HomeMy WebLinkAbout1994-09-13 - AGENDA REPORTS - LACO MCC PGMAGENDA REPORT
City Manager Approv �
Item to be presented 6y:
ona Becker
CONSENT CALENDAR
DATE: September 13, 1994
SUBJECT: PARTICIPATION IN THE LOS ANGELES COUNTY MORTGAGE TAX
CREDIT CERTIFICATE (MCC) PROGRAM
DEPARTMENT: Community Recovery
BACKGROUND
The City of Santa Clarita has an opportunity to participate with Los Angeles County in a
Mortgage Credit Certificate (MCC) Program authorized by the State of California. The MCC
Program is designed to assist first time home buyers.
The State of California, through the California Debt Limit Allocation Committee (" CDLAC")
offers allocations of mortgage credit certificates to jurisdictions within the State. The State
encourages a countywide effort regarding MCCs and permits Los Angeles County to operate
the MCC program for cooperating jurisdictions. The County of Los Angeles has operated a
MCC Program since September 1992 and the present countywide allocation is $25 million.
The County shares this allocation with the unincorporated County and the cooperating Cities
of Azusa, Baldwin Park, Culver City, Downey, Duarte, Glendale, Glendora, Inglewood,
Lawndale, Long Beach, Lynwood, Montebello, Pasadena and San Dimas.
The County administration of the MCC Program includes acting as liaison with the
participating lenders; certifying the MCCs issued by the lenders; preparing forms and
manuals for the program; acting as liaison with the IRS, CDLAC, Fannie Mae (FNMA), and
Freddie Mac; plus centralizing information on the IRS rules governing MCCs. The County
also prepares a report regarding the MCCs issued in each participating city on a regular
basis.
This program is consistent with Santa Clarita's Comprehensive Housing Affordability
Strategy (CHAS) goals to encourage and provide opportunities for fast -time home buyers and
to coordinate affordable housing efforts with surrounding jurisdictions. Likewise, the MCC
Program is consistent with the policies of the City's General Plan Housing Element which
encourage activities to make a wide range of housing types affordable throughout our
community.
APPROWED
,y_
PROGRAM DESCRIPTION
The MCC Program encourages home ownership by allowing an eligible purchaser to take up
to 20% of his or her annual mortgage interest payment as a dollar -for -dollar tax credit
against federal income tax. The MCC is used to assist the qualifying home buyer in
obtaining an effective reduction in monthly mortgage payments. By adjusting the home
buyer's allowances on his or her W-4 to reduce the amount of tax withheld by the employer,
the purchaser has more monthly income available to cover mortgage payments.
The MCC Program is a lender driven program and terms of the loans depend on the lender.
Approximately 35lenders currently participate in the program. However, lenders are limited
to offering the program to first time home buyers purchasing homes in MCC participating
jurisdictions. As more cities cooperate with the County, more lenders are likely to join.
MCCs may be used with conventional, fixed-rate and variable rate loans, including FHA and
VA loans, FNMA and FHLMC loans and privately insured loans. The MCC stays in effect
for the life of the loan, regardless of changes in the home buyer's income.
Attached is a question and answer booklet on the MCC Program prepared by the County.
ELIGIBILITY OF APPLICANT
The following conditions must be met for a potential home buyer to receive a Mortgage Credit
Certificate:
1. Principal Residence
The MCC will only be issued for the acquisition of a single-family residence (includes
condominiums and townhomes) within the County. The residence must become the
purchaser's permanent, principal residence within 60 days after financing has been
executed.
2. First Time Home Buyer
The potential home buyer may not have present ownership or any other ownership
interest in a principal residence at any time during the last three years.
3. Purchase Price Requirement
The maximum purchase prices are currently $227,592 for an existing house and
$226,350 fora new house.
4, Income Limits
The maximum income for households (as adopted by the IRS) cannot exceed 115% of
the median income for the County or the State (whichever is higher.) The current
limits are $56,859 for a one or two person household and $65,388 for a three or more
person household.
