HomeMy WebLinkAbout1994-02-15; City Council; 12590; SAN DIEGO COUNTY REGIONAL MORTGAGE CREDIT CERTIFICATE PROGRAM COOPERATIVE AGREEMENT.7 “I
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CITY MI
CITY OF CARLSBAD - AG F NDA BILL e
AB# /a,Sqs TITLE:
SAN DIEGO COUNTY REGIONAL MORTGAGE CREDIT
CERTIFICATE PROGRAM COOPERATIVE AGREEMENT MTG. a- ’’ r ‘’
DEPT, RED
RECOMMENDED ACTION:
Adopt Resolution No. 5q-s-b , approving a Cooperative Agreement adoptir
Diego County Regional Mortgage Credit Certificate Program in the City of (
cooperation with the County of San Diego.
ITEM EXPLAN AT10 N:
As reported in the City‘s Comprehensive Housing Affordability Strategy (CHAS),
25% of the very low and low income families residing in Carlsbad have been ab
home ownership in the City. In an effort to provide lower-income as well as
income households with homeownership opportunities, the Housing and Redc
Department has been meeting with staff of the County of San Diego and other
to discuss and evaluate the effectiveness of operating a regional Mort$
Certificate (MCC) first time home buyer program. As a result of these meeti
determined that a regional approach would provide several benefits: 1 .)
administration of the MCC Program which would allow the sharing of associate
the MCC Program could be standardized County-wide making it easier t
understand by lenders, realtors and home buyers; 3.1 a regional MCC allocation
to the State will make participating cities within San Diego County more comp
other individual jurisdictions in the state for award of future allocations. As de
regional program would serve all qualified first time home buyers within each p
city/jurisdiction.
The MCC Program, authorized in the Tax Reform Act of 1984, is a publicly
financial assistance program which provides assistance to first time home bi
purchase of single-family housing. In accordance with program regulations, a I
qualifies if their household income does not exceed $41,300 for a family of
persons (100% of the median area income), or $47,495 for a family of thr
persons (115% of the median area income). A “qualified” home must have
price at or below $221,850 for a new home, and $148,230 for an existing t
prices represent 90% of the average area purchase price). An MCC, which op
IRS tax credit, can only be used for new (i.e., never previously occupied) or exi
family homes including single family detached homes, condominiums, half pie>
houses. Duplexes, triplexes, or four-plexes do not quality as eligible structures
buyer may apply for an MCC through any of the participating lenders at the
he/she makes a formal application for a mortgage loan. As part of its marketii
the City will maintain a list of eligible lenders for referral to interested real e:
and home buyers.
The MCC operates as an IRS tax credit. With an MCC, the qualified home buy€
federal income tax credit of twenty percent (20%) of the annual interest
mortgage. The tax credit reduces the federal income taxes due to the federal
from the home buyer, resulting in an increase in the home buyer‘s earnings
buyer income enables a homebuyer to qualify for a mortgage loan when the
may not have been able to qualify for such a loan.
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Under a regional approach, the County would act as the central agency for thc
of administering the MCC Program. This includes responsibility for sub1
applications to the California Debt Limit Allocation Committee (CDLAC) for MCC i
program administration, program compliance with IRS regulations, and distributi
allocations to participating cities. Individual cities will be responsible for marl
allocations and maintaining compliance with their respective Allocation Agree1
The Cooperative Agreement between the County of San Diego and the City wil
San Diego County Regional MCC Program in the City Carlsbad and will allow
choose to become a part of any of the County‘s applications to CDLAC
allocations.
Upon election to participate in a regional MCC allocation application, each partic
will be asked to enter into an Allocation Agreement with the County. This agrt
specify the number of MCC’s to be allocated to each city as well as the amoun
administration costs. Application fees and administration costs will be (
participating cities based on the number of MCC’s allocated to each city. The C
Agreement will authorize the Housing and Redevelopment Director to sign
Agreements on behalf of the City. No Allocation Agreement will be required wh
chooses not to participate in an allocation application to CDLAC. It is expect1
County will be applying to CDLAC once a year for additional MCC allocations.
membership in the regional program is not effected by its election to opt out of ai
application.
