Affordability in L.A.

A couple of quick thoughts about the long story in the Los Angeles Times today about government programs that help first-time home buyers squeeze into homeownership in the L.A. area.

• We were surprised to learn that, even with a household income of up to $98,000, you can qualify for a below-market mortgage rate from the California Housing Finance Agency. Up to $98,000 per year is considered "moderate income."
• We were perplexed (we're always confused and perplexed) that the Los Angeles Housing Authority has such a tiny level of activity. The story says the authority funded 50 loans last year, and has funded 274 loans so far this year. That's great for those 324 borrowers; but in a city the size of Los Angeles, it is like spitting in the ocean. It's a less than token effort.

Your thoughts? Comments? Insights? E-mail story tips to lalandblog@yahoo.com.

Comments

[JK]

It all sounds good in theory but I'd be very concerned about the whole "equity sharing" aspect.

My other concern would be the number of loans one is required to take out. That's a whole lotta "extra" added to your loan.

[Mark]

It sounds like that report was written by a real estate agent, or by a reporter who was paid off by a real estate agent.

I hope that couple continues to feel all warm and fuzzy about their purchase as they watch the value of their home go down over the next couple of years.

[tew]

It helps resolve confusion if you remember that one of the main purposes of these programs is to provide cushy 9-5 (with every holiday you've ever heard of an many weeks vacation per year and pension) jobs to people connected to the government.

[CeW]

My experience with the first-time homebuyers program has been invaluable. I completed the 12 hour course which covered all aspects of buying a home. The program is designed to educate and guide potential buyers step-by-step and ensure they buy something they can afford, taking into account PITI and other monthly commitments. I am designated low-income ( even though a professional, exempt employee at a local university) so without this program have no hope of buying even a shed in S. Cal. Savvy friends of mine who are less challenged when it comes to income have also taken the course for the education it delivers and the prospect of a favorable loan rate. After twenty years of frustrating circumstances I may finally be able to own my own home. It’s white-knuckle time trying to time this market but I think I have to go for it now. Who knows how long these programs will be around with government now intent on helping those facing foreclosure (who I have great sympathy for btw). One obvious benefit from the program for the market in general is that it props up the low-end which seem to be in the most distress ( at least in my area)

[manraygun]

"It’s white-knuckle time trying to time this market but I think I have to go for it now. "

You've waited 20 years. Wait one more at least. If you do some research you'll find there's almost no chance prices will be higher a year from now. It's really no longer a matter of opinion. Given market fundamentals, foreclosures and the relative scarcity of credit, prices are going down and the pace will only increase. Good luck.

[Douglas Eisenstark]

When I was evicted from Lincoln Place on December 6, 2005 along with scores of others, the Mayor did nothing. When we went to speak at a public meeting that evening he knew nothing and did nothing about the situation. When we pleaded with him to put help mediate the issue he made one 15 minute phone call to the President of the company that had us evicted. When you lose 100 affordable units and require only 5-15 % replacement you are backpedalling fast. I think he is clueless as to how to fix the situation of affordable housing. Meanwhile, over 600 units in Venice are empty while he makes grand pronouncements.

[AnnS]

(1) It helps resolve confusion if you remember that one of the main purposes of these programs is to provide cushy 9-5 (with every holiday you've ever heard of an many weeks vacation per year and pension) jobs to people connected to the government. Posted by: tew

Why don;t you save your 'one-note' rants? Not everything is about your pet hobby horse about government and pblic employees.

The people who serve on the Board of Directors for the HUD/State Housing Authority local organizations generally do it for FREE. I should now - I sit on the board of my county's affordable housing body. We don't even get paid mileage. Generally this organizations are non-profit corporations who are designated by local governments to run the affordable housing programs.

They get by on donations, grants and very little money from any governmental body.

Larger offices with a high demand for services may have 1 or 2 people as employees who are paid - and paid about what social services work for a non-profit ususally pays which means not much.

In smaller areas, the board memebers who are working for free also handle the processing of applications and all the other work.

When you don't have the slightest idea of what you are talking about, silence is a very good answer.

Assumptions make an "ass - (of) -u"

(2) It all sounds good in theory but I'd be very concerned about the whole "equity sharing" aspect.

My other concern would be the number of loans one is required to take out. That's a whole lotta "extra" added to your loan.

Posted by: JK |

Typically the transfer of housing purchased through the affordable housing authorities is restricted as to who may be it when this buyer sells. Our authority requries that the home be sold to another buyer who qualifies under the income guidelines.

