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How do your local governments enforce the affordability requirement?

They take stringent loan applications and prequalify the buyers before purchasers meet with a lender.

The county subsidized the purchase of 75 zero-lot line homes in 2002, for example, and carried back a silent second mortgage. The sales prices varied among the units, even among those identical to each other. If an owner decides to sell, first the lender is paid and then the county. The balance, less costs of sale, is then split 20/80, and in some situations, 40/60, with the owner taking the larger chunk of change. Because the borrower qualifies on the balance of the first, it's real sticker shock if they try to sell and buy another home.

Many of these homes were purchased for a $200,000 loan, 100% financing (and the county carried a silent second of $100,000, which is not disclosed in the public records). Now, three years later, a few owners are selling for $600,000. It can cost $50,000 to sell (commission and closing costs -- sellers bear the brunt), less loans of $300K, means an owner walks away with $150K to $200K, which will not let them buy a replacement home with nearly the same monthly payments. So they stay put.

On top of that, lenders are wary of making loans on property that have been recently flipped, so obtaining financing is difficult, not to mention, most owners want to take advantage of the two-year capital gains rule. No investors were allowed to buy in that complex.

Although, one guy resold soon after they were built because it took the county four years to complete construction. He grew tired of waiting, so he bought another home and sold his almost immediately upon completion for $385K. I imagine he carried mortgage payments for several months, and probably just broke even, or lost a few thou on the sale.

--RR
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