California agency foreclosing on homeowners who pay their mortgages

California’s Housing Finance Authority is foreclosing on homeowners who rent out their homes during the housing slump, even if they stay current on their monthly mortgage payments, reported the state’s Senate Office on Oversight and Outcomes.

CalFHA, the state agency that provides low-interest mortgages, requires its borrowers to occupy the homes they’ve purchased for the life of the mortgage. The requirements are intended to prevent investors from taking advantage of CalFHA’s attractive financing terms and low-interest rates to purchase investment properties.

However, CalFHA borrowers who have resorted to leasing out their homes (to avoid serious losses by selling during the real estate bust) are faced with three hard choices: break the lease and move back, pay off the entire loan, or face foreclosure.

Marcia Wold, a Mountain View teacher, became a victim of CalFHA’s strict occupancy policy earlier this year. In 2005, Wold purchased a one-bedroom, 724-square-foot condo in Sunnyvale through a CalFHA loan. In 2010, she married her husband, who has a 5-year-old son from a previous marriage. Since her condo is far too small for the three of them to live comfortably, Wold decided to rent out her place – even at a loss of $1,000 a month – until the real estate market recovers so she can sell her place without losing so much of her hard-earned money. In February 2011, Wold’s condo was auctioned off in a foreclosure sale after a CalFHA servicer discovered that Wold had been renting out her home.

“They took away a part of me because I worked so hard for it,” said Wold, who had never missed a mortgage payment for her condo.

So far, CalFHA has foreclosed on 21 homes for violating the occupancy requirement, and each foreclosure costs the state between $38,000 to $50,000 in uninsured losses. A total of 235 CalFHA-financed homes are reportedly being rented out without permission and are at risk of foreclosure.


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