Two south Sacramento residents are worried they could lose their houses because of a state program intended to help low-income homeowners.
Created in the 1980s, the California Home Ownership Assistance Program approved 345 loans before it stopped taking applications after just a few years, according to state Department of Housing and Community Development officials. About 10 percent of the high-interest loans remain active.
The program’s rates – which remain as high as 12 percent – are relics of an era when interest costs were much higher and few programs existed for low-income buyers.
But on top of paying those rates for decades, homeowners who purchased a residence under the program owe the state an “equity-share” payment after 30 years that could eclipse the principal amount of their loans. The agreements call for the homeowners to pay as much as half of the amount a house has appreciated since its purchase.
The payments can be quite high; the median value of a house in the Sacramento metro area has nearly quadrupled since 1985, going from $78,000 to $291,000.
Robert Frugoli, 55, received a letter from the Department of Housing and Community Development in November requesting “full payment” for 49 percent of the appreciation accrued on the house on Cottonfield Way since he purchased it nearly 30 years ago.
The letter told Frugoli to hire an appraiser to determine the current value of the prefabricated house and how much it has increased since he bought it for $58,500. Frugoli lives on a monthly disability payment of $1,800; his wife is unemployed.
He went to a Wells Fargo bank to get an idea of how much he might have to pay. He said the banker gave him a rough estimate that the house is worth $140,000; based on his agreement with the state, he would owe the state about $40,000.
“My health is not good,” said Frugoli, who has cancer. “I’m worried about what will happen to my wife and my house if I don’t make it.”
Maziar Movassaghi, assistant deputy director at the California Department of Housing and Community Development, said officials are developing policies to assist homeowners with loans under the program. The department will likely refinance their loans so they can make payments that won’t exceed one-third of their income, a standard threshold for what is considered an affordable housing payment, he said.
Movassaghi said the program was designed by an earlier generation of officials at the Department of Housing and Community Development, and he and others don’t fully understand how it came about.
Linda Butler Woodyard, who lives across the street and bought the same type of home the same year as Frugoli, also worries about her house. While she has yet to receive a payment request letter from the state, she expects one soon. Her agreement calls for her to pay 39 percent of the house’s equity to the state.
“It’s ridiculous,” said Butler Woodyard, who lives on a $2,500 monthly pension payment from her previous job at UC Davis, where she worked at a veterinary hospital.
Like Frugoli, Butler Woodyard said she did not understand the terms of the agreement when she signed it and would not have made the agreement if she had.
They said the state-required payments are unfair considering they faithfully made mortgage payments for 30 years.
Anthony Arostegui, a real-estate attorney with the Sacramento office of Downey Brand, said whether homeowners in the program understood the mortgage terms would be a key question should they try to challenge the agreements in court. He said the agreements, which he reviewed at the request of a friend of Butler Woodyard, seem counterintuitive.
“If the policy is intended to keep them in homes, it makes no sense,” he said. “They could lose their homes.”
Darryl Rutherford, executive director of the Sacramento Housing Alliance, said he, too, was unfamiliar with the program. At the request of The Sacramento Bee, he reviewed some of Frugoli and Butler Woodyard’s loan documents and spoke to some officials at the Department of Housing and Community Development about the program.
He said he was told by state officials that the costly equity-sharing agreements were included in the program to gain approval from a Legislature that was not fully supportive of low-income housing programs at the time.
During a 1985 state legislative hearing on mobile-home ownership, a senator leading the discussion said financing was a major housing problem. He then took testimony from officials at the Department of Housing and Community Development, who said the California Home Ownership Assistance Program was one of the few ways to assist low-income homebuyers, according to a transcript of the hearing.
Rutherford said times have changed, and the state can help.
“It’s a shame,” Rutherford said. “I would hope the state would find a way to work with these people.”