California ramps up the crazy, wants to own 45% of your home

55 Replies

The California Dream For All program wants to help minorities own a home. How will they do it? By purchasing 45% of the home! The buyer gets in cheap because they only have to pay for 55% of the home, but then Big Brother will own 45% of their property.

How do you think this will turn out? 

https://www.businessinsider.co...

I read a couple articles, and the actual Bill. It's a nice idea. I can think of people who might benefit, BUT ... the program doesn't seem like it was planned or the details, ins and outs worked out. Say a teacher and a retail worker want to buy in South LA, they make $59000. Entry price is $450000 They will have a PITI of $1669 verses $2721 and qualify for the lower payment. They could not buy without this assistance. When they sell the program recoups the gain or their $202500. These programs assistance usually have higher than market rates to send back money to the fund. They allow certain lenders to originate with their granular rules: income limits, debt to income ratio limits, and in this case it says race. I wonder how long before someone sues over race? What would be used to qualify on race?

If you think this is legal, then imagine the exact same plan for only white people. 

At least this will cut their property tax income by 45%. That should help out the public services. 

Plus in that example they can help 5,000 people for only 1 BILLION dollars. That will surely put a dent in their housing problem. No better use for that kinda money. I mean sure it will drive up prices even farther, but whatever. At least they’re promising there will never be another housing crash. I assume they have to let the kids inherit the house. So nobody will ever sell to get half of what their house is worth. 

Originally posted by @Caroline Gerardo :

I read a couple articles, and the actual Bill. It's a nice idea. I can think of people who might benefit, BUT ... the program doesn't seem like it was planned or the details, ins and outs worked out. Say a teacher and a retail worker want to buy in South LA, they make $59000. Entry price is $450000 They will have a PITI of $1669 verses $2721 and qualify for the lower payment. They could not buy without this assistance. When they sell the program recoups the gain or their $202500. These programs assistance usually have higher than market rates to send back money to the fund. They allow certain lenders to originate with their granular rules: income limits, debt to income ratio limits, and in this case it says race. I wonder how long before someone sues over race? What would be used to qualify on race?

And what happens when you lower the bar of entry? Foreclosure. People that pay 55% value on a product will not care for the home or make good neighbors the same way someone would if they were 100% responsible. And how many people will move to California just to take advantage of this program? Why are tax payers responsible for subsidizing someone's purchase? What happens if the market crashes and home values drop 30% again?

Too many red flags.

If we subsidize someone's "right" to own a home, why not subsidize their "right" to food, clothing, transportation, and everything else? Where does it end? Answer: communism.

@Nathan G. we already subsidize homeownership. The GSE's are paid by our taxes. Low rates on mortgages are subsidized by our taxes as are every down payment assistance program.  @Bill Brandt They have to pay the full property taxes. Yes it seems like a pile of money only to help a few people. 

@Caroline Gerardo

Are they going to be able to qualify and/or keep up if they are effectively paying 200% of California’s already high property taxes? Taxes that will be climbing twice as fast as everyone else’s’ because they are based on twice the property value. 

@Bill Brandt I'm not saying this is fabulous. In my example they make $4916 and PITI is $1669. California property taxes can only increase 2% a year. With debt to income ratio of 33% and teachers in CA get 4.2% annual increase, they would be fine. The program has qualifying rules, looks harder to get than most. They are not based on twice the property taxes, based on actual $450,000. I think @Nathan G. 's idea about deferred maintenance should be added in, it's done on reverse mortgages, where borrower can't get red tagged or have health and safety violations; but then it's a pile of money to check and balance for 30 years. My issue is: we have NO way to prove what race a person is, so will they test?  It's just a Bill but I live in CA the land of weird.

Originally posted by @Caroline Gerardo :

@Nathan G. we already subsidize homeownership. The GSE's are paid by our taxes. Low rates on mortgages are subsidized by our taxes as are every down payment assistance program.  @Bill Brandt They have to pay the full property taxes. Yes it seems like a pile of money only to help a few people. 

