California lawmakers approved a half-billion-dollar down payment on an innovative program that pairs first-time homebuyers with investors to make it easier to purchase a home.
The program asks lawmakers to allocate $1 billion in general fund spending each year for 10 years.
Lawmakers approved $500 million, half of the recommended amount in the fiscal 2023 budget, but Micah Weinberg, chief executive officer of California Forward, said the California Housing Finance Agency could make up the balance by issuing general obligation or revenue bonds.
The goal is to help lower-and middle-income families achieve home ownership, and allow them, and racially diverse groups that have previously been shut out of as a result of redlining and other discriminatory policies, to achieve the generational wealth possible through home ownership.
Redlining refers to a practice begun in the 1930s in which federal agencies refused to insure mortgages in, or near, racially diverse neighborhoods, and banks won't loan money on mortgages not insured by the federal government agencies.
"The program reinforces sound lending practices, rather than using financial gimmickry to promote home ownership,” California Treasurer Fiona Ma said during a June 30 webinar hosted by California Forward. “It creates an equity-focused scalable model for the rest of the country. We love to lead here in California.”
Just 56% of California’s families live in homes they own, slightly higher than New York’s lowest-in-the-nation 55% rate and nearly 10 percentage points behind the 65% national rate, according to the
The “Dream for All” program, created last year by Assembly Bill 140 directed the state treasurer’s office to
They released a 120-page
To lessen the down payment and the amount of each loan payment, the state offers a second mortgage that covers 17% of the home’s price. The buyer makes no payments on the second mortgage until the house is sold.
Under this arrangement, the state owns a portion of the home and receives a percentage of any profit. For example, if the profit on the home, once sold, totals $100,000, and the state’s stake was 17%, it would receive $17,000 that would revert back into the revolving fund to loan to other buyers.
If the home does not increase in value, the buyer pays back the borrowed amount, and if there is a loss, the state will lose a percentage, similar to the profit scenario.
The program resulted from discussions about how the state could open the door to home ownership, said Christopher Woods, budget director for Senate President pro Tempore Toni Atkins, who has championed the “Dream for All” program.
“You can’t legislate the market. You can’t subsidize your way to it using the budget, because it wouldn’t be enough,” Woods said during the webinar. “You can’t flip a switch and make housing more available. So, how do we do something meaningful?”
The program doesn’t interfere with the market, or home prices, but makes a$500,000 home look more like a $400,000 one to the buyer, Woods said.
“With this program, you put money into it, and it revolves back into the fund,” he said. “We have a stake in all of these houses. When the money comes back, the state gets reimbursed and it can go back into the program.”
Assembly Bill/Senate Bill 197, the trailer bill to the fiscal 2023 budget that allocates $500 million to the program, also authorizes CalHFA to issue bonds, Weinberg said.
“I think CalHFA is going to look into does it make sense to make a series of general fund commitments or issue GO or revenue bonds, or some combination,” he said.
The report from the team led by California Forward estimated the $1 billion initial investment in the first year could have helped 8,000 families buy homes. The $500 million, have of what was envisioned, should help 4,000 families, Weinberg said.
The program would be limited to about 2% of home sales statewide to avoid further inflating the state’s already high home prices. It would be first come, first served, with eligibility limited to households making up to 150% of the median income in an area.
Since the program aims to produce racial and economic equality, Weinberg, said the state will market the program to buyers in neighborhoods that have historically been targets of discriminatory practices, such as redlining.
“We estimated that if the program is funded with $10 billion through a combination of general fund money or loans that it would end up helping over 160,000 homebuyers over 40 years,” Weinberg said. “Because the shared appreciation portion the state gets would go back into the revolving loan fund.”
CalHFA hasn’t been given a deadline to start the program, because although it has the lending capability, it hasn’t done anything of this size or that involved the potential for the state to benefit from the increase in value of the home, Weinberg said.
A proposal that included a
Hertzberg’s proposal approved in the state Senate, before moving over to the Assembly for consideration, included a similar first-time home buyer program.
“Hertzberg’s bill was substantially more broad,” Weinberg said.
While California Forward's program provides assistance for first-time homebuyers, Micah said, the Senator's proposal included housing and construction reforms, and money for building as well as money for down payment assistance.
“SB 1457 will not be moving forward this year,” said Ray Sotero, Hertzberg’s communications director. “The hope is the legislature will look for ways to expand access to homeownership.”
The senator wasn’t immediately available to discuss why he didn’t continue his push for the bill. Hertzberg, terms out in the Senate this year, but is in a runoff for a Los Angeles County Board of Supervisor’s seat. Sotero didn't respond directly to whether another sponsor has agreed to champion the bill.
California voters have approved billions of dollars in state GO bond measures in recent years for housing. In 2018, voters approved Proposition 1, which dedicates $4 billion in GO bonds for housing, including $1 billion for the California Veteran Farm and Home Loan Program and $3 billion to housing programs for low- and moderate-income persons.
In the same year, voters also approved Proposition 2, which dedicated $2 billion in bond proceeds for housing from the Mental Health Services Act. MHSA was approved by voters in 2004 to invest in the development of permanent supportive housing for persons who are in need of mental health services and are experiencing homelessness or are at risk of homelessness.
