HomeMy WebLinkAboutAgenda Item No. 12 CITY OF
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LAKE ` LSITIO E
+ DREAM EXTREME
REPORT TO THE CITY COUNCIL
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: ROBERT A. BRADY, CITY MANAGER
DATE: DECEMBER 13, 2011
SUBJECT: RIVERSIDE COUNTY MORTGAGE CREDIT
CERTIFICATE PROGRAM PARTICIPATION
Overview
The County or Riverside Economic Development Agency (EDA) has requested the
City participate in the Mortgage Credit Certificate (MCC) program for 2012.
The MCC program as implemented by the EDA, entitles qualified home buyers to
reduce the amount of their federal income tax liability for an amount equal to
fifteen - percent (15 %) of the mortgage interest paid during the year on their primary
mortgage loan. This provides the potential home buyer with the following
advantages:
• The home buyer's federal income tax liability is directly reduced by the
amount of the tax credit;
• Home buyers can qualify more easily for their primary mortgage. Lenders
may factor in the tax credit when underwriting a loan application; which may
allow the borrower to (i) qualify for a larger loan amount, or (ii) improve the
borrower's qualifying debt ratios.
It should also be noted that If the amount of the MCC exceeds the homebuyer's tax
liability, the unused portion of the credit can be carried forward to the next three
years or until used, whichever comes first.
Homebuver Eligibility Criteria
The three (3) criteria for determining a home buyer's eligibility for MCC tax credits
are the following:
1. The borrower must be a first time home buyer. A first time home buyer is
defined as a person who has not had an ownership interest in improved -
AGENDA ITEM NO. 12
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Mortgage Credit Certification Program
December 13, 2011
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upon residential real property for the previous three (3) years. It should be
known that if the prospective home is located in a Target Area census tract,
then the firs -time buyer requirement does not apply and the income and
purchase limits are higher. Target Area census tracts are located throughout
Riverside County.
2. The borrower's annual income must fall within the MCC income limits as
follows:
• Max Income Outside Target Area
• Household w/ 1 -2 persons: $70,400
• Household w/ 3+ persons: $80,960
• Max Income Inside Target Area
• Household w/ 1 -2 persons: $84,480
• Household w/ 3+ persons: $98,560
3. The home being purchased must fall within the program purchase price
limits as follows:
• Max Home Purchase Price
• Outside Target Area: $450,000
• Inside Target Area: $550,000
Furthermore, a dwelling unit purchased in conjunction with an MCC must be the
borrower's principal residence and may not be used as a business, rental or
vacation home. The home may be new or a re -sale, detached or attached single -
family home, condominium unit, a co -op unit, or a manufactured home on a
permanent foundation. The home must be located in unincorporated County area
or within the City limits of participating jurisdictions.
Mortgage Credit Certificate Application Process
The application process is as follows:
1. Potential borrowers must apply for a MCC through a participating lender.
2. The lender will perform an initial qualification and assist the borrower in
completing all applicable MCC submission forms.
3. The buyer makes an offer on the home. Once the offer is accepted the
residence goes into escrow.
4. The lender then submits the MCC application to the County.
5. The County reviews the applicant as well as the potential property to verify if
both meet the program's guidelines. If it is determined that the all guidelines
and requirements have been met, then the County issues a "Letter of
Commitment" to the lender.
6. The "Letter of Commitment" must be issued prior to the close of the loan.
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Mortgage Credit Certification Program
December 13, 2011
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7. The loan must close within sixty (60) days of issuance of the "Letter of
Commitment."
8. Upon loan closing, the lender submits the "MCC closing package" to the
County. The County then issues the MCC and forwards a copy to the lender
and borrower.
9. The borrower may then claim the tax credit on their Federal Income Tax
Returns.
10. Borrowers can realize the tax credit annually as a tax refund or adjust their
W-4 withholding form to receive the benefit via an increased pay check.
