Trapped

http://medasf.org/a-first-class-undertaking-san-francisco-teacher-buys-a-home/

It’s just… sad.  A program that claims to be free and on the next line says it’s $50?  That’s shady.  And they’re guiding poor people into absurdly expensive houses.

Raised in the Outer Richmond, Jan wanted to stay in the city she loved, but that created a major challenge on a teacher’s salary. In the summer of 2014, the 20-something was enjoying her new career while living solo in a $2,300 per month one-bedroom flat located Downtown. She tried coming up with ways to lower her rent, which ate up way too much of her take-home pay. There seemed to be no options – not in San Francisco, anyway.

Ok, so this woman was living WAY beyond her means.  That’s irresponsible.  How is purchasing a home going to fix that?

Then Jan heard from Mission Promise Neighborhood Family Success Coach Roberto Aparicio, who is based at Everett, that MEDA’s Housing Opportunities team was coming to the school to lead a First-Time Homebuyers workshop to avail teachers of how they could potentially buy a place in San Francisco. At the workshop, housing counselor Juan Diego Castro spoke of San Francisco’s Downpayment Assistance Loan Program (DALP), which offers up to $200K, and the Teacher Next Door (TND) Program, with $20K toward a first-time home purchase. For the latter, a teacher signs an agreement to remain with SFUSD for a decade minimum; if they do so, there is no need to repay the money. If the teacher leaves sooner, full payback of $20K is required for years one through five, with prorated amounts of repayment starting year six. (The good news is that the TND program is being restarted in May 2016.)

Okay… So let’s break this down.  Down payment assistance programs.  What do I think of them?  Well, I think they are bad.  Why?  Because down payments exist for a reason.  Coming up with a down payment means:

  1. You have family money or have the income and discipline necessary to save money.
  2. After you purchase the home, you have a buffer of 20% or more so that if the home loses value, you can still sell it without having to come up with cash to cover the difference.
  3. And from the lender’s POV, a down payment means that you have something to lose should you default on the loan.  This allows them to responsibly give you a better rate on the loan.

Okay, so when you have a down payment assistance  loan program (DALP)… it’s a loan.  So you don’t have a down payment.  This means you don’t have the family money, you didn’t have the discipline to get the income and savings for a down payment.  Because it’s a loan, you have to pay it back, so in the case the home loses value, you may be fine with respect to the primary lender, but after the house is dumped you may still owe the down payment program hundreds of thousands of dollars with nothing to show for it.  In addition, even though the primary lender may be willing to give you a better rate, the DALP lender is just absorbing that risk.  And they’re specifically doing it for undisciplined lower income folks.  That risk doesn’t go away.  Over time, as people default on these loans, as life happens — the public dollars put towards this program are a bad investment.  So you’re just going to see taxes rise or the program is going to have to shut down.

Teacher Next Door is okay.  It’s basically a freebee for teachers to the tune of $2000 to incentivize them to take this tremendous risk to stay in the city.  $2000/year is nothing compared to the other factors at play, so it doesn’t really impress me.  Keep in mind, if she stops teaching in SF for whatever reason (pregnancy, family death, etc.) then she has to pay back the $20k.

At the end of the day, all this stuff is increasing debt (risk), moving some of that risk onto the public by using public money, and other parts of the risk onto the teacher.  I don’t see anything inherently more efficient here.

It turns out Castro’s advice was pretty much spot on, as Jan closed on her new Nob Hill condo in February 2015, with a March move-in date. While Jan’s place is just 450 square feet and could use a kitchen remodel, it’s all hers.

Nob Hill condo, 450 sq. ft.  Let’s find something

https://www.redfin.com/CA/San-Francisco/1001-Pine-St-94109/unit-411/home/1983743

Matches all the details.  Neighborhood, 450 sq. ft.  Correct sales date.  Old kitchen.

http://sf.blockshopper.com/property/0275A039/1001_pine_unit_411/

The ownership information doesn’t seem up to date though.  What does a middle school teacher make in SF?  $60k.  How much can you make working a second job at a grocery?  SF has $15 minimum wage at 20 hours a week all month… Maybe $1200 extra a month?  Let’s say she made a 20% down payment on a 30 year mortgage at 4%.

$2,129.67/month.  According to the last time I calculated this, the interest writeoff basically covers the HOA and insurance.  Add in maintenance and you’re a little higher… but it’s similar.  Last night I was thinking about how to estimate monthly payments.  I think it’s like:

price /200 = 30 year

price / 100 = 10 year.  So for my $117,000 loan, $1170 is pretty close to the $1137 I pay. (although my total monthly cost is $1660, so maybe this isn’t the best).

For $416,000.00 / 200 = $2080.  Okay whatevs.  Let’s look at the teacher salary.  Conveniently, $60k is the same as those other people, so I already know the take home pay is like $1738*2 / month.  We can already see on the teaching job alone, this home is >50% of her take home pay.  These people are banking on increasing incomes, increasing home values.  61% of her take home pay from her normal job.  And she now has to work indefinitely long at a grocery store, which definitely doesn’t require a college education.  What a waste.  All so she can come home late and exhausted every day to a place where she can poop alone.

It’s pretty much guaranteed she’ll never build any real wealth b/c she’s locked into working for the school system and she doesn’t have much extra money to invest in the more lucrative stock market.

Thanks MEDA!  You really help this low income person by locking her into a housing situation she can’t afford.  Good Job!

Q:  What does MEDA say about personal finance, given their god awful position on housing?

A: It goes to shit immediately.

Screen Shot 2016-04-02 at 8.41.10 AM.png

The #1 thing they want is for you to be more profitable to the banks by increasing your credit score.

Their website doesn’t have much meat, so I’d have to actually go to SF to see what they are all about.

 

 

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