Healton’s Home Loan from Legacy

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Household Help: Legacy lent Healton money to buy this house, which extends far into the back. Photo: John Kelly

In 2002, the Legacy Foundation lent almost $1 million to its CEO, Cheryl Healton, so she could buy a $975,000 home in Washington’s exclusive North Cleveland Park neighborhood.

Healton borrowed $967,500 from the foundation in September. In December, the foundation borrowed a like amount from Wachovia Bank at commercial rates to cover that loan. The foundation charged Healton the same rate it was charged by the bank, a transaction that was reported on its IRS filings. The house and other “personal assets” served as collateral for the loan.

[Related Story, The Truth About American Legacy]

Asked about what the foundation itself labeled as “self-dealing” in a subsequent IRS filing, foundation officials said in an e-mail that the rate given Healton was “higher than the applicable federal rate at the time and therefore was not considered a below-market interest loan that would be taxable under the IRS rules.” The foundation’s IRS filing shows the loan was made to Healton at an “effective interest rate of 4.99 percent.”

The loan to Healton was for seven years, amortized as if it were a 15-year loan.

According to the Federal Housing Administration, the average rate for a 15-year FHA fixed rate loan in September 2002 was 5.51 percent. The average rate for all 15-year loans, including jumbo loans (more than $300,700 that year) was 5.70 percent, according to HSH Associates, which tracks mortgage rates.

In the same e-mail response, foundation officials said the IRS audited the foundation’s 2005 return in 2007-08 and “determined that there were no irregularities in connection with the loan.”

Healton paid off the loan in October 2005.


  • Emily Morgan

    EHLP was potentiall­y a great program! HUD messed it up as they did not clearly spell out the requiremen­ts at the ouset and many applicants deemed qualified were never processed at the end. The program allocated funds to 32 states, five of which administer­ed substantia­lly similar programs assisting people relying mostly on paycheck loans. So, most of the problems occurred with the 27 states managed by HUD through approved organizati­ons. The maximum assistance amount was $50K over a period of 24 months. Most disqualifi­cations occured due to high DTI ratios and not due to having to prove they would be able to resume mortgage payments within two years! Guidelines mostly required no delinquenc­y on federal debt, no more than two liens on the property and no DTI higher than 55%. What this means is if an applicant was making $2K per month before loss of job due to economic conditions or serious illness and monthly debt payments exceeded $1200 or so per month, the applicant would be disqualifi­ed. There was also a lookback period before the event, so if there was economic distress within a few years prior to the event, HUD would disqualify­. Tax returns and credit reports were used to determine whether or not an applicant would likely be able to be cured with the program. Many states fortunatel­y offer low interest loan programs to assist people facing foreclosur­e. The government needs to be as helpful as it can because foreclosur­es negatively impact everyone including renters!