FISCAL IMPACT:
There is no fiscal impact to the General Fund. All program costs will be fund
federal CDBG funds allocated for administration of the CDBG program.
The costs associated with participation in the MCC Program are based on the C
of MCC’s, which is estimated to be 3.2% of the total MCC’s allocated to t
program (estimated at 81 6 MCC’s with full participation by all cities in San Die(
Total program administration costs for the regional program are estimated at
The City‘s share of program costs are as follows, but may be adjusted dependir
level of participation of each member city in the regional MCC program:
Program Administration Costs: $4,800
Tech n ica I Support
IRS Tax Counsel
State (i.e., CDLAC) Application Fees $500
Program Marketing Costs: $1,000
Advertising
Referrals
Total Annual Cost to City
Estimated MCC Allocation to City
Approximate Cost to City per MCC
$6,300
25
$252
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"Program Marketing Costs" are not shared costs. They are budgeted separatf
participating city.
EXHIBITS:
1. Resolution No. yY'-5& approving a Cooperative Agreement adopting the
County Regional Mortgage Credit Certificate Program in the City of 4
cooperation with the County of San Diego.
2. MCC Information Summary.
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RESOLUTION NO. 9 4 - 5 6
A RES'OLUTION OF THE CITY COUNCIL OF TEE CITY OF
CARLSBAD, CALIFORNIA, APPROVING A COOPERATIVE
AGREEMENT ADOPTING THE SAN DIEGO COUNTY
REGIONAL MORTGAGE CREDIT CERTIFICATE PROGRAM
IN THE CITY OF CARLSBAD IN COOPERATION WITH THE
COUNTY OF SAN DIEGO
WHEREAS, there is a continued need for affordable home ownership opp
within the City of Carlsbad (the "City") and the County of San Diego (the "COL
qualified first time home buyers; and
WHEREAS, the Tax Reform Act of 1984 established mortgage credit c
("MCC") as a means of assisting qualified first time home buyers with the acquisitic
and existing single family housing; and
WHEREAS, Division 31, Part 1, Chapter 35, Article 4 of the California €
Safety Code Sections 50197 et seq (the "Act") authorizes counties, cities, and rede
agencies to create and participate in MCC Programs; and
WHEREAS, the County has heretofore determined to engage in an MCC
pursuant to the Act in order to assist individual home purchasers in the City and the
afford both new and existing homes within the statutory limits as provided for in sair
WHEREAS, the City requests that mortgage credit certificates be available
first time home buyers within the corporate limits of the City when City participate
County in receiving an MCC allocation; and
WHEREAS, the City and County wish to cooperate with one another pursuan
in the exercise of their powers under the "Act" for the purposes of an MCC Progrz
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NOW, THEREFORE, BE IT HEREBY RESOLVED, by the City Council of
of Carlsbad, California, as follows:
1.
2.
That the above recitations are true and correct.
That the City hereby adopts the San Diego County Regional Mortgage Credit C
Program (the "Program") for the purpose of increasing home ownership opportu
first time home buyers, and consents to the operation of said Program w
geographical boundaries of the City.
3. That the Cooperative Agreement, dated as of Lf rJiSAY.fD , 1994,
the County and the City (the "Agreement"), a copy of which is attached as 1
Redevelopment Director is hereby authorized and directed to execute and dc
Agreement, for and in the name and on behalf of the City. The Hou
Redevelopment Director, with the advice and consent of the City Attorney, is a
to approve any additions to or changes in the form of the Agreement deemed
or advisable, approval of such additions or changes to be conclusively evidenc
execution by the Housing and Redevelopment Director of the Agreement as sa
or changed. The Housing and Redevelopment Director, with the advice and c
the City Attorney, is further authorized to enter in such additional agreement!