5. New Mortgage Requirement
The MCC cannot be used in connection with the acquisition or replacement of an
existing mortgage.
The County officials have said that in Supervisorial District 5, the typical household awarded
an MCC is a youngcouple making approximately $42,150 a year.
CITY PARTICIPATION
The County has already allocated approximately $7.6 million of the $25 million in certificates
it was allocated by the State. The County awards the MCCs on a first -come, first -served
basis to lenders with eligible applicants. The City estimates that approximately $2 million
in MCCs would be allocated each year in Santa Clarita. However, since the MCCs are issued
on countywide basis until the allocation is depleted, there is no guarantee as to the minimum
or maximum number of certificates Santa Clarita buyers would receive. The MCC Program
is on -going and the County will reapply to the State for an additional allocation in late 1994
or early 1995.
In order for the City to cooperate with the County in the MCC Program the City must:
1. Provide $2,000 as our share of the County administration of the MCCs.
2. Agree to certify to CDLAC requirements that amounts are available
equal to 1% of the requested allocation until an MCC is issued by the
County.
3. Approve a resolution adopting the MCC Program.
4. Enter into the attached Cooperative Agreement with the County.
5. Submit an application to the County.
Since the program is "lender -driven", the City is responsible for promoting this program
among lenders, realtors and potential home buyers in the City of Santa Clarita to acquaint
them with the MCC Program. Over the past several months several lenders and interested
home buyers have contacted the City to encourage City participation in this program.
The Council has already allocated $30,000 as part of the 1993-1994 CDBG Final Statement
for Homeownership Assistance (Account #12-5514-227). Since the MCC Program is a
Homeownership Assistance activity, the City's application fee of $2,000 and an estimated
$3,000 for publicizing the MCC Program are CDBG eligible costs and have no impact to the
General Fund. The City's $2 million allocation request would require a CDLAC reserve
requirement of $20,000 (1% of allocation requested) which would also be CDBG eligible as
a Homeownership Assistance activity since it is part of the MCC Program start up cost.
Once a MCC has been issued anywhere in the unincorporated County or in a participating
jurisdiction, the City would be released from this reserve requirement.
RECOMMENDATION
The Recovery Agency recommends that the City Council:
1. Adopt Resolution No. 94-99 adopting a Mortgage Credit Certificate Program,
authorizing an application to the California Debt Limit Allocation Committee in 1994
or in 1995 for an allocation for the issuance of Mortgage Credit Certificates and
authorizing the transfer of such allocation to the County of Los Angeles.
2. Direct the City Manager to execute the Cooperative Agreement with the County of Los
Angeles for the Mortgage Credit Certificate Program.
ATTACHMENTS
Questions and Answers Regarding the Los Angeles County MCC Program aa.a elm«a..mF
Resolution No. 94-99
MCC Cooperative Agreement with the County
RESOLUTION NO. 94-99
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CLARITA
ADOPTING A MORTGAGE CREDIT CERTIFICATE PROGRAM IN
COOPERATION WITH THE COUNTY OF LOS ANGELES, AUTHORIZING AN
APPLICATION TO THE CALIFORNIA DEBT LIMIT ALLOCATION COMMITTEE
IN 1994 OR IN 1995 FOR AN ALLOCATION FOR THE ISSUANCE OF MORTGAGE
CREDIT CERTIFICATES AND THE TRANSFER OF SUCH ALLOCATION TO THE
COUNTY OF LOS ANGELES
WHEREAS, there is a shortage in the County of Los Angeles (the "County") and in the
City of Santa Clarita (the "City") of decent, safe and sanitary housing, particularly of housing
affordable by first-time home buyers, and a consequent need to encourage the availability of
homes affordable by such persons and otherwise to increase the housing supply in the City
and in the County for such persons; and
WHEREAS, the Board of Supervisors of the County has declared its intent to engage
in a mortgage credit certificate program (the "Program") pursuant to part 5 of division 31 of
the Health and Safety Code of the State of California (the "Act") and to issue mortgage credit
certificates pursuant to the Act to provide funds for the Program; and