Big jump from a Fannie/Freddie to 45% subsidy. And I would argue for removal of Fannie/Freddie. Government involvement is typically a temporary help for a long-term hurt, as we saw with the crash of 2008.

This is the same government that spends thousands every month for homeless people yet homelessness problem continues to rise. It's almost as if money isn't the solution.

@Nathan G. Homeless problems in CA worsen.  I can build an indestructible homeless single unit for $64000, not including land OR retrofit Camp Roberts for $9500 per person.  City of LA built 4 houses for $600000.           The GSE's make money and could return to public for profit corps, or merge into one.  

Originally posted by @Bill Brandt :

@Caroline Gerardo

Are they going to be able to qualify and/or keep up if they are effectively paying 200% of California’s already high property taxes? Taxes that will be climbing twice as fast as everyone else’s’ because they are based on twice the property value. 

California does not have high property taxes. They're considered middle of the road.  And they don't climb based on an annual assessment either, thanks to Prop 13 which effectively keeps your property tax rate very close to your original purchase price. So comparatively speaking, one could make the case that property taxes are among the lowest in the nation in CA when compared to MV.  As for any other tax here, that's a totally different story.

@Tony Kim

Sorry Tony, I was just comparing them to Vegas. 

I did a quick comparison. A “small mansion” 3200sf 5bed 3bath 3 car garage house in vegas is $500k and the property taxes is a little under $2300. The California website says the taxes would be $3650 on that property which might be “entry level” for the same price. I considered more than 50% higher taxes to be “high”. Forget that the house is probably 40 years older, half as big, might not have central, and might have a single car or no garage, the taxes are still way higher. I guess everything is relative  

But yes you’re right, the income tax is insane and the gasoline that you ship via pipeline to us in Vegas costs a dollar more per gallon there than here without shipping and we still complain about how we’re paying so much more than everyone else. 

Guys, I'm getting the feeling that we're all just totally screwed. I've proven to my satisfaction that a new homeowner simply can't buy a functional starter house for under $100K in the Pittsburgh area without battling well-funded investors tooth and nail for it. I have an old high school friend in Chattanooga who's a broker and says the ceiling is $200K there.

Under these conditions, there are going to be multiple cockamamie ideas out of statehouses across the country and Washington that will be listened to and acted upon until we have another housing crisis. It's inevitable. The government will do anything to protect "the American dream of homeownership." They'll act and they'll act until they sink the whole thing.

Originally posted by @Bill Brandt :

@Tony Kim

Sorry Tony, I was just comparing them to Vegas. 

I did a quick comparison. A “small mansion” 3200sf 5bed 3bath 3 car garage house in vegas is $500k and the property taxes is a little under $2300. The California website says the taxes would be $3650 on that property which might be “entry level” for the same price. I considered more than 50% higher taxes to be “high”. Forget that the house is probably 40 years older, half as big, might not have central, and might have a single car or no garage, the taxes are still way higher. I guess everything is relative  

But yes you’re right, the income tax is insane and the gasoline that you ship via pipeline to us in Vegas costs a dollar more per gallon there than here without shipping and we still complain about how we’re paying so much more than everyone else. 

Hi Bill, lol, you got me there!  But I guess the only point I was trying to make is that the tax rate you have in CA is middle of the road compared to the rest of the country. I make no claims about the buying power of $500k here as it's almost nonexistent! Combine that with Prop 13 and the way it limits the annual increase in our assessed values, CA residents pay some of the lowest property taxes in the nation. As an example, I'm paying taxes on a condo I purchased after the GFC for $180K. My taxes are still based on a value under 200K, despite the MV being over 500K right now.

But like you describe in your example, for new purchases...all bets are off. Good luck finding anything a livable home in a decent area for under a million here in LA. 

