No skin in the game

by Russ Roberts on August 26, 2009

in Government Intervention

From a Wells Fargo press release, August 14, 2000:

A new home financing program, designed to spur homeownership among California’s educators, may receive an “A” from teachers throughout the state. The program, announced today by Wells Fargo Home Mortgage, Inc., the California Housing Loan Insurance Fund (CaHLIF) and Freddie Mac, allows teachers working within the state to purchase a home with a downpayment of just $500.
The program also offers teachers relaxed credit guidelines – making it easier to qualify for the program – and higher qualifying ratios, which allows homebuyers to qualify for more home. Wells Fargo Home Mortgage will be the exclusive provider of these loans; CaHLIF will provide downpayment assistance and mortgage insurance; and, Freddie Mac will purchase the loans. The program will be available in early September.
“This program caters to the needs of California’s educators – the public and private school teachers that help prepare our youth for leadership in the 21st Century,” said Dan Russell, executive vice president of emerging markets for Wells Fargo Home Mortgage. “We’re making every effort to narrow the gap between California’s teacher salaries and rising housing costs. This is definitely a step in the right direction. By making homeownership more affordable, we’re helping more teachers in the state choose homeownership and invest in our communities.”
A starting salary for a California public school teacher is $29,000 a year, according to the California Teachers Association, while the average teacher’s salary is $44,000. Meanwhile, the median home price in California is $217,520, according to the California Association of Realtors.
Using this program, California educators, including public and private school teachers, substitutes, administrators and childcare providers, can finance a new or existing home with only a $500 downpayment.
While California educators will only need $500 for a downpayment, the remaining downpayment will be funded by CaHLIF in the form of a 3 percent simple interest loan with payment deferred until the end of the loan term, or when the home is sold or refinanced.
“The state of California is committed to assisting educators achieve the dream of homeownership,” said John Schienle, director of CaHLIF. “This program will go a long way in helping our educators realize the dream, as well as our efforts to retain and recruit a talented workforce. We are grateful for the support, resources and expertise of our partners Wells Fargo Home Mortgage and Freddie Mac.”
California educators interested in the program will have the option of selecting either a 25- or 30-year fixed-rate loan. There are no income limitations or property restrictions. Additionally, there are no experience levels or tenure required to be eligible for the program.
The program is available with mortgage loan amounts up to $252,700 – with no minimum loan amount – through more than 100 Wells Fargo Home Mortgage’s California retail offices and Wells Fargo bank locations.
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Mark August 27, 2009 at 2:44 am

cool. lets do it again!

Anonymous August 27, 2009 at 2:59 am

Is there an echo in here?

Anonymous August 27, 2009 at 3:48 am

“… and, Freddie Mac will purchase the loans.”

I knew it was coming! ;)

“There are no income limitations or property restrictions. Additionally, there are no experience levels or tenure required to be eligible for the program.”

You’d think they’d try to be a little more original than that. Let’s hope that other states, in conjunction with Freddie and Wells Fargo, don’t get any funny ideas. But what do I know!

Roger August 27, 2009 at 3:51 am

Can’t we just put them in barracks, excuse me, “dormatories” (for singles) and family housing like the military does?

Anonymous August 27, 2009 at 9:49 am

Ha! The perverse incentive will backfire in two ways: some educators will get themselves into mortgages that, despite the sweet deal, will cause personal budgets to be extended beyond a reasonable amount and will attract folks to the profession that really have no desire to educate students.

Anonymous August 27, 2009 at 10:05 am

Let me paraphrase muirduck on what he has stated as the socialist position on such things.

“Doing it again, is not doing it again.”

Matt August 27, 2009 at 10:31 am

“The state of California is committed to assisting educators achieve the dream of homeownership,”

But apparently not committed to anyone else. When I worked in California, I started off at $29,000. Apparently, I was not as imprtant as a teacher. I guess all men are created equal, until you join a union. Then you are definitely in a higher class.

Anonymous August 27, 2009 at 10:51 am


You said the word that I was just thinking about, union.

I wonder if there is someone posting here that can let us know down the road, or even at present, if there is a provision in this little plan that will require the teacher to be a member of the/a Teacher’s Union in order to qualify for this public trough; of if such a provision becomes the de facto hinge upon which the approval of this sweetheart loan swings.

The socialist would get double their (our) money if union membership is required.

