Wednesday, May 30, 2007

The Banks Want Your Money... And Your House!

The City of Langford has an affordable housing program where developers are required to put 10 percent of the houses they build into an affordable housing pool. These homes are sold to families residing in Langford, who do not own real estate, have less that $50000 in assets, and have a family income of less than $60000 / year. The homes are sold at a set value, currently $160000.

It turns out that the big banks will not approve mortgages for these homes, as they do not control the home in the event of a foreclosure. In such a case, the home is returned to the affordable housing pool, and resold at the original selling price. However, there are other lenders willing to take on those mortgages.

I'd assume that those same banks would approve a mortgage of that size to the same family if it was for a home not in the affordable housing pool. Like a beast waiting to devour, the bank would take possession of that foreclosed house. I must be a little naive, because it doesn't quite make sense to me. I guess that in a rising real estate market, the banks believe that they would profit from controlling a foreclosed home. As is happening in the U.S., in a falling market, lending standards are getting tighter, and perhaps that same family would not get mortgage approval regardless of whether the home is an affordable housing pool home or not.

The related news article can be found here.

Info on the affordable housing program can be found here.