The way our program works is the authority buys the land or the property with an existing house. If there is no house, the authority builds one using grants and donations. The land is places in a land trust with the authority retaining title. The buyer has to pay 80% of the price of the property. (works out to basically the cost of the house with the way land to structure ratios are here.) For example, house and land appraise at $167,000; cost of construction was $104.000 (donated materials and labor); and so the buyer needs a mortgage for $104000.

The buyers must be below a certain income based upon household size but able to handle the mortgage, insurance, taxes (all the real estate taxes) and a ground rent paid to the trust. The local banks work with the State Housing Authority loan programs (5.757% on 30 years) and have qualified people where the total costs have been up to 40% of gross. The loans must be a fixed rate. The buyer has to come up with 1% of the loan at closing.

The buyer must live in it. They can not rent it out nor only live there part-time (this is an area with a lot of 2nd home people.)

The sale of the property is restricted:

(1) It can only be sold to another buyer who qualifies through the program

(2) The selling owner only gets 22% of any equity.

Here is how it works. That $167000 house appreciates to $226,000 (appriasal - not a realtor's guess). The buyer has a $104000 mortgage, The appreciation is $59,000. The buyer who now wants to sell will get 22% of $59000 or $13000. The next buyer has to qualify for a $117000 mortgage and come up with 1% of that at closing - and meet the income qualifications.

If the owner dies, they can leave it to a close relative (child, parent) but that person must live there full-time and is subject to all the same restrictions on selling the home.

The CA program that lets a buyer have 97% of the equity is incredibly generous. After all, they wouldn't even be in the house 'but for' the special funding.

The idea is NOT to put people in a house and let them flip in a few years and make money. It is to get them into a home they own so they can paint the rooms whatever color they want and have the tax deduction and become a permanent part of the community.

More importantly, subsdizing the lower and median income housheolds keeps a workforce. The teacher in the news story was never going to have a home any other way. Having teachers is a good thing - so make it possible for them to have a home in the community.

The focus of these programs is on creating workforce housing. Doyou really think that a teacher or police officer could buy in a high-priced area without such programs?

As far as the 2nd and 3rd mortgages, they are not a big deal. They don't come due for 30 years or have payments during that time and are only due when the primary mortgage is paid off. The buyers have several options: (1) pay some towards if their incomes go up over the years or (2) refi the house in 30 years to for the maounts of the 2nd and 3rd mortgages (which by then the amounts will sound like chicken feed.)

[Brian]

My reaction to this article was totally different. To me, it showed the other side of the housing boom -- good, frugal, responsible people struggling to buy a house in an insane real estate market driven by irresponsible lending and borrowing. $500,000 for a 1000 ft.², fixer-upper?

I doubt Henry Paulson will read this article, but his Citibank bailout scheme, as well as other well-intentioned programs to help people avoid foreclosure will have the unintended consequence of propping up home prices far beyond their economic value. This will result in more young people like this struggling, taking out three loans to afford a two-bedroom home to raise their kids.

House prices have to come down to a level where people can afford them.

[Willie]

The only drawback about this program is the equity share provisions that remain in place for decades after the purchase of the home. If you try to refinance to paid them off you have to give them their equity share. In some cases the equity share provision remains in place for 30 years! On the other hand, this provision do help the purchasers to remain in their homes for the duration of the program. Speculators, flippers and people that don't like to live in the same place for more than a couple of years need not to apply.

[aaron Kramer]

lower prices make housing more affordable for the masses. Government programs and mandates obscure the true market and make people "feel good" about helping the less fortunate. This article points out how worthless these government programs actually are.

[xtine]

AnnS: Why, in your opinion, were so few of these loans granted? (per Peter's second question)

[arun]

http://www.bloomberg.com/apps/news?pid=
newsarchive&sid=awTwHUdj2wM0

Bloomberg reports Goldman: California 40% overvalued...

[ProblemWithCaring]

I am a Certificate-Carrying member of the LA Housing Authorities Home Buyers Education program, required for any federal, state or county government loans or subsidies; and I can tell you why they have only assisted a few hundred households: Realtors.

Any buyer that qualified through the city, in the past 4 years, would have qualified with FLYING COLORS for any of the now defunct mortgage loan products that were being hustled to people only a few short months ago.

Why in the world would people jump through all of the city regulators, appraisers, inspectors (though they are ways to get around those), qualifying requirements, salary requirements, 30 year loans AND equity sharing provisions? The city has there reasons for using tough standards and provisions 30 years ago, but the point is, its tough.

Realtors, no doubt anxious to close deals, were more than willing to shoo their unsuspecting buyers right into the waiting arms of Mozilo' Gorillas- Our Brokers!- who were willing to finance them to the teeth, with no hoops to jump through – heII, not even documentation!

How soon we forget, the bad old days...