County, execute such other documents, or take such other actions as may be or appropriate to carry out the purposes and intent of the Agreement or to co(
the implementation of the Program.
"A" and incorporated herein by reference, is hereby approved, and that the HO
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e a
PASSED, APPROVED, AND ADOPTED at a regular meeting of
the City Council of the City of Carlsbad, California held on the 15th day of February
by the following vote, to wit:
AYES: Council Members Lewis, Stanton, Kulchin, Nygaard, F
NOES: None
ABSENT: None
ABSTAIN: None
ATTEST:
ALETHA L. RAUTENKRANZ, City Clerk\
(SEAL)
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COOPERATIVE AGREEMENT
BETWEEN
THE COUNTY OF SAN DIEGO AND THE CITY OF CARLSBAD
THIS COOPERATIVE AGREEMENT (the "Agreement") is hereby made ani
entered into as of , 1994 by and between the County of San Diego, a leg;
subdivision and body corporate and politic of the State of California (the "County"), and the Cil
of Carlsbad, a political subdivision of the State of California (the "City").
WITNESSETH
WHEREAS, the County has determined to provide assistance in the financing 1
homes for qualified first-time homebuyers in the County and the City with a program to isw
mortgage credit certificates pursuant to Part 1 and Part 5 of Division 31 of the Health and Safe
Code of the State of California (the "Act"); and
WHEREAS, the County, pursuant to the Act, has established the San Diel
County Regional Mortgage Credit Certificate Program (the "Program"), and has determined
cooperate with the City pursuant to the Act and in the exercise of its powers under the Act j
purposes of the Program; and
WHEREAS, the City has adopted the Program and determined to cooperate w
the County pursuant to the Act in the exercise of their powers under the Act for the purpoi
of the Program;
NOW, THEREFORE, in consideration of the mutual covenants hereinaf
provided, the parties hereto agree as follows:
SECTION 1. The words and phrases of this Cooperative Agreement sh
for all purposes hereof unless otherwise defined herein, have the same meanings aligned to SI
words and phrases in the Act.
SECTION 2. The County and the City agree to use their best effort
undertake the Program and to issue mortgage credit certificates therefore pursuant to the Ac
the extent that the County receives allocations from the California Debt Limit Allocal
Committee ("CDLAC").
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SECTION 3. The City hereby agrees to cooperate with the County and other participating cities in the joint exercise of their powers for the purpose of issuing mortgag
issue mortgage credit certificates under the Program, a more specifically set forth in the Aci
with respect to property located within the geographic boundaries of the City.
credit certificates pursuant to the Act by agreeing that the County shall exercise its powers t
SECTION 4. The City agrees to undertake such further proceeding c
actions as may be necessary in order to carry out the terms and the intent of this Agreemen
The County has entered into cooperative agreements with other cities within the County, a1
nothing in this Agreement shall prevent the County from entering into one or more addition
agreements with other cities within the County.
SECTION 5. This Agreement shall expire and be of no further force ai
effect upon termination of the Program. Furthermore, either the City or the County m,
terminate this Agreement by giving a 30 day written notice to the other party. The Cit
however, may elect, without terminating this Agreement, not to participate in any applicatic
by the County for an allocation from CDLAC. The City election to participate or not in
to apply for allocation from CDLAC. application shall be made to the County upon receipt of notice from the County of its intentit
SECTION 6. If the City elects to participate in an application by
County for a mortgage credit certificate allocation from CDLAC, then the City shall agree
share proportionately with the other participants any deposit required by CDLAC for
application. The City further agrees to pay the County, upon participation, its proportion
share (based upon the number of participants in the program) of administration costs applica
to each allocation received from CDLAC.
SECTION 7. This Agreement may be amended only by a supplemer
agreement executed by the City and the County at any time, except that no such amendment
supplement shall be made which shall adversely affect the rights of the owners of any mortg
credit certificates issued by the County in connection with the Program.
