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°`1F°1"0P City Council Staff Report
DATE: November 4, 2015 CONSENT CALENDAR
SUBJECT: APPROVE A RESOLUTION AUTHORIZING THE CITY OF PALM
SPRINGS' PARTICIPATION IN THE COUNTY OF RIVERSIDE
MORTGAGE CREDIT CERTIFICATE (MCC) PROGRAM
FROM: David H. Ready, City Manager
BY: Department of Community & Economic Development
SUMMARY
The Riverside County Board of Supervisors has authorized the County's Economic
Development Agency (EDA) to re-apply to the California Debt Limit Allocation
Committee (CDLAC) for an allocation of Mortgage Credit Certificates (MCC) in March
2016 or thereabouts where the City agrees to cooperate with the County to undertake
the MCC program. The countywide program would also assist persons or households
of limited income to purchase new and existing single family residences located in Palm
Springs. The City of Palm Springs began participation in the County's MCC Program
for mortgage loans available for first-time homebuyers in Palm Springs seven years ago
as an additional measure to assist low and moderate income buyers in the acquisition
of new and existing single family homes. Adopting the attached resolution is necessary
for the City to continue its participation in the coming year's MCC Program as a
participating unit of general government under County's program.
RECOMMENDATION:
1. Approve Resolution No. "A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF PALM SPRINGS AUTHORIZING PARTICIPATION IN THE
RIVERSIDE COUNTY MORTGAGE CREDIT CERTIFICATE (MCC) PROGRAM".
2. Authorize the City Manager to execute all necessary documents.
STAFF ANALYSIS:
A Mortgage Credit Certificate (MCC) entitles qualified homebuyers to reduce the amount
of federal income tax liability for an amount equal to 20% of the mortgage interest paid
during the year on their primary mortgage loan. This tax credit advantages to the
homebuyer includes:
!TENT NO.
City Council Staff Report
November 4, 2015 — Page 2 of 2 Pages
Mortgage Credit Certificate Program
• To directly reduce the federal income tax liability by the amount of the tax credit; and
• To qualify more easily for a primary mortgage loan which lenders may factor in the tax
credit when underwriting the loan, a lender takes this potential increase in income into
consideration and the borrower is able to qualify for a larger loan than would
otherwise be possible, or an improved borrower qualifying debt ratio.
The MCC Program allows a 20% rate, which can be applied against the interest paid on
the mortgage loan. The borrower can then claim a credit on their taxes equal to 20% of
the interest paid during the year. Since the taxes paid by the borrower are being
reduced, the annual take-home pay is effectively increased. The borrower can still
deduct the remaining part of the interest paid as a standard deduction; any unused portion of
the credit can be carried forward to the next three years or until used, whichever comes
first.
This program can be used with all types of homes, including foreclosures, newly
constructed and existing resale, detached or attached single-family, condominium, co-
op or manufactured home on a permanent foundation, and may be the "extra cushion"
to assist future first-time homebuyers will need to purchase in the City. The residence
purchased in conjunction with an MCC must be the borrower's primary residence and
my not be used as a business, rental or vacation home. The following table illustrates
how a MCC increases a borrower's "effective home buying power":
Effective Home Buying Power With and Without an MCC
Without MCC With MCC
First Mortgage Amount $300,000 $300,000
Mortgage Interest Rate 4% 4%
Monthly Mortgage (P & I Only) $1 ,432 $1 ,432
MCC Rate N/A 20%
Monthly Credit Amount N/A $200
"Effective" Monthly Mortgage Payment $1,432 $1,232
Annual Income Needed " $61,371 $52,800
" Annual Income needed is based on monthly Principal & Interest (P&I) not exceeding 28%
monthly income.
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City Council Staff Report
November 4, 2015 — Page 3 of 3 Pages
Mortgage Credit Certificate Program
There are three basic Homebuyer Eligibility criteria for determining a homebuyer's
eligibility for the MCC tax credits:
1 . The borrower must be a first-time Homebuyer defined as a person who has not had
an ownership interest in improved-upon residential real property nor filed any
mortgage or real estate related tax deductions during the most recent three (3)
years.
2. The borrower's annual income must fall within the program income limits as follows:
• Maximum Income Outside Target Area'
o Household with 1-2 persons — $69,700
o Household with 3 + persons — $80,155
• Maximum Income Inside Target Area
o Household with 1-2 persons — $83,640
o Household with 3 + persons — $97,580
3. The home being purchased must fall within the program purchase price limits as
follows:
• Maximum Home Purchase Price
o Outside Target Area — $347,625
o Inside Target Area* — $424,875
* There is no census tract within the City which qualifies as a Target Area.
The jurisdiction in which the home is located must be a participant in the County MCC
program administered by the EDA. The application process is as follows:
a. Borrowers must apply for a MCC through a Participating Lender.
b. The Participating Lender will perform an initial qualification and assist the
borrower in completing the MCC submission forms.
c. Buyer makes offer on home and goes into escrow.
d. The Lender then submits the MCC application to the County.
e. The County reviews Borrower and property qualifications and, if they meet the
program guidelines, issues a letter of commitment to the Lender.
f. The Commitment Letter must be issued prior to the close of the loan.
g. The loan must close within 60 days of the commitment.
' Target Areas are census tracts designated by the Federal government to
encourage investment.
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City Council Staff Report
November 4, 2015— Page 4 of 4 Pages
Mortgage Credit Certificate Program
h. Upon loan closing, the Lender submits the MCC Closing Package to the County
and the County issues the MCC, with the Lender and borrower each receiving a
copy.
i. The borrower may then claim the tax credit on their Federal Income Tax Returns.
j. Borrowers can realize the tax credit annually as a tax refund or adjust their W-4
withholding form to receive the benefit via an increased pay check.
