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Home My WebLink AboutAgenda Report - September 7, 1988 (88)C O U N C I L C O M M U N I C A T L O N TO: THE CITY OJJNM COUNCIL MEETING DATE: SfPIEMBER 7, 1988 FROM: THE CITY MANAGER'S OFFICE- SUBJECT: FFICE SUBJECT: MORTGAGE CREDIT CERTI FICATIOW PROGRAM (DISCUSSIGN AND APPROPRIATE ACIION) GENERAL OVERVIEW The Mortgage Credit Certificate Program, authorized by Congress in the Tax Reform Act of 1984, is an alternative to mortgage revenue bond -backed financing as a means of providing financial assistance to avera e -income families for the purchase of single-family housing. In 1985, the State of California adopted legislation authorizing cities and counties to make Mortgage Credit Certificates available in their communities. MORTGAGE CREDIT CERTIFICATE The MCC is a federal tax credit. The MCC tax credit reduces the federal income taxes of qualified borrowers purchasing modTstly priced homes, thus having the effect of subsidizing their monthly mortgage payments. For example, a borrower with a 10%fixed rate 30 -year mortgage of $90,000 would make $790.00 in mortgage payments each month. By using a 20% MCC, $158, (20% of $790) of the monthly payment can be taken as a tax credit toward that buyer's Federal income tax I iabi Ii ty. The JRS and state agencies have established program guidelines which set the nudnun sales price for new and existing units, as well as the maximum household income of the home purchasers. These limits are different for each city and county and are periodically revised based upon what should be average for the area; the limits for Lodi are $101,000 for a newly constructed home and $85,000 for an existing, previously occupied home assuming a median household income cf $28,600 for the city. PROGRAM ADMIN I STRATION The MCC Program can be implemented in-house or on contract; larger cities, particularly in Southern California often implement i t in-house. Smal ler cities and counties have foind it to their advantage to utilize outside housing consultants, such as CFN Financial Services. If an outside consultant were used the City's role in administering MCC' s would only include promotion and coordination of the program. r City Council September 7, 1988 Page 2 and Tandy Ranch, starting in the low $120,000's and $140,000's respectively. Schaefer, Suess and Boyd Realtors estimates the median new hcxne is selling for $150,000 to $169,000 in Lodi. There are some existing, preoccupied homes in Lodi sel i i ng under $85,000 though concrete numbers are not available. The Lodi Board of Realtors does provide a median selling price of $122,573 for a resale horn which suggests that the number of homes that qualify for this program -is probah'iy not significant. This r-ogram is unique because it is not restricted to low and moderate income categories and includes average income persons. However, the unavaila—bfl ity of any new homes priced within the MCC's limit and the moderate number of eligible resale homes means the program will likely not have troch of an impact in Lodi. Staff feels the MCC Program would be ineffective here and recommends that '"C do not adopt the program at this time. Nq i3. SCNR &Z L�G_ uriily Devel opmerit Director x FINANCIAL SERVICES Public Finance Division -e_ " - I _C� � C2 P.O. Bei:_ 3006 Lodi CA, 95-241-1910 SUBJECT: MORTGAGE CREDIT CERTIFICATION PRO(;R.T�M _CI;Zr I rLd: Th letter is to make you aware of an Opportunity for your citv.to nake Homeownership a realty for average income nor.. --e buy ers. if y,ur City Council acts, ycu can ensure thatmoicra-,e families realize tha unique American Dream of Homeownership and at the sane tine bene -fit your local Builders, Realtors, a r.d Lendei. 140Ri. CREDIT CERTIFICATES n 19t3" +_-he- U.S Congress adopted ai,.-.endn, tints to Ta. I'xamp Bondd ri,"- !Zc-ula-1--irns:,,vjliichi7,among other things, enactefA a ._w V, of tan.:.: _;redit known -as the, Mortgaga Credit Certificate (SACC) Rather than issuing.. Tax -Exempt- Revenue B.ortds.. B ities and ', Codnties are- . 'now nodorate-income..'� Home, , uyers, :C pern-_cted tc issue XC .o eligible average income houz:fLolaS C.0 the nurchase of For tne, - typ 1 ca.L cit"71 first � home. In, Ncrtl rn California-;`_ _.hotir�eholds:earnin )Orj annua-` I Up i:000 a re eac 1 6' T UP I-ur6.