Housing Committee Taxation and Government Finance Committee Legislative Committee
The following is for policy recommendation only and has NOT been approved by the Housing, Taxation or Legislative Committees, Executive Committee or Board of Directors.
Issue: Should transfer fees at point of sale (POS) be used as a permanent funding source for affordable housing in California?
Options: 1. Continue C.A.R.'s policy of opposing POS transfer fees and apply this policy to the HCD/Affordable Housing Advocates' recommended permanent source of funding utilizing such fees. [No action required by the Committee as it is a continuation of existing C.A.R. policy.] 2. Recommend adoption of the HCD/Affordable Housing Advocates' funding sources that utilizes POS transfer fees. 3. Recommend alternatives to the funding sources to be considered by HCD and the Affordable Housing Advocates. 4. Do Nothing 5. Other
Status/Summary: The State's Department of Housing & Community Development (HCD) conducted 13 regional forums throughout the state in 2008 seeking input on proposed permanent sources of funding for affordable housing.REALTORS® participated in these forums. Numerous funding sources were proposed at these forums and have been researched over the last two years by HCD. The department's most recent work has narrowed the field to two sources that HCD predicts would produce an estimated $1.2 billion annually: Document Recording Fees and a Non-conforming Loan Guarantee Program.
Discussion: According to HCD, The State's Prop 46 ($2.1 billion in 2002) and Prop 1C ($2.85 billion in 2006) raised a total of $4.95 billion for affordable housing in the past eight years. These bond funds are all but depleted and future bonds are unlikely given the state of the General Fund and the political climate in California, which is clearly not conducive to promoting and passing such bonds now or in the near future. The affordable housing community is aware that bond funds are an undependable and expensive source of housing finance and has been working for years on establishing a permanent funding source (PS) for affordable housing. In 2008 the Department of Housing, in collaboration with the Affordable Homes Collaborative and other stakeholders, began developing funding source recommendations. Senate Pro Tem Darrell Steinberg introduced SB 500 in 2009 as a placeholder for the PS, but deemed it imprudent to move during the on-going budget crisis. Senator Steinberg has pledged to reintroduce a PS bill in 2011.
1. HCD's Recommended Source of Funds - Numerous funding sources have been researched by HCD over the past several years; in 2010 HCD narrowed the field to two sources that HCD believes would produce an estimated $1.2 billion annually. These two proposed sources are:
Document recording fee: A flat fee on real estate documents, generating an estimated $963 million per year, at a rate of $75 per document (not per page). HCD’s research shows that roughly 51% of the recording fees are raised at point-of sale and refinances, and the other 40-50% from all other real estate document recordings. The fee would be imposed on approximately 24 documents that include, but are not limited to, conveyances, re-conveyances, deeds of trust, quitclaims, notices of completion, assignments, mortgage insurance, mechanics liens, request notices, abstracts of judgment, notices of default, homesteads, CC&R adoptions and amendments, and tax liens. According to HCD, there are usually 3 of these documents (release and reconveyance, grant deed and a trust deed) recorded at point-of-sale that would be assessed, equating to $225 on every home sale that is closed.
Non-conforming Loan Guarantee Program: Create or expand an entity to purchase or guarantee home loans outside the parameters of the national FHA program, in the $625,000 to $1.5 million range, with an affordable housing transaction fee of 1% attached to such loans for the purpose of funding this "insurance". The transaction fee would vary annually. CalHFA did actuarial studies of market share and "conservatively" found a 10-30% market share reasonable for this class of loans. The loan guarantee fund would initially be capitalized with $300 million produced by the document recording fee. (HCD estimates that this loan guarantee program would have to be subsidized by the "document recording fee funds" for a minimum of two years after the two programs are initiated.)
2. HCD's and the Affordable Housing Advocates' state that the following are "Benefits for REALTORS®" from the above-listed Permanent Sources of Funding for Affordable Housing:
More Product to Sell: HCD estimates that, at the annual $1 billion level, more than 17,800 homes and shelter spaces would be developed annually and incentives provided for another 5,700 homes. (These numbers are not embraced by C.A.R.'s experts; further research would be necessary if this proposal moves forward.)
Non-conforming Mortgages Guarantee Fund: The fund would insure loans in excess of FHLMC/FNMA loan limits so that borrowers would have access to low down payment/high balance loans. HCD predicts that such conditions will create increased sales in high cost areas. In 2009, CAR projected 19% of purchases would exceed conforming loan limits; the projection for 2010 is 14.2%.
Increase of Eligible Buyers: At the proponents' projected annual $1 billion level, HCD estimates that this activity will generate economic benefits that include 46,000 construction period jobs and 9,300 ongoing jobs. HCD further estimates an economic boost of $12.5 billion in direct and indirect economic benefits to communities statewide.
Community Improvements: HCD states that it believes such an annual investment in housing statewide will improve communities, bring in retail and services, and redevelop communities and neighborhoods where wide swaths of foreclosed homes, deserted businesses and abandoned developments make areas unlivable, thus creating regions that are more appealing to purchasers of new and previously occupied homes.
3. C.A.R. expressly indicated to HCD in 2008 that it could support the following Sources of Permanent Funding for Affordable Housing:
a) Creation of a secondary market for California mortgages; similar to the “Callie Mae” effort of the ‘80’s. b) Tax credit to businesses that provide housing assistance to employees. c) Tax credit for private investment in affordable housing. d) Voluntary tax check-off dedicated to affordable housing projects. e) Raise the redevelopment low-mod increment from 20% to 30%. f) Fair share allocation to state from National Housing Trust Fund. g) Housing bonds. (C.A.R. actively supported passage of Proposition 1C.) h) Unused redevelopment housing set-aside funds placed in the State Housing Trust Fund. i) Gas tax dedication of a percentage to area housing production. (C.A.R. would support if proceeds dedicated to such affirmative uses as density bonus incentives, urban infill projects and mixed use developments.) j) Tax write-off for contributions to housing trust funds.
Do any of these C.A.R.-recommended options warrant a repeated recommendation to HCD in place of the two sources recommended by HCD above; should C.A.R support the HCD recommended sources; or should C.A.R., consistent with existing policy, simply oppose the HCD-recommended sources?