The Mayor of Pittsburgh is proposing to convert Section 8 rent supplement payments into mortgage payments. These rent supplements typically amount to 30 percent of a person’s (or household’s) income and are used to subsidize housing for people so they can live in homes other than public housing. The government makes the payments directly to the landlord. The Mayor’s plan would have the payments made to a mortgage lender.
Two problems immediately present themselves for this scheme. Where will the down payment come from? Will people who qualify for a Section 8 housing subsidy have enough money saved to make a down payment or will the down payment have to be waived? No down payment loans are notoriously bad for defaulting. Except in this case the government is making all or most of the mortgage payment. If the person abandons the home because insurance, taxes and upkeep prove too costly, and the home loses a large share of is value, who takes the financial hit? The taxpayers of course.
Second, suppose a homeowner under this scheme starts doing well economically and no longer qualifies for the Section 8 subsidy. Will the Section 8 payments stop? Indeed, once a person enters the Section 8 program, the incentive to do better, work harder and earn more is severely diminished. And in the case of the long term mortgage guarantee, that disincentive is even greater.
Since mortgages are typically made for 30 years, there are an enormous number of life possibilities that can occur with the homeowner. For example, in the event of the death of the homeowner well before the mortgage is paid off, who gets the property if there are no surviving family members or if none of the heirs qualify for the Section 8 mortgage subsidy?
How will legal documents be drawn to anticipate questions of who owns the equity in the property?
Being a homeowner is a great thing. But homeownership must be driven by economic capability and willingness to put some “skin in the game” in terms of commitment, saving for a down payment and ability to take care of a property, pay taxes, etc, Otherwise, why not just have the government buy the homes and give them to people?