WHEREAS, the City hereby finds and determines that it is in the best interest of the
City to participate in the Program and to consent to the operation of the Program by the
County within the geographic boundaries of the City pursuant to the Act; and
WHEREAS, the City desires to enter into a Cooperative Agreement with the County
to permit operation of the Program within the boundaries of the City; and
WHEREAS, Section 146 of the Internal Revenue Code of 1986, as amended (the
"Code'), limits the amount of mortgage credit certificates that may be issued in any calendar
year by entities within a state and authorizes the governor or the legislature of such state
to provide the method of allocation within such state; and
WHEREAS, Chapter 11.8 of Division 1 of Title 2 of the Government Code of the State
of California (the "Government Code") governs the allocation within the State of California
(the "State") under the Government Code among government units in the State having the
authority to issue mortgage credit certificates; and
WHEREAS, Section 8869.85 of the Government Code requires a local agency to file
an application for a portion of the state ceiling with or upon the direction of the California
Debt Limit Allocation Committee ("CDLAC") prior to the issuance of mortgage credit
certificates; and
WHEREAS, the City has determined to transfer to the County pursuant to Section
8869.85 (d) of the Government Code, the total amount, if any, of authority to issue mortgage
credit certificates allocated to the City from the state ceiling;
NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Santa Clarita as
follows:
SECTION 1: Each of the foregoing recitals is true and correct
SECTION 2: The City hereby adopts the Program for the purpose of increasing the housing
supply in the County and in the City and consents to the operation of the Program by the
County with respect to all property located within the geographical boundaries of the City,
including the payment to the County of the City's proportionate share (based upon the
number of participants in the Program) of administration costs applicable to each allocation
received from CDLAC, which share is estimated not to exceed $2,000,,
SECTION 3: The Cooperative Agreement between the County and the City (the
"Agreement"), a copy of which is attached hereto as Exhibit A, is hereby approved and the
City Manager is hereby authorized and directed to execute and deliver the Agreement, for
and in the name and on behalf of the City. The City Manager, with the advice and consent
of the City Attorney, is authorized to enter into such additional agreements with the County,
execute such other documents or take such other actions as they may deem necessary or
appropriate to carry out the purpose and intent of the Agreement or to cooperate in the
implementation of the Program.
SECTION 4: The City Manager, or his designee, is authorized, on behalf of the City, to
submit an application, and such other documents as may be required, to CDLAC for an
allocation in 1994 or 1995 in the amount of $2,000,000 for application to the issuance of
mortgage credit certificates by the County.
SECTION 5: The officers and employees of the City are authorized and directed, jointly and
severally, to do any and all things necessary or advisable in order to effectuate the purposes
of this resolution or the issuance of the mortgage credit certificates by the County, and all
actions previously taken by such officers and employees in connection with the application
for the allocation authorized to be requested are ratified and approved.
SECTION 6: This resolution shall take effect immediately upon its adoption by the City
Council and the City Clerk shall certify to the adoption of this resolution.
PASSED, APPROVED AND ADOPTED this _______ day of
, 1994,
Mayor
ATTEST:
City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES
CITY OF SANTA CLARITA j
I, Donna M. Grindey, City Clerk, DO HEREBY CERTIFY that the above and foregoing
Resolution was duly adopted by the City Council of the City of Santa Clarita at a regular'
meeting thereof, held on the day of 1994 by the
following vote of Council:.
AYES: COUNCILMEMBERS:
NOES:, COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
City Clerk
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Los Angeles County MCC Program
Questions And Answers
0
QUESTIONS AND ANSWERS ABOUT MCCS
What is an MCC?