Matt August 27, 2009 at 1:29 pm

It’s a good question, but I’m kind of guessing Russ would have mentioned it if there was that stipulation. I’m not sure it really matters though. I don’t know what percentage of teachers in the state of CA belong to the teacher’s union, but I’m guessing it’s high, very high. So all the CA legislature has to do is qualify it by the job unionees hold and not by unionization and their pre-French Revolution ideas of feudalism can be seeded.

Anonymous August 27, 2009 at 11:05 am

maybe you guys should look at that date

Anonymous August 28, 2009 at 2:27 am

Er, yeah I guess that does make a difference. Ouch.

JohnK August 27, 2009 at 11:20 am

I just ran some numbers through a mortgage calculator. A 30yr $200K loan at 7% will have a monthly payment of around $1300. Payments like that with a $44K/yr salary is crazy, and on $29K/yr salary is downright impossible.
It makes me wonder what these people are thinking, or if they are thinking at all.

Anonymous August 27, 2009 at 12:11 pm

Isn’t this how we got into the this mess? Is this wise?

Anonymous August 27, 2009 at 12:13 pm

whoops. Checked the date and boy is my face red! That is how we got into this mess.

I_am_a_lead_pencil August 27, 2009 at 12:50 pm


I wonder how many of these program loans went bad (foreclosure or workout) vs. other loans of a similar size, location and credit profile?

Anonymous August 27, 2009 at 1:33 pm

I’m sure that it seemed like a good idea at the time…

I’m sure that kinds of programs have nothing to do with California’s current financial crisis.

I also wonder whose idea it was. I assume it was someone in the teacher system and that Wells Fargo was just the vendor. Who wouldn’t bid on this when the state and federal government promised to take on all of the risk?

Steve C. August 27, 2009 at 1:58 pm

Another demonstration of the law of unintended consequences.

A. Home prices in California are rising into the stratosphere.

B. Middle class workers can not afford to own homes because their pay would not support the mortgages required to own a home in California.

Solution: Make buying a home for middle class workers easier by reducing the initial cost to buy a home.

Why are home prices rising? Demand is greater than supply.

What to do? Create more demand!

Demand will create more supply.

Perpetual motion.

Dallas Weaver August 27, 2009 at 8:55 pm

Funny!!! How are they computing the average pay at 44K when none of the Calif. teachers I know earn less that 75K. Are all the people I know on the top end? Perhaps along with ignoring that teachers are only working about 8 months/yr, they must be counting part time teachers and substitutes.

Figures don’t lie, but liers figure.

Anonymous August 28, 2009 at 12:03 am

Drivers ed teachers in my public school district make $150,000 per year (not in California by the way). I was thinking of asking them for a loan….

Anonymous August 28, 2009 at 12:10 am

“A starting salary for a California public school teacher is $29,000 a year, according to the California Teachers Association, while the average teacher’s salary is $44,000.”

Here is a funny problem… why is teacher pay so low (especially when we hear of shortages of qualified teachers)?

My guess is that the school system has a monopoly on pay. There are few opportunities for skilled teachers to increase their salaries by changing schools… there is only one employer. The school system can afford to underpay teachers and teachers have to take it. Some people get in the profession as kid-helping idealists, others like the hours. In any case, the state has managed to set pay that attracts as many people as possible for a low salary. Because the school systems have no competition for labor prices, they can keep salaries low.

Another consideration is that the most desirable teachers will be skilled in math or science. These skills are marketable outside the education industry… so few people will see suffiecient incentive to teach given the trade-offs.

JB August 29, 2009 at 10:02 pm

This program was announced in 2000! It has been defunct a long time. Why are you posting about a defunct, nine-year old program?

Anonymous August 30, 2009 at 12:36 am

I think, JB, that it’s because it’s very interesting to see such living, breathing history. It’s exhibit IA for what was going on for the past decade.

The most interesting part, to me, is that I had absolutely, positively no idea this was going on- even until last year when the crash hit- and I guarantee you the 95% or more of our population that are tuned-out, videophiles had no idea either. Amazing.

JB August 30, 2009 at 12:44 am

Announcing is one thing; closing loans is another. I would check with the California Housing Insurance Fund to see if any of the loans described in the press release were actually made. My bet is any teachers who applied either didn’t qualify or were bait-and-switched into a subprime loan sold to Wall Street. Lenders made more money selling subprime loans to Wall Street than prime loans to Fannie or Freddie.

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