The EDA will be submitting an application for approximately $4.5M in March 2016 or
thereabouts for applicants acquiring homes within the County. Program guidelines
include Income restrictions, as well as limits to the purchase price of the home. Future
Palm Springs' homebuyers can qualify for the MCC on their own through a participating
lender, even if the City does not provide down-payment assistance.
The City started participating in the MCC Program seven years ago which is consistent
with the City's 2013 Analysis of Impediments (Al) to Fair Housing Choice and its 2014-
2021 Housing Element by continuing to provide homeownership opportunities in the
community. This past Fiscal Year 2014-2015, one MCC was issued for a Palm Springs
homebuyer. Staff recommends approval of the attached Resolution, to provide another
tool for qualified first-time homebuyers to purchase a home in Palm Springs.
FISCAL IMPACT:
There is no direct fiscal impact to the City of Palm Springs from the issue of the credits
themselves. The tax credits are allocated from the State to the County and then issued
to the borrower/buyer. This is another tool to help make the purchase of housing in the
City available to a wider pool of qualified buyers. The City would agree, however, to
publish a general public notice in the local newspaper at least twice a year to attract
prospective buyers. The estimated cost of that advertising is about $1,500.00 and
could be absorbed by the Housing Successor Agency.
,Z�J)IA4
DALE E. COO , JR. DAVID H. READY, Esq., Ph. D.
Community Development Administrat City Manager
ATTACHMENT: Resolution
MCC Attachment K
DaIeC(Housin9/CC R'ivCo MCC SeffRepon.OdlS
04
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS AUTHORIZING
PARTICIPATION IN THE RIVERSIDE COUNTY
MORTGAGE CREDIT CERTIFICATE (MCC)
PROGRAM.
WHEREAS, the Tax Reform Act of 1986 established the Mortgage Credit
Certificate Program ("MCC Program") as a means of assisting qualified
individuals with the acquisition of new and existing single family housing; and
WHEREAS, pursuant to Division 31, Part 1, Chapter 3.5, Article 3.4 of the
California Health and Safety Code Sections 50197 et seq, local issuers are
authorized to issue Mortgage Credit Certificates ("Certificates") and administer
MCC Program; and
WHEREAS, the Board of Supervisors of the County of Riverside adopted
Resolution No 87-564 on December 22, 1987 establishing a Mortgage Credit
Certificate Program; and
WHEREAS, the Board of Supervisors of the County of Riverside has authorized
the Riverside County Economic Development Agency ("EDA") to administer the
MCC Program pursuant to the applicable federal, state and local policies and
procedures, and to enter into those agreements necessary for efficient
administration of the MCC Program; and
WHEREAS, the County of Riverside ("County") will be applying to the California
Debt Limit Allocation Committee ("CDLAC") for a mortgage credit certificate
allocation in March 16, 2016 or thereabouts; and
WHEREAS, the City of Palm Springs ("City") wishes to participate in the MCC
Program administered by the EDA in connection with mortgage loans it will make
available for the acquisition of new and existing single-family housing in
Riverside County; and
WHEREAS, the adoption of this resolution is necessary to include the City of
Palm Springs as a participating unit of general government under County's MCC
program; and
WHEREAS, the City agrees to cooperate with the County of Riverside to
undertake the MCC program within City jurisdiction to assist persons or
households of limited income to purchase new and existing single family
residences located in the city; and
WHEREAS, the City by adopting this Resolution, hereby gives notice of its
election to participate in the Riverside County MCC program.
THE CITY COUNCIL OF THE CITY OF PALM SPRINGS DOES HEREBY
RESOLVE AS FOLLOWS:
05
Resolution No.
Page 2
SECTION 1 . To participate in the MCC Program administered by the EDA in
connection with mortgage loans it will make available for the
acquisition of new and existing single-family housing in
Riverside County;
SECTION 2. To assist the County of Riverside to market the MCC Program
within the city's jurisdictional boundary by publishing a general
public notice in the local newspaper at least twice a year.
ADOPTED THIS _ day of November, 2015.
David H. Ready, City Manager
ATTEST:
James Thompson, City Clerk
CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE ) ss.
CITY OF PALM SPRINGS )
I, JAMES THOMPSON, City Clerk of the City of Palm Springs, hereby certify that
Resolution No. is a full, true and correct copy, and was duly adopted at a
regular meeting of the City Council of the City of Palm Springs on
by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
James Thompson, City Clerk
City of Palm Springs, California
ns
O9IeC1HooeinfCC_R,vCo MCC Rew OdlS
ATTACHMENT K
HOUSING ELEMENT CERTIFICATION FORM
FOR APPLICATION FOR AN ALLOCATION OF QUALIFIED PRIVATE ACTIVITY BONDS FOR A
SINGLE FAMILY HOUSING MORTGAGE CREDIT CERTIFICATE PROGRAM
Note. To be completed by each participating jurisdiction.
Certification of the Citv of Palm Springs, CA (Participating Jurisdiction)
In connection with the following Qualified Private Activity Bond Application:
APPLICANT: County of Riverside Economic Development Agency
for a Mortgage Credit Certificate Program.
The undersigned officer of City of Palm Springs, CA (Participating Jurisdiction)hereby certifies as follows:
1. I, David H. Ready (Name), am the City Manager (Title) of City of Palm Springs, CA (Participating
Jurisdiction); which is a participating jurisdiction of the proposed Single Family Housing Mortgage Credit
Certificate program.
2. The proposed Single Family Housing Program is consistent with the adopted housing element for City of
Palm Springs (Participating Jurisdiction) in which the proposed program will operate, pursuant to Section 5267
of the California Debt Limit Allocation Committee Regulations.
David H. Ready, Esq., Ph. D.
Signature of Senior Official Print or Type Name
City Manager
Title Date
07