State stops foreclosing on borrowers who rent out their homes

A state-run housing agency that provides low-interest mortgages to first-time home buyers has temporarily suspended foreclosures on borrowers who rented out their homes in violation of program rules.

The office of Senate President Pro Tem Darrell Steinberg announced Friday that the California Housing Finance Agency had agreed to his request to halt the proceedings.

Earlier this week, Senate investigators issued a report that said the agency, known as CalHFA, initiated or threatened foreclosures on about 200 borrowers who were current on their payments but no longer living in their homes as required by state regulations and federal tax law.

The borrowers, who owed more on their properties than the homes were worth, moved out for a variety of personal reasons but did not want to sell the homes at losses. A typical foreclosure proceeding costs the agency $50,000, according to a CalHFA spokesman.

“The agency is making the right decision during difficult economic times,” said Steinberg (D-Sacramento). “Struggling families, who are working to do the right thing in meeting their obligations, shouldn’t be saddled with an extra, unnecessary burden.”


The agency said it finances $4.2 billion worth of low-interest mortgages through the sale of tax-free bonds. U.S. Internal Revenue Service rules specifically prohibit funds generated from the sale of such bonds be lent to home buyers who do not live in their properties.

Nevertheless, the agency said in a letter to Steinberg and Senate Housing Committee Chairman Mark DeSaulnier (D-Concord) that it asked its board of directors to revisit the issue at its January board meeting. In the meantime, it is temporarily ceasing foreclosure proceedings against “those who may be renting out their residence while staying current on their payments.”

DeSaulnier said he is asking the agency to make the change permanent.

“CalHFA serves predominantly low-income, first-time home buyers,” he said. “These Californians should not fear foreclosure when they are doing everything right.”