SECTION 8. By entering into this Agreement, the City does not abroi
any of its legal duties imposed by State law or its Charter or Municipal Code. hy provisj
of this Agreement, the tern of which provide for the payment of funds or provide for
services to be furnished by the parties hereto, shall be subject to the availability of funds
such purposes.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to bt
executed and attested by the proper officers thereunto duly authorized and their official seals tc
be hereto affrxed, a11 as of the day and year first above written.
COUNTY OF SAN DIEGO CITY OF CARLSBAD
By:
(SEAL) (SEAL)
ATTEST: ATTEST:
By: By: d.Q&d!oi7dL,
Aletha L. Rautenkranz,
APPROVED AS TO FORM: APPROVED AS TO FORM:
By: By: b Ron Ball, City Attorne 7 4 /9 SL.
CArlIUI 0 e '1
INFORMATION SUMMARY
A. GENERALOVERVIEW
The Mortgage Credit Certificate Program, authorized by Congress in the Defic
Reduction Act of 1984, is an alternative to mortgage revenue bond-backed financing a
a means of providing financial assistance for the purchase of single-family housing. I
1985, the State adopted legislation authorizing local bond issuing agencies to mak
Mortgage Credit Certificates (MCCs) available in California. This program is designt
primarily to benefit first-time home buyers of new or existing housing units.
WHAT IS AN MCC?
The MCC operates as an IRS tax credit. With an MCC, the qualified home buy
becomes eligible to take a federal income tax credit of twenty percent (20%) of tl
annual interest paid on the mortgage. This credit reduces the federal income taxes of tl
buyer, resulting in an increase in the buyer's net earnings. Increased buyer incor
results in increased buyer capacity to qualify for the mortgage loan.
WHAT IS THE DIFFERENCE BETWEEN A "TAX CREDIT" AND A "TI
DEDUCTION?"
A "tax credit" entitles taxpayers to subtract the amount of the credit from their tc
federal income tax liability, receiving a dollar for dollar savings. A tax deduction
subtracted from the adjusted gross income before federal income taxes are computc
Therefore, with a deduction, only a percentage of the amount deducted is realized
savings.
The following example illustrates how a credit is considerably more valuable thai
deduction.
TABLE 1-1
VALUE OF A TAX CREDIT VS. TAX DEDUCTION
Total Income $35,000 $35,000
Deductions -0- -0-
TOTAL TAXABLE INCOME $35 ,Ooo $33 ,Ooo
Credit -2.000 -0-
Federal Income Tax Liability 5,776 5,216
TAXES PAID $ 3.776 $ 5.216
Table 1-1 shows that for the same dollar value, a $2,000 credit reduces federal income 1
paid by $1,440 more than the $2,000 deduction. ($5,216 minus $3,776 equals $1,440).
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WHAT HAPPENS TO THE STANDARD MORTGAGE INTEREST TAX
DEDUCTION WHEN THE HOME BUYER USES AN MCC?
A taxpayer receiving an MCC credit loses 20% of his or her normal interest paid
deduction with respect to interest paid on the mortgage loan. However, the home buyer
may continue to deduct the remaining 80% of the annual mortgage interest payment not
claimed as a credit. Although the interest deduction is reduced from 100% to 80%, the
holder of the MCC still pays considerably less in taxes. See Table 1-2. Assume a taxpayer with a $30,000 annual income buys a home for $100,000 at an 8% interest rate.
Interest paid the first year is approximately $8,000. An MCC tax credit of 20% interest
paid would equal $1,600 (20% X $8,000 = $1,600).
TABLE 1-2
With MCC Without MCC
Annual Income $30,000 $30,000
Personal Exemption - 2,350 - 2,350
Interest Deduction - 6.400 - 8.000
Taxable Earnings $21,250 $19,650
Tax from Table 3,184 $ 2,944
MCC Credit - 1.600 -0-
$ 1,584 $2,944
The same taxpayer owes $1.360 less with an MCC than without one ($2,944 - $1,584 =
$1,360).
