LW Summary and Analysis of Prop 37
This is an initiative to create a new home buyer assistance program with $25 billion in revenue bonds. It would allow new home buyers to put down as little as 3% of the home purchase price for a newly built home or a new conversion unit created from a non-residential building. The state’s revenue bonds would pay the additional 17% for the down-payment.
The state’s revenue bonds would be repaid through a second mortgage on the home that the home buyer must repay over time.
The program is only available to homebuyers with incomes less 200% of the median income for the region. It is only available on homes costing less than $1 million.
Argument for:
The initiative is the brainchild of ex Speaker Bob Hertzberg who said “"I wanted to create something that would support the building of, and therefore supply, more middle-class housing. We need to increase supply.”
The supporters include the builders, the unions, the Chamber and many prominent Democratic elected officials and candidates.
The opponents include the League of Women Voters.
I found the analysis of the Center for Budget and Policy particularly concerning. Their points include: 1) the Legislature or the California Housing Finance Agency could create such a program; it does not require a state ballot initiative to do so; 2) The Housing Finance Agency already has two better programs (My Home and Dream for All) in place, and 3) the rates for second mortgages are higher than for first mortgages saddling the new homeowner with a high and unaffordable second mortgage to repay over time. https://calbudgetcenter.org/resources/will-proposition-37-make-homeownership-more-affordable-its-not-guaranteed/
Prop 37 (proposed)
· Finances over time 17% downpayment on new housing., Homeowner pays 3% down; Homeowner repays the 17% as monthly repayments on a 2nd mortgage
· Income limit for borrower: 200% of area median income
· Type of home: New construction only
· Required buyer cash downpayment: 3%
· Size of 1st mortgage: 80%
· Conventional first mortgage interest rate: Market (7.28% currently)
· Monthly payment on 2nd mortgage: Higher than the market rates for 1st mortgages
· When is 2nd mortgage repaid: Monthly by homeowner
· First time homeowner requirement: No
My Home (existing)
· Homeowner pays 3% down; No monthly payment for homeowner; 2nd mortgage for the 17% repaid in full at sale or refinance with 1% simple interest
· Income limit for borrower: 150% of area median income
· Type of home: New or existing homes
· Required buyer cash downpayment: $0
· Size of 1st mortgage: 97%
· Conventional first mortgage interest rate: Market (7.28% currently)
· Monthly payment on 2nd mortgage: No
· When is 2nd mortgage repaid: At sale or refinance or 1st mortgage payoff
· First time homeowner requirement: Yes
Dream for All (existing)
· Up to 20% down, capped at $150,000; No monthly payment for homeowner; Repaid at sale plus a 20% appreciation fee
· Income limit for borrower: 150% of area median income
· Type of home: New or existing homes
· Required buyer cash downpayment: $0
· Size of 1st mortgage: 80%
· Conventional first mortgage interest rate: Market (7.28% currently)
· Monthly payment on 2nd mortgage: No
· When is 2nd mortgage repaid: At sale or refinance or 1st mortgage payoff
· First time homeowner requirement: Yes
I’m undecided, as my initial take was quite positive, but leaning no, due to the Budget Project’s analysis. It’s far better for the Legislature to hear and sort through this important measure and make such changes as needed to encourage the goals of encouraging the construction of much more new and affordable housing.