An MCC is a certificate awarded by the County authorizing the holder to take a federal income tax
credit. A qualified Applicant who is awarded an MCC may take an annual credit against federal
income taxes of up to twenty percent (20%) of the annual interest paid on the Applicant's mortgage.
The value of the MCC must be taken into consideration by the mortgage lender in underwriting the
loan and may be used to adjust the borrower's federal income tax withholding. This adjustment will
result in an effective reduction in monthly housing costs, and therefore, an increased ability of the
Applicant to afford a mortgage payment.
What is the difference between a "tax credit" and a "tax deduction"?
A "tax credit" entitles a taxpayer to subtract the amount of the credit from his/her total federal
income taxes owed, allowing the taxpayer to receive a dollar for dollar savings. This is different
from a "tax deduction," which is subtracted from adjusted gross income before federal income taxes
are computed. With a deduction, only a percentage of the amount deducted is realized in savings.
An MCC produces a tax credit, not a tax deduction.
How does the MCC "reduce" the mortgage interest rate?
An MCC reduces the amount of federal taxes owed, thus increasing the qualified homebuyers after-
tax income to help qualify for a loan and to make the monthly mortgage payments.
For example, a homebuyer with a 8.50% fixed rate 30-year mortgage of $130,000 would make
approximately $12.000.00 in interest payments during the first year of the mortgage. With a 20%
MCC, up to $2.400.00 (20% of $12.000) of the payments would be allowed to be taken as a tax
credit toward the applicant's federal income tax liability in the first year. This would effectively
reduce the monthly mortgage payment, giving the Applicant greater ability to qualify and support
a mortgage.
By increasing purchasing power, the MCC has the economic effect of reducing the interest rate on
the mortgage. As shown in the illustration below, the MCC effectively reduces the interest rate. It
is important to realize, that the total effect is achieved only when the MCC holder has sufficient
income tax liability to receive the entire benefit of the MCC tax credit.
N
TABLE-1
EFFECTIVE INTEREST RATES WITH & WITHOUT AN MCC
First Mortgage Amount
Mortgage Interest Rate
Term
Monthly Mortgage Payment (P&I)
Monthly Credit Certificate Rate
Monthly Credit Amount
"Effective" Monthly Mortgage Payment
"Effective" Interest Rate
WITHOUT MCC WITH MCC
$130,000
$130,000
8.50%
8.50%
30
30
$1,000
$ '1,000
N/A
20%
N/A
200
$1,000
$ 800
8.50%
6.50%
Note: The effective interest rate is calculated by applying the reduced monthly payment to the
original loan amount and term.
What happens to the tax deduction for mortgage interest when homebuyer uses an MCC?
When using the MCC tax credit rate (20%), the borrower is still eligible to deduct the remaining
80% of the annual mortgage interest payment not claimed as.
homebuyer pays $10,000 for the first year in mortgage interest.
could take a credit of $2,000 (20% of $10,000), and a mortgage
of $10,000).
How does the MCC credit work?
a credit. For example, assume the
With a 20% MCC, the homebuyer
interest deduction of $8,000 (80%
The MCC reduces the amount of federal income taxes otherwise due to the federal government from
the borrower; however, if the credit is greater than the borrower's tax liability, the IRS will not make
a cash payment. Therefore, the benefit to the borrower in a given year cannot exceed the amount
of federal taxes owed for the year, after other credits and deductions have been taken into account.
What happens if a qualified homebuyer cannot use the entire amount of the MCC credit in any one
vear?
If the amount of the MCC credit exceeds the borrower's tax liability, the unused portion of the credit
can be carried forward for the next three tax wears or until used, whichever comes first. The
borrower must keep track of the unused credit by year. The current year credit is applied first and
the "oldest" credit is used next.
10
How does the homebuyer realize the increase in "home buying power"?
The borrower may adjust his or her federal income tax withholding to receive the benefit from the
credit on a monthly basis. In this case; the homebuyer will refile a W4 form with his or her
employer reflecting the MCC credit. By taking this action, the number of exemptions will increase,
reducing the amount of taxes withheld and thereby increasing the borrower's disposable income.