[CeW]

Wait one more at least. If you do some research you'll find there's almost no chance prices will be higher a year from now.
Good luck.
Posted by: manraygun | October 21, 2007 at 10:57 PM

I've been reading this blog for some time so I know that if I buy too soon I will be upside down in no time. Still house prices are unlikely to drop to a level where I can afford to buy without this help. I have about an 8 month window before my inclusion in the program runs out. It is a matter of finding something I really like and won't mind staying in for many years-which will take time....maybe 8 months.
Thanks for the sentiment manraygun.

[david]

I like the equity share aspect of these programs. It eliminates investors and speculators, so the only people who will benefit from these programs are those that truly need it.

Just thinking out loud ... how about somehow adding some type of equity sharing to the "bailout" that many politicans are talking about today. Sure, the government will bail out your loan right now. But five years down the road, when housing recovers and you sell at a profit, the government takes all of your equity gains. You just get your original down payment back. If you put 0% down, then you don't get anything. You don't "lose" anything because you would've lost more if you had gone into foreclosure, and in the meantime you get to keep your home.

[AnnS]

AnnS: Why, in your opinion, were so few of these loans granted? (per Peter's second question)
Posted by: xtine

Xtine –

First, most people don’t know about the programs.

Then, actually it is hard to find people that qualify.

A lot of people want to buy a house and there are a lot of middle or low income households, but it is “buts” that narrow it down.

They have to be below that income cap for a family a specific size.

They have to be below that cap but still able to pay the mortgage.

And the big barrier – they have to have excellent credit. The problem with being low or middle income in a high cost area is that it is tough to pay the bills if there is an emergency. They can’t save for an emergency – nor much of a down payment on a house – because they don’t have the money. A lot of applicants who could make the payments now have a credit black mark from something that had happened a few years ago and they just couldn’t pay the bills on time and that disqualifies them.

One of the houses in the program here is back on the market (prior owner married and moved out of state.) It has been sitting since July. There has been a fair amount of interest but the applicants either (1) are below the income cap but too low to qualify for a mortgage with a bank even using the State Housing Authority Loan programs which have imposed a 31% on the amount of gross income that can go to mortgage etc; (2) their credit record is not good enough; or (3) they want it as a rental income property or 2nd home.

It’s a nice enough house – 2 1/2 years old with 3 bedrooms & 2 ½ baths but there is no garage – just a gravel parking space. The downside is that it sits on a 50 x 100 foot lot in a planned sub-division of the New Urbanist school (read: cram as many houses under 1700 sq ft in as possible and insist that they all look like it is around 1910 in style which runs up the costs of building.) Rents in this area for a 3 bedroom with a garage on close at least a ½ acre up to 3 acres are $650 –800. With the mortgage, taxes (our millage rate very high) insurance and the HOA fees, the monthly price ticket on that house is around $900.

“lower prices make housing more affordable for the masses. Government programs and mandates obscure the true market and make people "feel good" about helping the less fortunate. This article points out how worthless these government programs actually are. osted by: aaron Kramer “

Don’t know what you were reading – isn’t the same thing that the rest of us read.

As for your “market forces” argument, it hasn’t worked. It is not working. Affordable housing for the workforce is a huge problem all over the US in geographic areas with high costs of living. 50 years ago or even 30 years ago a teacher could buy a single family home in nearly any community. Now, in some communities they can’t even pay the rent on a 1 bedroom apartment (San Fran comes to mind.)

The over-riding characteristic of the US society for the past 25 years has been all consuming greed and voracious consumption. No developer is going to build modest 1000 –1200 sq ft single family homes when they can build uber-McMansions at 5000 sq ft. Problem is that local governments have been to cowardly and too depend on their financial backers to zone the land requiring that more modest homes be built.

How nice to know that you consider teachers, firefighters and police to be the “less fortunate”. You should be damn glad that those people do go into the professions instead of demeaning them based upon their income y calling themm 'less fortunate' - a euphmism for being stupid, uneducated and failures at making money.

[Raughle]

Why go through a 12-hour education class and deal with a government bureacracy to strap on four loans for the privilege of sharing equity with the state, when prices were rising double digits and private lenders were competing for the privilege of loaning you 600K with nothing down, at whatever starting payment you wanted? Seems clear to me.

Unlike some of the other posters who will obviously dismiss ANY government program, I'm all for programs that clearly help everyone involved. But it makes me a little bit uncomfortable to think there are programs for people with near-six-figure incomes who are competing with me in the housing market. Sure, the teacher was able to get into a starter condo on favorable terms, but what about the other teacher who would have bought that condo otherwise? Is that truly helping everyone, or is it just helping to pick the winners and losers?

