Texas Public Funds to pay for Private Debt
Houston taxpayers could start footing the bill to help first-time homebuyers pay off debts and improve their credit scores, under a proposal before City Council this week.
The “Credit Score Enhancement Program” will give up to $3,000 in grants to individuals who are trying to qualify for mortgages through the city’s homebuyers assistance program. City officials say some applicants fall short of eligibility by only 10 or 20 points on their credit scores, and paying off some debt balances can quickly improve their numbers.
The proposal has aroused critics who say the city should not use public funds to help people pay down car loans, credit card balances, or other debts — even if the slight credit bump would help them realize the dream of home- ownership.
“We just can’t give away government money to help people with their credit scores,” Councilman Mike Sullivan said Monday. “You’re giving them other taxpayers’ money to pay off the bills.”
Councilwoman Anne Clutterbuck called the program well intentioned but said it would go too far.
“If this credit crisis has taught us anything, we need to focus on paying off our debts and saving more,” she said. “Using government money to help someone pay off their debts is not the same as asking them to pay off their debts themselves.”
The $444,000 for the program is leftover money from a $1.5 million appropriation the city made for emergency home and roof repairs after Hurricane Ike.
The city has three programs that provide grants for down payments and closing costs for qualified homebuyers. The most generous one offers a $37,500 grant to buy a home that costs $135,000 or less, but only in certain disadvantaged Houston neighborhoods the city is trying to revitalize. Participants cannot earn more than 80 percent of the Houston median income.
Affordable housing advocates were cautiously optimistic about the proposal Monday. The tightening credit market has made it harder for previously qualified families to get mortgages, said Stephan Fairfield, president of Covenant Community Capital Corp., a Houston nonprofit that helps low-income families build assets.
Some banks previously had accepted credit scores of 580 or 600 as a qualifying threshold, but most are now requiring 620, Fairfield said.
“New tools are needed to help families move forward towards home ownership,” he said. “If there are lenders that are offering loan approvals subject to retiring the outstanding payables, or if there is something that can help them get over the credit score threshold, it certainly makes sense.”
John Henneberger, co-director of the Texas Low-Income Housing Information Service, called the Houston plan “a very aggressive approach” to housing assistance. He said he needed to know more details but ventured that it could work if the city provided a good pre-purchase homebuyer education program. The city requires all applicants to complete an educational program.
Henneberger said the subprime meltdown and global financial crisis has made housing advocates take a “more conservative tack.”
“We’ve certainly learned that we don’t do low-income people a whole lot of favors when we get them overly extended on credit.”
‘A bad idea’
Anti-tax activists also cited the harsh lessons of the housing crash and recession.
“I just don’t see any way someone could justify this with everything that has gone on in the credit market,” said Michael Quinn Sullivan, president of Texans for Fiscal Responsibility. “This is precisely what got us into it, with the playing fast and loose with the credit score.”
“One would think from the federal problem we’ve just had, the city of Houston officials would have learned from that,” said Peggy Venable, state director of Americans for Prosperity, a limited government advocacy group. “It’s a bad idea.”
Program backers defended the proposal, saying it certainly is not for people with poor or damaged credit.
“We don’t talk to them about this unless their credit score is pretty close,” said Brian Stoker, community banking manager for Amegy Bank. The bank is one of the lenders the city uses for its affordable-housing programs.
“For somebody who really qualifies and should have a home, it doesn’t take much to help them get there,” Stoker said. “I think it would be a really innovative and good program. And, of course, it’s not for everybody.”
The city made 130 grants to homebuyers last year and hopes to raise that to 540 in 2009, according to Juan Chavez, manager of the city’s Homebuyers Assistance Program.
“What we’ve seen is that $3,000 will increase a credit score significantly and relatively fast,” Chavez said.
Not every applicant will need that much, and the eligibility will be very strict, he added. “We wanted to be conservative in this case and concentrate only on those folks who have overextended as opposed to somebody who needed a lot of hand-holding to repair their credit.”
Rather than using the tax dollars to pay for home repairs following hurricane Ike they're paying down credit cards for citizens with it?