� S, iase �ane;iis ing, :constructed hom 6' e r --un d` ()00. "101, old ent3LILI-es th, e t a-- -i MCC to a it, averr o ars ige, household .�Ssuancc_ ,of t up to $-2 1 000 -ia4 r, -for-dallar Tax"Credi �:.of, 1-11 ar on,.tl -h-; n:�.-turn c[reat'v assistsinthe' -iii -neetinq� tb icon, e axes.. �L i oan-auali i cA ti a -quir emen-Es 6f pr_ivate:.lendcfri-� iwe i available, . . . . . . . . . ------ Effective,' Frac 'cal' a n. d JL- -kc--om.-plisheZ exactlyUh designed tol�,,,,rovicie. s ignificant F Lna--c Assistance ��to avC�r_a�C.3e., " �i t t r s --,home. h las: ai 0: r ric house, 0- bUVX.IC ?income 41st U F S ta: Cruz Californiai95062 462-2646 rti .7, . OF ffS N kJ - CANOW-7�," J An MICC program requires an i nit.ial action k v '�+011r city COui1i11 ` O start the prcgram. Next, }'^,u'_' local BLI.L1-erS, Realtors, a :'d tl- Lenders are made •:arc- ot t i ava'la:,)_s.it, 1SSLIZnte of indiviUual .`'!l _ ln-cor porc:tedt in chl—i'_ i:iting, Oell.,.n g and Financing prccedur,-�s.L.3 s \' ti. 'N --Cs ar? issued to qualified hoLiepurciiasers as authorized bv yourjuric sd_tion. i CFN FINANCIAL SERVICES, PUBLIC FINANCE DI's%ISIOl3 . i 'ms� s J ; DOaM CA Or r r I T C 0 o N C I L TO: THE CITY COUNCIL FROM: THE CITY MANAGER'S OFFICE C O M M U N I C A 1 S O N COUNCIL MEETING DATE: AUGUST 17, 1988 SUBJECT: MORTGAGE CREDIT CERTIFICATION PROGRAM (1)1SC'USSION AND APPROPRIATE ACTION) G.EN1RA1 OVERVIEW The Mortgage Credit Certificate Program, authorized by Congress in the Tax Reform Act of 1984, is an alternative to mortgage revenue bond -backed financing as a means of providing financial assistance for the purchase of single-family housing. In 1985, the State of California adopted legislation authorizing cities and counties to make Mortgage Credit Certificates available in their communities. The MCC is a federal tax credit. The MCC tax credit reduces the federal income taxes of qualified borrowers purchasing modestly priced homes, thus having the effect of subsidizing their monthly mortgage payments. For example, a borrower with a 10%fixed rate 30 -year mortgage of $90,000 would make $790.00 in mortgage payments each month. W using a 26% MCC, $158, (20% of $790) of the monthly payment can be taken as a tax credit toward that buyer's Federal income tax liability. The IRS and state agencies have established program guidelines which set the maxnnum sales price for new and existing units, as well as the maxnnum household income of the home purchasers. These limits are different for each city and county and are periodically revised; the limits for Lodi are $101,000 for a newly constructed home and $85,000 for an existing, previously occupied home assuming a median household income of $28,600 for the city. PROGRAM ADMIN IRA1IO�T The MCC Program can be implemented in-house or on contract; larger cities, particularly in Southern California often implement it in-house. Smaller cities and counties have found it to their advantage to utilize outside housing consultants, such as CFN Financial Services. BACKGROUND Il4URMATION The City of Lodi has no new single-family homes selling for under the MCC Program's limit of $101,000. The lowest priced new units are in Johnson Ranch and Tandy Ranch, selling in the low $120,000's and $140,000's respectively. Schaefer; Suess and Boyd Realtors estimates the median new home is selling for $150,000 to $1.6,0,000 in Lodi . There are sone existing, preoccupied homes in Lodi selling under $85,600 though rnnrrPtanumhc rs are not available. The Lodi Board of Realtors does provide a median selling price of $122,573 for a resale home which suggests that the number of homes ti at qualify for this program is probably not significant. CC23/TXTD.01C August 1.1,:1988 .xa. t ,w v. .w,�s*rKat✓YSvr�r-w+.c` .a.:,aYt. wwmr:. �s+s*?.kms` k''a,. ,rrr ri City Council September 7;--1988 Page 2 CONCLUSION This program is unique because it is not restricted to low and moderate income categories and includes average income persons. However. the unavailability of any new homes priced within the MCC's limit and the moderate number of eligible resale homes means the program will likely not have raich of an impact ir. Lodi. Staff feels the MCC Program would be ineffective in Lodi and recommends Lhat we do not adopt the program at -this'-time. t JAS B. SCHRdEf)ER I muni ty Development Director 1