At the Feb. 21 Citizens Advisory Board meeting, Damon Knop, a realtor knowledgeable about Denver’s income-qualified homes program, shared concerns about a recent change in the allowed ratio of housing-debt to income for buyers. Knop says prior to October, the program used 30% as a guideline that could prevent a potential buyer from eligibility if staff felt a person’s financial circumstances showed them to be at risk of foreclosing. When a buyer in the affordable program forecloses, the home falls out of the affordable program and goes to the lender; the program does not want that to happen.
In October, the program started requiring a ratio of no more than 30% housing debt to income. With that change, far fewer buyers qualified. Knop said the increasing housing prices in Denver have pushed the average debt ratio for housing to 40% or higher. He adds that many prospective buyers have had an even higher debt ratio as renters. When they’re disqualified, the program that’s designed to help them often pushes them back into a more expensive housing option—even though they had proven they could responsibly manage that debt ratio as renters. In the face of so many buyers being disqualified, Denver’s program in mid February raised their allowable debt ratio for housing to 35%. Knop doesn’t think that’s enough. (The website loanlimits.org, says, “In 2018, most lenders will set the bar somewhere around 43% – 50% for the total debt-to-income ratio.)
The problem created by stricter enforcement, however, goes further than the buyers. Brian Fennelly, former Forest City Stapleton CFO (now with Brookfield) said Gene Myers, owner of Thrive, (Stapleton’s biggest builder of affordable homes), told them the change disqualifies 80% of his buyers from purchasing. That goes right to the heart of his ability to build the homes. With a list of buyers under contract (and a waiting list behind them), Myers has been able to get construction loans and pay them off quickly when the homes are sold. This change leaves him with unsold inventory, an outstanding construction loan, and unable to continue building for income qualified buyers. Further, existing homeowners in the affordable program will also have difficulty finding buyers.