If you think of predatory lending as any borrowing scenario that has a high probability of causing issues for the borrower, I think that there is a good chance we should chat about the “California Dream For All” loan program from CalHFA (California Housing Finance Agency).
Schemes like this are predicated on the idea that the price of real estate will continue to rise. As we all know, that is not always true. During the last downturn, nothing was more saddening than trying to help people who had tried to take advantage of these programs and been left completely upside down and being forced into bankruptcy and short sales.
Knowledge Is Power
The most critical skill is rising out of poverty or getting to a point where you can purchase a home is knowledge. That includes budgeting skills, understanding what you can and cannot afford and even being able to financial plan and prepare for possible challenges down the road. While training is required for getting this loan assistance, none of it addresses these key areas of knowledge. At a time when it is very likely that home buyers will face a downturn in home values, these kinds of programs would be catastrophic for exactly the people that it targets. As we run down the list of what the required training requires, we will see that NONE of it appears to be geared toward long term success for the borrower, focusing mostly on the lending process. The real knowledge that should be gained is whether or not this loan is a good idea for you. Perhaps most importantly is being able to determine for yourself how much debt you can support – and for many – programs like these simply saddle them with more debt than is reasonable.
How To Help
If the desire is to truly help Californians become home owners, I would argue that we are not doing them any favors by creating these kinds of programs. The real power for people comes from having the knowledge, discipline and confidence to act without being offered short cuts that will often end up harming more than helping during challenging financial times.
Even More Dangerous Now
When times are great, a loan program like this might just make sense. However, if there is a good chance that home values will decline, it could be the first step toward completely ruining your financial life for years to come. This program is entirely predicated on the idea that home values will go up. Of course, we know that is not always the case. As we face inflation, recession and a softening real estate market, I cannot help but consider the idea that this is just about the worst time for buyers to use a program like this.
What are your thoughts?
What do you think of these programs? I think there is plenty of room for this kind of assistance if it is bundled with the goal of giving people the knowledge they need to not need these programs in the future. Sadly, they seem built to perpetuate dependence rather than to liberate people from it. Comment below with your thoughts or reach out to me via the contact form below.
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