In D.C. loan program, mortgage defaults abound
D.C. housing officials have routinely subsidized home purchases that low-income buyers could not afford, paving the way for foreclosures, liens and financial hardships.
Nearly one in five buyers participating in the city’s 35-year-old loan program for first-time homeowners is behind on mortgage payments, city officials said — a default rate that’s at least three times higher than the overall rate in the region. Nearly 50 buyers have received notices of foreclosure in recent years, while more than 50 others have struggled with homeowner association or utility liens, The Washington Post has found.
DeAngelo McDonald, a Metro bus driver and father of six who earns $61,000 a year, financed a $338,000 house in 2008, in part with a loan from the city, paying double what city loan officials had estimated he could afford. His three-bedroom home in Southeast is now in foreclosure.
“I was a first-time home buyer thinking that everything was on the up and up,” said McDonald, 48, who declared bankruptcy in 2009. “At any minute, we could be out on the street. It’s heartbreaking. It’s scary. I don’t know what could happen, especially with my kids.”
For more than three decades, the District has helped buyers offset the cost of housing with loans for as much as $77,000.
Buyers complete a pre-purchase program with credit counseling and home-ownership classes. On their own, buyers shop for houses and identify lenders willing to provide a first mortgage. The D.C. Department of Housing and Community Development provides second mortgages with generous terms — no interest and deferred payments for five years — designed to make home ownership affordable, even for families of limited means.
Some of the money comes from the U.S. Department of Housing and Urban Development, which provides grants to local governments for affordable housing. The money can be a lifeline for working families in the District, which has wrestled with steep rent increases and an acute shortage of affordable housing.
But the program has put some families in financial distress.
The Post tracked more than 1,300 loans, about 80 percent of the loans awarded by the District between 2005 and 2009. The analysis found that about one in three were made on homes priced at $250,000 or more, with some houses topping $375,000.
The practice appears to run counter to a city guideline that suggests a buyer in a four-person household have the ability to purchase a $218,000 house. The price point has fluctuated somewhat in recent years: In 2006, it was $235,000.
Erica Shorter bought a house in Southeast for $275,000 in 2008 and said she is struggling to pay the bills.
“I just told my daughter, ‘You might not have a real Christmas,’ ” Shorter, a receptionist, said recently. “If I pay the mortgage, if I pay the utility bills and there is food in the refrigerator, okay, that’s Christmas.”