The borrower also has the option of waiting until the end of the year to realize the tax credit savings
in one lump sum when filing federal income tax returns.
Regardless of whether the homebuyer adjusts the W-4 form or not, the tax credit will have to be
listed when filing the federal income tax returns.
What kind of properties are eligible under the Program?
An MCC can be used for single-family homes including single-family detached homes,
condominiums, townhouses, two unit properties where the owner will occupy one unit (a duplex)
or a manufactured home meeting the requirements of an Eligible Dwelling in the "Participating
Cities" or unincorporated areas of Los Angeles County. The residence must become the principal
residence of the Applicant (i.e. the buyer must move into the home) within 60 days after the MCC
has been issued.
What are the MCC Eligibility Requirements?
o First -Time Homebuver Reouirement: The MCC Applicant cannot have had an ownership interest
in a Principal Residence at any time in the past three years.
o Income Requirement: In order to qualify for an MCC, the Applicant's household income must
be below the following limits::
1 or 2 Person
3 or more Persons
All Other Areas
$56,859
$65,388
Targeted Areas
$57,960
$67,620
o Purchase Price Reauirement: The Purchase Price of the house must be below the following
amounts:
All Other Areas Targeted Areas
New units (never previously occupied) $226,350 $276,650
Existing units (resale) $227,592 $278,169
o Location: The Property to be purchased must be in unincorporated areas of Los Angeles County
or one of the participating cities.
11
What is "recapture?" How does it affect the Program?
"Recapture, or the recapture tax, is a supplemental federal income tax to which MCC recipients may
be subject if they sell the house they purchased with MCC assistance within nine years of such
purchase. The recapture is designed to "recapture" some of the financial benefit of the MCC if (1')
the recipient's household income has risen significantly and (2) the value of the purchased house
has risen.
An .MCC can be used for single-family homes including single-family detached homes,
condominiums, or townhouses. The residences must become the principal residence of the
Applicant (i.e. the buyer must move into the home) within 60 days after the MCC has been issued.,
What loans can be used with the MCC?
MCC's may be used with conventional, fixed-rate and variable rate loans, including FHA and VA
loans, FNMA and FHLMC loans and privately insured loans. MCC's are not available with bond -
backed loans such as California Housm IF C� uthont (CHFA) that carry a below -market fixed
� ` * 'r i t �a*.+r M
interest rate or with refinanced loans. m,, ag a ot» ermtt
12
COOPERATIVE AGREEMENT BETWEEN
THE COUNTY OF LOS ANGELES AND
THE CITY OF SANTA CLARITA
WHEREAS, the County of Los Angeles (the "County") has determined to engage in a
mortgage credit certificate program (the "Program") pursuant to Part 5 of Division 31 of the
Health and Safety Code of the State of California (the "Act") in connection with the
construction and acquisition of homes in the County, all as provided for in said Act; and
WHEREAS, the County has determined to finance the Program by the issuance of
mortgage credit certificates as authorized by the Internal Revenue Code of 1986 (the "Code");
and
WHEREAS, the City has adopted the Program and determined to cooperate with the
County pursuant to the Act in the exercise of their powers under the Act for the purposes of
the Program.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter provided,
the parties hereto agree as follows:
SECTION 1. The words and phrases of the Cooperative Agreement shall, for all
purposes hereof unless otherwise defined herein, have the same meanings assigned to such
words and phrases in the Act.
SECTION 2. The County agrees to use its best efforts to undertake the Program and
to issue mortgage credit certificates therefore pursuant to the Act and the Code from time to
time to the extent that the County receives allocations from the California Debt Limit
Allocation Committee ("CDLAC").