Originally posted by @Tony Kim :

California does not have high property taxes. They're considered middle of the road.  And they don't climb based on an annual assessment either, thanks to Prop 13 which effectively keeps your property tax rate very close to your original purchase price. So comparatively speaking, one could make the case that property taxes are among the lowest in the nation in CA when compared to MV.  As for any other tax here, that's a totally different story.
Originally posted by @Nathan G. :
Originally posted by @Caroline Gerardo:

I read a couple articles, and the actual Bill. It's a nice idea. I can think of people who might benefit, BUT ... the program doesn't seem like it was planned or the details, ins and outs worked out. Say a teacher and a retail worker want to buy in South LA, they make $59000. Entry price is $450000 They will have a PITI of $1669 verses $2721 and qualify for the lower payment. They could not buy without this assistance. When they sell the program recoups the gain or their $202500. These programs assistance usually have higher than market rates to send back money to the fund. They allow certain lenders to originate with their granular rules: income limits, debt to income ratio limits, and in this case it says race. I wonder how long before someone sues over race? What would be used to qualify on race?

And what happens when you lower the bar of entry? Foreclosure. People that pay 55% value on a product will not care for the home or make good neighbors the same way someone would if they were 100% responsible. And how many people will move to California just to take advantage of this program? Why are tax payers responsible for subsidizing someone's purchase? What happens if the market crashes and home values drop 30% again?

Too many red flags.

If we subsidize someone's "right" to own a home, why not subsidize their "right" to food, clothing, transportation, and everything else? Where does it end? Answer: communism.

Keep in mind equity share for residential housing has been going on for decades in many forms..  back in the late 80s it was very common in the SF peninsula BEFORE low down loans came into the market so when props got to 500k or more and you needed 20% down this created an opportunity for private investor to put up the 100k down and the owner move in make the payments and split equity.. I had clients that did a ton of this in those days.. 

Also Naca does the subsidized for low income where BA and Wells provide those mortgages and NACA shares in equity if home is sold in less than 10 years.

Originally posted by @AP Horvath :

If these subsidies are put in place -- they will, ironically, only serve to INCREASE home prices.

that is my first instinct too. This policy will increase CA property value significantly, by creating a huge demand which was not qualified for purchase before. 

Ironically, such a price increase will increase overall property tax base significantly.

It will also possibly increase rental prices across state. 

good or bad, up for interpretation.

such liberal policies, the end result may not be originally anticipated.

As a CA property owner, I strongly support this measure. Go for it.

I wonder if ANY economist could tell us what happens to the price of something when you subsidize the purchasing and/or financing of said thing  

Someone should study something like college education prices and see if they can find a trend. 

Nathan,

Thank you for your topical discussion. 

This is the wrong path. Bringing government into the market, creating a flood of unqualified buyers, is not without precident . We never learn from our mistakes. Short sales, the sub-prime melt down of 2007, 95% LTV loans to unqualified borrowers by Country-Wide Mortgage (Not the current B of A subsidiary), before that it was the Charles Keating / Lincoln Savings debacle that gave rise to the Resolution Trust Corporation (RTC), interest rates in the late 70's of 16%, but no loans because no equity and on and on.

To the topic at hand. With programs like California 45% Partnership, hold some dry powder to buy in the next recession. Recessions are like trains, there will be another one along. Good luck investing.

Originally posted by @Caroline Gerardo :

@Nathan G. we already subsidize homeownership. The GSE's are paid by our taxes. Low rates on mortgages are subsidized by our taxes as are every down payment assistance program.  @Bill Brandt They have to pay the full property taxes. Yes it seems like a pile of money only to help a few people. 

Sounds like a great way to keep inflating this fantastic bubble we have, especially in California! Our government seems to have endless ways to increase the amount of debt our society is willing to take on. 

How long until the other 49 have to bail out California? This should certainly move the date closer to today. 

About half of Mortgage backed securities are owned by the U.S. Government already so I guess you can say in a sense they already own half of all properties across America with a loan on it. Any central planned program ends badly. This would be one of them. If prices do rise it would most likely be temporary and then stagnate/decline again. By a tax stance they own all lands where homes sit/don't sit on as well if those taxes aren't paid, this includes farm land.