CalPERS has been in the news quite a bit lately, and not much of it is flattering. They say all news is good news? Not if your your pension fund management is corrupt and wrought with fraudulent activity.
Some of the more recent headlines talk about these challenges:
CalPERS investigates oversight of two outside hedge fund advisors – LA Times – Nov. 25th
What stuck out in this story to me was how the article describes CalPERS investment in Real Estate as “High Risk”.
For years, CalPERS has been known as a progressive fund that bet heavily in real estate and other high-risk investments to boost returns for its members, at the same time pressuring large corporations to rein in outsize salaries for top executives.
But investment losses have hit the fund hard. CalPERS’ portfolio sank 23.5% in the last fiscal year, while the average large pension fund dropped 18.8%. It lost nearly $1 billion after betting in 2007 on the mammoth Newhall Ranch housing development north of Los Angeles.
I may just be reading into this too much, but it seems that another bad apple in Real Estate is ruining it for everybody.
The Sacramento Bee reported on October 15th, 2009 another CalPERS Real Estate investment mis-step.
CalPERS is in danger of losing $500 million on a New York real estate deal, the latest in a series of major investment setbacks.
The deal was costly to California’s other big public pension fund, too. CalSTRS said it has already written off its $100 million investment.
Again, this isn’t specifically about the CalPERS home loan program, but it’s in the ball park I think.
It’s difficult to say whether or not it’s directly related but the CalPERS home loan program has been going through some very peculiar changes recently, none of it to your benefit. It seems there’s a storm brewing over there and it’s just now building up.
It’s been a strong suspicion for over a year now that the managers of the CalPERS home loan program has been trying to get out of the contract to underwrite and service these loans.
More recently, CalPERS changed the way it compensates lenders to further reduce the income potential for those that still the loan to members of the pension.
As you know, if you’ve attended my homeownership education classes or if you’ve been following my writing for a while, that these programs provide a great benefit to home buyers with little compensation to lenders.
Now, what does that mean to you? It’s sort of the opposite of what happened in the “sub prime” greed-fest of years past. Lenders would offer huge financial incentives to loan originators to “write” these toxic mortgages.
The activity pools around the deepest pockets, this makes sense right? Lenders went to where the money was.
The great thing about this, is that it left little competition for companies like ours who offered the lower cost, affordable loan programs to communities like Public Employees in the State of California.
There’s not a lot of profit to be had, but enough to justify the effort and cost to get the word out to eligible home buyers about this great program.
Now it seems that CalPERS is giving the rug another tug to the detriment of home buyers and pension members looking to use the home loan programs.
Ok, I mentioned already that CalPERS reduced the already modest compensation to lenders to offer the program. This almost makes it impossible for lenders to profit from the program.
When lenders don’t profit, they cannot afford to employ the resources to offer these loan programs and you, the consumer, lose this benefit as an affordable housing loan option.
In addition to reducing the incentive to lenders, CalPERS also eliminated the “Float Down” feature of this loan program.
A float down is the ability to reduce the interest rate after it’s already been locked. Most loan programs do not allow for this and it stands out as a great option for home buyers in today’s highly volatile market.
The only benefit left (for now) is the Down Payment Assistance program. This program has limited availability compared to the other loan programs in regards to eligibility and purchase price limits, but still offers a great benefit to members.
You can learn more about these restrictions by reviewing this slide show from our most recent CalPERS home loan education webinar.
There is light at the end of the tunnel. As you know, Broadview Mortgage – Katella Branch specializes in CalSTRS, CalPERS, CalHFA, FHA, USDA & VA loans. Our focus is on community based affordable loan programs that give back.
As a direct lender, we have the ability to create loan programs to meet the special needs of our customers. It is for this reason that we have created an affordable option to the CalPERS loan program – Broadview Community Access.
This program offers low, published fixed rates, low published fixed fees and it allows you to float down the rate if it should drop after you have already locked in your loan.