SECTION 3. The City represents to the County that: (i) the City has heretofore
adopted a general plan for the City in conformance with the provisions of the Planning
Zoning Law of the State of California (Government Code Sections 65000 et seg ) (ii) said
general plan includes a land use element as required by Government Code Section 65302,
and (iii) the Program complies with said land use element and housing element.,
SECTION 4. The City agrees that the County may issue mortgage credit certificates
under the Program, as specifically set forth in the Act and the Code, with respect to property
located within the geographic boundaries of the City and further agrees that the County may
exercise any or all of the City's powers for the purpose of issuing mortgage credit certificates
pursuant to the Act and the Code with respect to property located within the geographic
boundaries of the City.. At the expiration date of one year from the date funds become
available to the City from an allocation under the Program, the County may review the City's
progress in committing funds from such allocation and, following consultation with the City,
may reallocate to another city or public agency agreeing to participate in the Program or
already participating in the Program any unused portion of such allocation.
SECTION 5. The City agrees to certify to CDLAC requirements that amounts are
available equal to 1% of the requested allocation until an MCC is issued by the County. The
City further agrees to pay the County its proportionate share (based upon the number of
participants in the Program) of administration costs applicable to each allocation received
from CDLAC, which share is estimated not to exceed $2,000.
SECTION 6. The City agrees to undertake such further proceedings or actions as
may be necessary in order to carry out the terms and the intent of the Cooperative
Agreement.
SECTION 7. Nothing in the Cooperative Agreement shall prevent the County from
entering into one or more agreements with other public bodies and political subdivisions
within the County, if deemed necessary and advisable to do so by the County.
SECTION 8. This Cooperative Agreement may be amended by one or more
supplemental agreements executed by the County and the City at any time, except that no
such amendment or supplement shall be made which shall adversely affect the rights of the
owners of any mortgage credit certificates issued by the County in connection with the
Program.
SECTION 9. This Cooperative Agreement shall expire and be of no further force and
effect upon termination of the Program or the sooner agreement of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Cooperative Agreement
to be executed and attested by their proper officers thereunto duly authorized, and their
official seals to be heretofore affixed, all as of the date first above written.
COUNTY OF LOS ANGELES
By
Chairman of the Board of Supervisors
ATTEST:
Larry J. Monteilh
Executive Officer - Clerk
of the Board of Supervisors
of the County of Los Angeles
By
DEPUTY
APPROVED AS TO FORM:
DEWITT W. CLINTON
COUNTY COUNSEL
By
DEPUTY
CITY OF SANTA CLARITA
Lo
Approved by Council:
ATTEST:
City Clerk
APPROVED AS TO FORM
City Attorney
advance\mccegm0.lhe
City Manager
City of
Santa Clarita
23920 Valencia Blvd.
Phone
Suite 300
(805) 259-2489
City of Santa Clarila
Fax
California 91355-2196
(805) 259-8125
August 18, 1994
Mr. Donald Johnson
Soledad Trailer Lodge
18300 Soledad Canyon Road, #16
Canyon Country, CA 91351
Dear Mr. Johnson:
The City of Santa Clarita received your rent appeal application on April 25,
1994. Currently, the City holds your application on file while staff anticipates
the appointment of a full Rent Stabilization panel. However, the City is
concerned with the possibility of the lack of a full quorum, if an additional
member of the Panel should choose to relinquish their position. Staff has been
in contact with you and Mr. J. William Reed regarding this issue, with both
parties agreeing to delay the processing of the rent appeal until a full panel
has been appointed.
Mr. J. William Reed has indicated to staff that he is withdrawing the existing
notice for the proposed 2.9% rent increase. He has also stated the he will re -
notice all Soledad Trailer Lodge tenants of the proposed rent increase at a
later date.
The City of Santa Clarita will keep you updated on the status of your rent
appeal. If you have any further questions regarding Mobilehome Rental Rate
Appeal #94-003, please contact Jennifer Reid at (805)255-4339.
Sincerely,
LYNN M. HARRIS
DEPUTY CITY b1ANAGER
COMMUNITY DEVELOPMENT
Jennifer D. Reid
Planning Technician
JDR
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