Without the program, that condo would have sold for the same or lower price to someone else. And the beneficiaries of this are not only the buyers, they're also the sellers (in the article, one of the examples was a foreclosure, so the seller was a bank). This feels a little like my tax dollars working against me, to the benefit of several other private parties.

[aaron Kramer]

Ann S
You clearly have attached your preconceived notions to my post and the worst possible connotations to it as well. My point is that this government program although noble in its end is not addressing the fundamental problem that many working class families face, a lack of affordable housing. I completely agree that the politicians have allowed developers to run amuck. If we let the current bubble pop (NO GOVERNMENT BAILOUT) then the professionals you have listed will have access to cheaper more affordable housing, with or without the services you provide? At the same time speculators and greedy investors will be punished. This will be achieved without any additional tax payer money but by the market. FYI both my parents were teachers for over 30 years and I'm very aware of the impact from being "less financially fortunate." It taught me that hard work and perseverance lead to success not government programs that help 1% of the population affected by a problem being addressed through a misguided well intentioned government agency.

[eprobert]

Here's another reason for the low numbers:

"Available loan funds for the Moderate Income Purchase Assistance (MIPA) Program have been fully
reserved at this time. LAHD has established a Wait List for use of its MIPA Program Funds. Please contact
an LAHD Participating Lender to be placed on the Wait List. An LAHD Participating Lender can submit a
Wait List Reservation Form on your behalf to LAHD. Upon receipt of a Wait List Reservation Form, LAHD, at
its sole discretion, will issue actual reservations as funds become available."

I'd love to use something like this but our income is about $3000 too much per year.

[AnnS]

" If we let the current bubble pop (NO GOVERNMENT BAILOUT) then the professionals you have listed will have access to cheaper more affordable housing, with or without the services you provide? At the same time speculators and greedy investors will be punished. This will be achieved without any additional tax payer money but by the market. FYI both my parents were teachers for over 30 years and I'm very aware of the impact from being "less financially fortunate." It taught me that hard work and perseverance lead to success not government programs that help 1% of the population affected by a problem being addressed through a misguided well intentioned government agency.

Posted by: aaron Kramer"

Your response is akin to the critcism that was made when the WPA and reflief programs were passed in the 190's.

Those hating any kind of assistance for regular people (not odrporations) all wailed "but the economy will recover sooner or later so why bother with relief funds and jobs and help to farmers?"" The lament of "Don't spend the money - let the market take care of it."

Harry Hopkins (and if you don't know he was, go look it up) was in charge of administering the WPA and other programs and authorized millions a day in expenditures made a very succinct reply.

He said "people don't eat when the economy improves, they eat every day and right now they are going hungry."

Same thing applies to housing. They have to live somewhere.

You can't possibly believe that a single teacher's income will buy many homes in CA! 20 or 30 yeaars ago your parents could buy - they wouldn't do it to day on a teacher's pay.

A teacher can not begin to afford to buy in my town. Our prices will give LA a real run for their money because of the 2nd homeowners who drop $750000 -$3,000,000 on a 'summer cottage.'

The small number of people who can qualify and get something now with subsidies and restrictions will not make a statistical difference in the overall house prices.

If the programs there are as restrictive as ours (land trust retains title to the land), then appraisers do not use them for comps because of the unusal ownership arrangements. They don't use any of the subsidized homes here for that reason.

[Aaron Kramer]

Ann

you did it again! You confuse symptoms with the cause. The problem from your perspective is that as a society we don't pay public servants a living wage. So my advice is that you protest that inequality instead of talking about the benefits of a program that impacts .001% of the total real estate market. If you succeed in raising the avergae salry for public servants their the impact will be much greater. With regards to you depression era analogy don't forgot that in our foray intot he wild world of socialism our great ubiquitious and omnicient government seized all the gold coins in the country at $20 per ounce, they were used as a medium of exchange back then and the coins also backed the paper currency. Three months later FDR locked gold proces at $35 an ounce. What a scam! The government also tried to halt falling agriculture prices by slaughtering 100,000s of cattle and pigs in order to decrease supply and increase prices. I'm not trying to say that all government policies are inherently rotten because they aren't. I'm trying to say that government programs frequnetly direct money into black holes that suck it in and provide little to nothing in return. i have sympathy and compassion for those who are currently priced out of the market but even you agree that these programs provide relief that is nothing more than a drop in the bucket. That is why it is essential for the politicians to stay out of this real estate downturn so that homes become more affordable for all. Finally please refrain from the condescending and self righteous prejudgement of me and my assumed lack knowledge of a topic you that intimately know. Remember that you never know what someone does or doesn't know until they open their mouth. At least allow me the opportunity to put my own foot in my mouth before you so generously do so for me.