Unaffordable Housing Program

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For single mother Melinda Howell, the struggle to buy a house in high-priced Pleasanton, Calif. ended when the city's affordable housing program came up with a special loan to help with the down payment.

"I wasn't given a clue that this was not the right thing to do," Melinda Howell told CBS News Correspondent John Blackstone.

She borrowed $30,000 in what is called a Shared Appreciation Mortgage.

There were no interest payments, but when the house she bought for $223,000 sold for $385,000 four years later, the "affordable" housing lenders got a big payoff: 60 percent of the appreciation.

They made $97,000 for loaning her $30,000.

"That's why I say I would have been better off to put it on my MasterCard", she says.

By law, mortgage lenders must usually disclose the total cost of borrowing. But shared appreciation mortgages escape those rules. There's no limit to how much a bank can profit.

"I sign all these deals, but I don't do all these deals," claims Clark Blasdell.

Blasdell is President of Northbay Family Homes, the non-profit agency that set up the very profitable shared appreciation deal that left Melinda Howell feeling cheated.

But as someone who is concerned with getting people into affordable housing, is it appropriate for someone to pay $97,000 to borrow $30,000 for four years?

"Well, I think it appropriate to help people buy their first homes, if they have no other means," says Blasdell.

According to Michael Shea of ACORN, "This is a new scam being foisted on American homeowners."

Shea's organization, ACORN represents low-income homebuyers.

"What it amounts to is a new version of sharecropping, instead of the landowner taking a portion of the farmer's crops, we have lenders now taking a portion of homeowner's equity," says Shea.

The equity Melinda Howell lost left her unable to buy another house.

"If I had gotten a lot of that, I wouldn't be living on the edge anymore. I have my bills paid off I would be kinda financially comfortable," says Howell.

She's moved from California to Oregon in search of affordable housing and now realizes that what she thought was a helping hand, was actually reaching deep into her pocket.