The MCC will reduce the amount of federal income taxes otherwise due to the federa!
government for the home buyer; however, the IRS will not pay out more than should have
been paid in. Therefore, the benefit to the home owner in any one year cannot exceec
the amount of federal taxes owed for that year, after other credits and deductions have
been taken into account.
HOW DOES THE HOME BUYER REALIZE THE INCREASE IN HOME BUYINC
POWER?
The home buyer should consider adjusting his or her income tax withholding to receiv the benefit from the credit on a monthly basis. The home buyer may file a new W-
form with his or her employer reflecting the MCC credit savings. By taking this actior
the number of exemptions will increase reducing the amount of taxes withheld an
increasing the buyer’s disposable income.
The home buyer also has the option to wait until the end of the year and realize the ta
credit savings in one lump sum when filing the federal income tax return.
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Regardless of whether the home buyer adjusts the W-4 form or not, the tax credit must
be listed by the home buyer when filing federal income tax return, in order to receive the
tax credit savings.
WHAT KIND OF PROPERTIES ARE ELIGIBLE?
An MCC can only be used for new or resale single-family homes including single family
detached homes, condominiums, half plexes, or townhouses. Duplexes, triplexes, or four
plexes do-not qualify as eligible structures. Two-on-one-units are @ eligible.
WHAT LOANS CAN BE USED WITH THE MCC?
MCC can be used with conventional fixed-rate or adjustable rate loans., FHA and VA
loans, and privately insured loans. MCC’s are @ available with bond-backed loans such
as California Housing Finance Agency (CIIFA) and Cal Vet loans. MCCs can only be
used with original first mortgage financing. Lenders will process the underlying
mortgages using standard procedures, with adjustments to those procedures as needed in
order to utilized the tax credit in qualifying home buyers.
WHAT ARE THE PURCHASE PRICE AND INCOME LIMITATIONS FOR MCC
HOLDERS?
Mortgage Credit Certificates will generally be made available to first-time home buyers I
The Table 1-3 shows the current purchase price and income limitations for MCC Progrm
participants as of September 1, 1993.
TABLE 1-3
MORTGAGE CREDIT CERTIFICATE PROGRAM
PURCHASE PRICE AND INCOME LIMITATIONS
MAXIMUM BUYER INCOME
fREXISED 61-92)
(Figures represent 100% & 115% median area income respectively)
1-2 person household $41.300
3+ person household $47.495
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MAXIMUM PURCHASE PRICE
(Figures represent 90% average area purchase price)
Resale: $148.230 New: $221,850
WHAT ARE THE OTHER PROGRAM REOUIREMENTS?
Qualified applicants must be first-time home buyers. The home buyer cannot have hac
an ownership interest in a principal residence in the last three years preceding the dat
of application. Also, the home buyer must occupy the home as a principal residence,
HOW DOES A HOME BUYER APPLY FOR AN MCC?
The home buyer may obtain an MCC through any of the participating lenders. The hon
buyer should apply for the MCC at the same time he/she makes a formal application fc
a mortgage loan. The buyer should have a purchase offer in hand and should be rea(
to supply credit information, employment data and other information to the lender fi
both the mortgage and the MCC application.
WHAT IS AN MCC RECAPTURE TAX?
Buyers who receive loans closed with an MCC after January 1, 1991, may be subject
a recapture tax if they sell their residence within nine years. The tax, if any, will alwa
be the lesser of: half the gain from the sale of the home, or a tax based on a somewl
complicated formula which takes into consideration: (1) the original principal amount
the home mortgage; (2) the number of complete years that pass before the home is so
(3) the median family income for the buyer’s area at the time he/she bought the hon
and (4) the buyer’s modified adjusted gross income at the time the home is sold. Thc
are several conditions which can exempt the seller from the recapture tax. These incluc
(1) a cause-of-sale due to death or divorce; and (2) insufficient increase in the income
the seller (certificate holder) between the time of purchase and the time of sale.
The home buyer will receive detailed information on the recapture tax from the lender :
will be asked to sign a statement at time of application that he/she is aware of the ta