HomeMy WebLinkAbout12/7/2011 - STAFF REPORTS - 2G p PLM Sa
i
O
Y N
f
FOR"'p City Council Staff Report
DATE: December 7, 2011 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 Qevelopment
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 2012 or
thereabouts,where the City agrees to cooperate with the County 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 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 three years ago as an additional
measure to assist low- and moderate income buyers in the acquisition of new and existing
single family homes. Adopting of 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 APPROVE 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 15% of the mortgage interest paid
during the year on their primary mortgage loan. This tax credit advantages to the
homebuyer includes:
• To directly reduce the federal income tax liability by the amount of the tax credit; and
ITEM NO.��
City Council Staff Report
December 7, 2011 -Page 2 of 4 Pages
Mortgage Credit Certificate Program
• 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 15% 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 15% 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 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 7% 7%
Monthly Mortgage (P & I Only) $1,996 $1,996
MCC Rate N/A 15%
Monthly Credit Amount N/A $262.25
"Effective" Monthly Mortgage Payment $1,996 $1,733.75
Annual Income Needed * $85,542 $74,304
Annual Income Needed is based on monthly Principal & Interest (P&I) not exceeding 28%
monthly income.
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
02
City Council Staff Report
December 7, 2011 -Page 3 of 4 Pages
Mortgage Credit Certificate Program
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 — $70,400
o Household with 3 + persons — $80,960
• Maximum Income Inside Target Area
o Household with 1-2 persons — $84,480
o Household with 3 + persons — $98,560
3. The home being purchased must fall within the program purchase price limits as
follows:
• Maximum Home Purchase Price
o Outside Target Area — $450,000
o Inside Target Area — $550,000
If the home is located in a Target Area census tract, then the first-time homebuyer
requirement does not apply and the income and purchase price limits are higher.
There is one census tract within the City which qualifies as a Target Area, commonly
known as the Warm Sands and Tahquitz River Estates Neighborhoods.
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.
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.
Target Areas are census tracts designated by the Federal government to encourage investment.
3
03
City Council Staff Report
December-7, 2011 —Page 4 of 4 Pages
Mortgage Credit Certificate Program
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 $3.4M in March 2012 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 three years ago. 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 an
advertisement twice a year to attract prospective buyers. The estimated cost of that
advertising is about $1,000.00 and could be absorbed by the Redevelopment Agency's
Low- and Moderate Income Housing Fund.
DALE E. COO , JR. JbHN S YMOND
Community Development Administrator Dire or mmunity& Economic Development
THOMAS J ILSON DAVID H. READ
Assistant City Manager City Manager
ATTACHMENT: Resolution
DaleC/Housing/CC_RivCo_MCC_StafiRep0rt.N0v11
4 04
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS APPROVE
PARTICIPATION IN THE RIVERSIDE COUNTY
MORTGAGE 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 2012 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 December, 2011.
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
DaleC/Housing/CC_RivCo_MCC_Reso.Nov11 06