The following table illustrates how an MCC may increase a borrower's potential
home buying power:
Effective Home Buying Power
With and Without an MCC
Without With MCC
MCC
First Mortgage Amount $300,000 $300,000
Mortgage Interest Rate 7% 7%
Monthly Mortgage (Principal &
Interest Only) $1,996 $1,996
MCC Rate N/A 15%
Monthly Credit Amount N/A $262.25
"Effective" Monthly Mortgage $1,996 $1,733.75
Payment
Annual Income Needed * $85,542 $74,304
* Annual Income Needed is based on monthly Principal and Interest (P &I) not exceeding
28% of monthly income.
It should be noted that seventeen (17) MCC homebuyers in the City utilized the
MCC program during Fiscal Year 2010 -2011.
Fiscal Impact
The fiscal impact to the City's General Fund will be minimal as the entire program
is implemented by the County of Riverside Economic Development Agency. The
only participation requirement of the City is the noticing of the program in the local
newspaper twice a year.
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Mortgage Credit Certification Program
December 13, 2011
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Recommendation
It is recommended that the City Council adopt Resolution No. 2011 -069 Approving
the City's Participation in the County of Riverside Mortgage Credit Certificate
Program for 2012.
Prepared by: Justin Carlso
Redevelopm t Agency Analyst
Approved by: Robert A. Brady, City Manage
Attachments:
1. Mortgage Credit Certificate Program Resolution
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RESOLUTION NO. 2011- 069
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF LAKE ELSINORE CALIFORNIA, PARTICIPATING
WITH THE COUNTY OF RIVERSIDE MORTGAGE CREDIT
CERTIFICATE (MCC) PROGRAM
WHEREAS, the Tax Reform Act of 1986 established the Mortgage Credit
Certificate Program ( "MCC Program ") as a means of assisting qualified individuals with
the acquisition of new and existing single family housing; and
WHEREAS, pursuant to Division 31, Part 1, Chapter 3.5, Article 3.4 of the
California Health and Safety Code Sections 50197 et seq, local issuers are authorized
to issue Mortgage Credit Certificates ( "Certificates ") and administer MCC Program; and
WHEREAS, the Board of Supervisors of the County of Riverside adopted
Resolution No 87 -564 on December 22, 1987 establishing a Mortgage Credit Certificate
Program; and
WHEREAS, the Board of Supervisors of the County of Riverside has
authorized the Riverside County Economic Development Agency ( "EDA ") to administer
the MCC Program pursuant to the applicable federal, state and local policies and
procedures, and to enter into those agreements necessary for efficient administration of
the MCC Program; and
WHEREAS, the County of Riverside ( "County ") will be applying to the
California Debt Limit Allocation Committee ( "CDLAC ") for a mortgage credit certificate
allocation in March, 2012 or thereabouts; and
WHEREAS, the City of Lake Elsinore ( "City ") wishes to participate in the
MCC Program administered by the EDA in connection with mortgage loans it will make
available for the acquisition of new and existing single - family housing in Riverside
County; and
WHEREAS, the adoption of this resolution is necessary to include the City
of Lake Elsinore as a participating unit of general government under County's MCC
program; and
WHEREAS, the City agrees to cooperate with the County of Riverside to
undertake the MCC program within City jurisdiction to assist persons or households of
limited income to purchase new and existing single family residences located in the city;
and
WHEREAS, the City by adopting this Resolution, hereby gives notice of its
election to participate in the Riverside County MCC program.
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Resolution No. 2011 -069
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NOW, THEREFORE BE IT RESOLVED, by the City Council of the City of
Lake Elsinore as follows:
The City of Lake Elsinore agrees
1. To participate in the MCC Program administered by the EDA in
connection with mortgage loans it will make available for the acquisition of
new and existing single - family housing in Riverside County;
2. To assist the County of Riverside to market the MCC Program within the
City's jurisdictional boundary by publishing a general public notice in the
local newspaper at least twice a year.
PASSED, APPROVED AND ADOPTED at a regular meeting of the City
Council of the City of Lake Elsinore, California, this 13th day of December, 2011.
BRIAN TISDALE, MAYOR
CITY OF LAKE ELSINORE
ATTEST:
VIRGINIA BLOOM
CITY CLERK
APPROVED AS TO FORM:
BARBARA ZEID LEIBOLD
CITY ATTORNEY
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