San Mateo County Community College District home loan program faces scrutiny

But a couple who used the program to buy their first home in 2018 said their $130,000 loan has since ballooned to $182,000 — an effective interest rate close to 20% — leaving them with monthly payments they are struggling to meet.

“In some circles that’s called predatory lending,” said Mary Taylor Fullerton, a public mental health therapist with the county and adjunct faculty member with the district, who with her husband took out the loan.

She said the increase was due to the shared appreciation component of the loan agreement, a stipulation that requires borrowers to pay the district a portion of a home’s appreciation that occurs within the loan period.

The couple is urging the district to reconsider the policy, which they say is at odds with the program’s intent of equitably reducing housing costs. They said that since April they have requested leniency on their loan to no avail.

According to the district’s figures, it has loaned more than $3 million since the program’s inception to 43 borrowers, $2.5 million of which has been repaid. Seven borrowers are still paying back their loans and one is in danger of defaulting.

Close to $400,000 has been collected from shared equity fees, which are due if the employee sells or refinances the home, leaves district employment or at the end of the 10-year loan term, according to the loan guidelines.

“It’s a shared risk, shared reward model,” explained Mitchell Bailey, the district’s vice chancellor and chief of staff.

During their July 27 meeting, trustees had mixed responses to the critique of the program.

“I think this program has done a lot of people a lot of good,” board President Richard Holober said. “I really want to caution the acceptance of the notion that this is predatory in any way shape or form.”

He pointed out standard mortgage loans are nearly 6%, and second mortgage loans like that the district offers have rates closer to 8% through conventional lenders. The interest rate in the district’s loans after five years is currently 3.22%, he said.

“I’m a great believer in consumer education,” he said. “Counseling is so vital, people really need to understand what they’re getting into.”

Others, however, were more critical. Trustee Maurice Goodman said that while the program was “obviously … very good,” there was room for improvement. He said he had heard from other program participants who said they felt it was predatory, some who had even considered legal action.

“This is not something new that we’ve heard from current or former employees of our district,” he said.

Board Vice President Lisa Petrides said the district should look into how much the shared equity fees were adding to loans in recent years, given skyrocketing home appreciation.

“I don’t understand how that’s equitable and helps people afford homes who haven’t been able to afford them in the past, so maybe we could look at these programs in these kinds of markets,” she said.

Median home prices in the county have grown by well over $1 million in the last decade, up to $2.1 million this year from $779,000 in 2012 and $637,000 in 2002, according to data from the California Association of Realtors.

For a $1 million home that appreciated by $250,000, a $100,000 loan from the district would produce a $25,000 shared equity fee, according to the formula provided by the district.

For his part, Trustee Thomas Nuris suggested if the program was facing scrutiny, the district should stop offering it.

“It seems to be no good deed that goes unpunished,” he said. “In order to avoid those kinds of discussions in the future, let’s just eliminate them, and then we can just do what we do and the people can figure out how to borrow money for their own homes.”

Petrides pushed back on the comment. “To say that we can’t get better at something that we do just because we’re being criticized … is the exact opposite of the point I’m trying to make,” she said.

“Why did we try to get a multimillion dollar grant to build housing for students? Why are we looking at faculty housing? This is what we’re in the business to do,” she added.

Michael Claire, the district chancellor, agreed the shared equity fees should be studied in comparison to interest costs associated with standard loans.

“[It’s] a good time to relook at a program that I think has actually been quite successful for a long time,” he said. “If we’re way out of whack, and indeed predatory, if that’s what you want to call it, then yeah, I think an adjustment is in order.”

Referencing the Fullertons’ request for leniency, he emphasized that as chancellor, he was unable to make adjustments to individual loans.

“We do things by the book, so although it feels like ‘hey the district isn’t budging,’ I have no mechanism right now to make any kind of adjustments,” he said.

corey@smdailyjournal.com

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