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Without redevelopment agencies, a lack of programs to help first-time homebuyers

on March 27, 2012

Sheri Powers scribbles numbers and math equations on a whiteboard with black and red markers. Sixteen people are seated behind her on round tables, in groups of three or four. Some of them take notes, others press buttons on pocket sized gray calculators. The rest just stares at Powers’ array of formulas. She is not teaching a math class, not really. Powers, director of the Unity Council’s Homeownership Center, is explaining to future homebuyers how to calculate mortgage loan payments.

“Use this formula next time you go to an open house,” she says to the group. “This way you’ll have an idea of how much you’ll have to pay.” Once a month, the Unity Council, a non-profit organization that provides financial assistance to low to moderate-income Oakland residents, offers free Homebuyer Education workshops to Bay Area residents who are considering buying their first home.

Attending this workshop—or similar ones offered in other housing assistance centers in Oakland—was once the first step required to apply for a city-run mortgage program for first-time homebuyers. But the dissolution of the redevelopment agencies in California forced the city to eliminate this much-needed program. Now hope rests with a California Assembly bill currently in revision that, if passed, would allow the allocation of new funding for moderate to low income housing programs run by California cities.

“It’s very unfortunate,” said Councilmember Nancy Nadel of District 3. “The program was a way to start helping folks who rent to start investing in their own places in their communities.”

Under the first-time homebuyers mortgage assistance program (MAP), Oakland low-income residents seeking to buy their first home would request a loan from the city that covered 30 percent of the house price. They could receive up to $75,000 in addition to a primary loan provided by one of 22 participant lenders, such as JP Morgan, Wells Fargo and California Bank and Trust. Loans obtained through MAP were deferred for 30 years and became due with 3 percent interest if the owner sold, rented, or transferred the property.

More than just providing secondary mortgage loans, Nadel said that MAP helped nurture neighborhood pride. “We’ve seen in neighborhood after neighborhood that, when people own their own homes, they look after their community,” she said. “Losing that opportunity and the funding for the program will be the elimination of that strategy of building and creating stability in impoverished communities.”

MAP was financed entirely by Low and Moderate Income Housing Funds of Oakland Redevelopment Agency. The city allocated approximately $2.5 million a year to the program. After the California legislature dissolved the state’s redevelopment agencies on February 1 as a way to alleviate the state’s budget crisis, Oakland could no longer sustain programs that rely on redevelopment funding.

“We cannot reestablish the program unless we receive funds from another source or the economy picks up and the revenues change,” Nadel said. “It appears that the program will be on hiatus until the state comes with other forms of funding for affordable housing.”

MAP provided 321 loans from 2008 to 2011. Michele Byrd, deputy director of Oakland’s Housing & Community Development Department, said the number of approved applications falls short in representing the need of affordable housing loans in Oakland. “The need is greater than the resource,” Byrd said. “The demand for financial support for this program by far surpasses the number of transactions we were able to approve.”

Byrd said that even before the dissolution of the redevelopment agency, the program already suffered from the ongoing citywide and statewide financial crisis. During the 2011-2012 fiscal year, Oakland could only provide loans to 27 applicants due to the city’s budget constraints.

Funding cuts were not the only challenge the program faced throughout the years. According to a report by the Community and Economic Development Agency sent to the city council in July 2005, MAP was having a hard time providing loans to households with incomes less than 80 percent of the city’s Average Median Income (AMI). “Rapid increases in market prices have expanded the gap between market prices and what is affordable to a lower income homebuyer,” the report concluded.

Byrd said the program continued to face the problem of home-price inflation until 2008, when the recession brought increasing foreclosures which drove home prices down.

“We have been able to assist with purchases with prices below $100,000,” she said. “However, to purchase in the lowest price range becomes challenging due to competition with investors and/or issues with the condition of the property.”

MAP helped Oakland residents acquire 98 foreclosed homes since 2008. Nadel said this is not an ideal situation. “It’s depressing to buy a foreclosed home, knowing that you’re in somebody else’s home,” she said.  However, Nadel added that currently prices of non-foreclosed homes are more accessible than the past couple of years. “It’s sad that the folks who needed extra help to become homeowners won’t be able to take advantage of these low prices,” she said.

Elena Foshay, 35, a social worker from East Oakland, is one of those people. “Oakland programs were super useful,” she said. “It’s shame they’re not there anymore.” Foshay attended the Homebuyers Workshop at the Unity Council offices in Fruitvale Village to learn about other government mortgage programs. She said she is economically stable and ready to buy a house, but prices are still too high. “My parents bought their first home with $80,000,” she said. “I have a better job than they did back then, but houses are much more expensive.”

Homeownership Center Director Sheri Powers said it’s too soon to tell how the elimination of MAP will affect Oakland residents. She adds that current market values and interest rates are low enough to allow most Unity Council clients to purchase a property without large down payment assistance. “The real test will come if and when home prices and interest rates begin to rise,” she said. “The impact will be felt mostly by those who do not have sufficient savings to cover down payment and closing costs.”

Byrd said Oakland would be able to reestablish MAP if the California Assembly approves bill AB 1585, which would allow the allocation of $1.4 billion to California cities for affordable housing programs. The state Senate approved the bill last month. Then after being approved by three Assembly committees–Housing and Community Development, Local Government, and Appropriations–the bill was read and passed by the Assembly with a 58-7 vote on March 26.

AB 1585 is currently being revised by the Senate Rules Committee. Its members will assign the committees that will vote on the bill before it’s referred to the full Senate. No date has yet been scheduled for this action. AB 1585 needs a two-thirds vote in the upper house to pass as an urgency measure, which means it would be implemented immediately after its passing.

“We anticipate many more discussions with our local communities about how to move forward in the post-RDA [Redevelopment Agency] era,” Assemblymember Toni Atkins (D-San Diego), one of the authors of the bill, said in a press release. “The answers contained in the bill fill in some of the pieces to that puzzle and we will continue to work toward solutions for others.”

In the meantime, Byrd said Oakland would be able to provide assistance to a limited number of low-income homebuyers through funding available from Cal Housing Financial Agency.

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