive as the factories of yesteryear and the brainpower that makes these places successful all head east at 500 pm ever night.

Anonymous said...

Soft 2nd Mortgages

Bill, here's what will happen.

Subprime borrower (SB) will go belly afer taking 2nd and 3rd mortgages to pay for 06 leased Escalade with $10,000 rims. SB then claims victim status after buying his current 3 decker for 170,000 in 2004, which 3 decker cost $600,000 to rehab. NOT A BAD DEAL HUH? (Some councillors then cry on que.) Keep in mind the city has acquieseced to 4th position on subject properties after initailly occupying 2nd mortgage position. Fiscal Insanity? Absolutely!

Enter stage right savior Havana Jim McGovern (HJM) (Democrat Boatpeople) with fed'l money.

HJM Gives fed'l pesos to Community Develepment Corporation (CDC). CDC steps in bails out SB VICTIM.

Escalade is re-po'ed.

CDC then turns around and slaps SB on hand.

Everyone lives happily ever after.

So can anyone at 440 Main quantify our (my exposure)?

Anonymous said...

looked at a nice condo in the west end of Hyannis this weekend...may take the nitwit in another discussions order and leave the city to Jordan since it is his & he is doing such a nice job pushing downtown:>)

Anyone know which Congressman may be get re-districted out? Olver, Neal or McGovern??

Anonymous said...

Pualie , You'll love Harrys on the west end of Main St Hyannis. very eclectic crowd..............big on blues bands..........on the east end at the harbor try Baxters Boathouse....at teh end of pleasant St......Harborside imbibing in a great casual atmosphere,,,,,,,,piano bar.......watch the sun set and the boats roll in from teh islands...........life is good in July & August.......

Anonymous said...

was at Harry's last night...Harry's Blues Bar is hosting the post party at my Hyannis Marathon next Sunday..got 3800 coming (someday I'll tell ya how hard it is to put on an event in this cabal)..

Me and Laddie the owner are going halves on the post party band "Erin Thornton & the Soulmates"...to bad Gilreins hasn't jelled like Harry's has..

Not sure if you know but the ole Harry's is gone..in a new bldg right on the corner of Main & Stevens now and the parking is in the rear

www.hyannismarathon.com