What Jose Moreno’s Mortgage Down Payment Assistance Program Could Look Like: Too Few Homes/Too Many Applicants

An Anaheim District 3 candidate’s forum was held last week and city council candidate Jose Moreno is doing an admirable job of turning the answer to every question into one about “taxpayer giveaways” — and has suggested that Anaheim offer a mortgage down payment assistance program for 14,000 people if he’s elected.

There are a number of mortgage down payment assistance programs across the country.  Some are offered via government entities and even banks, like Wells Fargo, have these programs designed to help struggling families become homeowners.  Using a model in nearby Los Angeles County, which offers up to $60,000 in down payment assistance per applicant, Moreno’s program would carry a price tag of $875 million dollars and it’s unclear where the revenue for this program would come from.

According to Teresa Singson, a spokesperson with the Los Angeles Housing + Community Investment Department (HCIDLA), mortgage down payment assistance programs they offer are very helpful getting families into their first homes but there are several requirements that must be achieved.  Other than stating a number of how many residents should be helped in Anaheim, Dr. Moreno’s proposal offers zero details.

So here’s what the program looks like in Los Angeles.

How does a mortgage assistance program work exactly?  The Los Angeles Housing and Community Investment Department’s (HCID) Low Income Purchase Assistance (LIPA) program provides up to $60,000 for closing costs/downpayment assistance/gap financing to low-income first-time homebuyers.  HCID’s LIPA loan is a subordinate soft second mortgage which requires no monthly payments, has 0% interest and which has shared appreciation.  The loan is due upon sale of the property, when the homebuyer no longer occupies the property as their primary residence, in 30 years as a balloon payment or some other repayment trigger event.

Is there a limit on the number of people who can apply every year?-The number of people who can apply is determined by the amount of funding that is available during the program year.

How many people have used the program in Los Angeles successfully?-From April 1, 2011 through March 31, 2016 HCID’s LIPA program provided downpayment assistance to 327 homebuyer’s for a total assistance amount of $18,259,899.

What are the rules for eligibility?-There are several requirements.  Some of the main requirements below.

•   Middle FICO score of at least 620
•   Attend 8 hours of homebuyer education from one of HCID’s approved education providers
•   Obtain a 1st mortgage from one of HCID’s approved participating lenders
•   Homebuyer’s are required to invest a minimum of 1% of the purchase price from their own funds towards the down payment
•   Must be a first-time low-income homebuyer (someone who has not had an ownership interest in any real property at anytime during the past 3 years)
•   Must be a U.S. Citizen, lawful permanent resident or other qualified alien
•   Homebuyers must occupy the acquired residence as their primary residence
•   Household income must be below the income limit based on household size

 

Household Size	1 person	2 people	3 people	4 people	5 people	6 people	7 people	8 people
Annual Household Income Limit	$48,650 or less	$55,600 or less	$62,550 or less	$69,450 or less	$75,050 or less	$80,600 or less	$86,150 or less	$91,700 or less

 

What is the largest single reason an applicant might not pass muster for the program?-The primary reason would be that they are over the income limit based on their household size.

Is there a ceiling on how expensive the home can be for eligibility?-The maximum for a single family residence is $475,000 and for condos/townhouses it is $405,650.

Is there flexibility on income requirements?-The income limits are published by the U.S. Department of Housing and Urban Development each year and there is no flexibility in the published income limits for that year.

How often do buyers of these homes lose their homes to foreclosure?-It is very uncommon for HCID borrower’s to lose their home to foreclosure.  During 2015-16, HCID foreclosed upon zero homes.

What happens if the home falls into disrepair?-Borrowers are expected to maintain their homes.  If HCID becomes aware of a property in significant disrepair, HCID responds on a case by case basis.

What if the homeowner cannot pay the loan back?-Multiple options are available to HCID based on the terms of Homeowner’s loan documents.  Most commonly, HCID will consider a loan modifications when a borrower demonstrates a financial hardship.

Is there a shortage of eligible homes to buy?-To our knowledge there is not a shortage of homebuyers.  Right now there appears to be a shortage of homes for sale.

And those last few words are the actual rub.  According to Trulia.com, there ate 1,013 homes for sale in Anaheim right now.  When you whittle that down to homes under $600,000, which is the top end for the CALHFA mortgage down payment assistance program, the number  is cut to 499.  If the proposed Anaheim program mirrors that of Los Angeles, Trulia homes in Anaheim for sale between $450,000 and $500,000 range from 187 to 295.

For prospective buyers in California, a statewide program already exists that might make Moreno’s proposal obsolete.  And if you’re seeking to buy in Orange County, the most expensive a home can be is $600,000.  And with a little searching, there’s a lot of information on these programs that already exist without adding a new department within Anaheim city government.

Moreno is promising a mortgage down payment assistance program for 14,000 Anaheim residents (voters)  when the supply of eligible homes is under 300.  And its important to know, that any way these programs are structured, its a loan and not a gift of $60K per applicant.  Missing from Moreno’s program is the source of funding, eligibility requirements, how applicants would be accepted.  A cynic would say he’s dangling $60K in front of voters in exchange for their votes without having thought this program through.  And without details, he hasn’t.

But looking at the available housing for eligible applicants, it’s also clear Anaheim has a strong need for more affordable housing for its residents on the lower end of the economic scale.  Perhaps voters should look for candidates with solutions that help create more housing options.