HomeMy WebLinkAbout1-14-14 Item #05REPORT TO THE CITY COUNCIL
TO: HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: GRANT YATES
CITY MANAGER
DATE: JANUARY 14, 2014
SUBJECT: RIVERSIDE COUNTY MORTGAGE CREDIT
CERTIFICATE PROGRAM PARTICIPATION
Recommendation
Adopt Resolution No. 2014 -D-0i, A Resolution of the City Council of the City of Lake
Elsinore, California, Approving Participation with the County of Riverside Mortgage
Credit Certificate (MCC) Program.
Overview
The County of Riverside Economic Development Agency (EDA) has requested that
the City participate in the Mortgage Credit Certificate (MCC) program for 2014. The
City Council has authorized participation in the MCC program in previous years and
since 2011 twenty -seven (27) homebuyers in the City of Lake Elsinore have taken
advantage of the benefits afforded by the MCC program.
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.
AGENDA ITEM NO, 5
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Mortgage Credit Certification Program
January 14, 2014
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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.
Homebuyer Eligibility Criteria
The three (3) criteria for determining a home buyer's eligibility for MCC tax credits
are as follows:
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 -upon residential real property for the previous three (3) years.
However, if the prospective home is located in a Target Area census
tract, then the first -time buyer requirement does not apply and the
income and purchase limits are higher. Target Area census tracts within
Lake Elsinore are shown on the attached map. (Attachment 2).
2. The borrower's maximum annual income must fall within the MCC
income limits as follows:
Outside Target Area
• Household w/ 1 -2 persons: $69,600
• Household w/ 3+ persons: $80,040
Inside Target Area
• Household w/ 1 -2 persons: $83,520
• Household w/ 3+ persons: $97,440
3. The home being purchased must fall within the following program
purchase price limits:
• 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 mannfar:furPd 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 MCC application process is as follows:
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Mortgage Credit Certification Program
January 14, 2014
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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
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 is an example provided by EDA which illustrates how an MCC
may increase a borrower's potential home buying power:
Effective Home uying Power With and Without an MCC
Without MCC
With MCC
First Mortgage Amount
$300,000
$300,000
Mortgage Interest Rate
7%
7%
Monthly Mortgage
(Principal & Interest
Only)
$1,996
$13996
MCC Rate
N/A
15%
Monthly Credit Amount
N/A
$262.25
$1,733.75
"Effective" Monthly
Mortgage Payment
11996
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.
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Mortgage Credit Certification Program
January 14, 2014
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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.
Prepared by: Cathy Barrozo 6014
GIS Analyst/Economic Development Representative
Reviewed by: Richard J. MacHott, LEED Green Associate Ir
Planning Manager
Grant Taylor ;y,;r�
Community Development Director
Approved by: Grant Yates
City Manager
Attachments:
1. Mortgage Credit Certificate Program Resolution No. 2014 -00 1
2. Map Showing Federally- Designated Targeted Areas within the City of Lake Elsinore
Page 4 of 7
RESOLUTION NO. 2014 -001
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE
ELSINORE, CALIFORNIA, APPROVING PARTICIPATION 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
July 16, 2014 or thereabouts; and
WHEREAS, the City of Lake Elsinore 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.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE,
CALIFORNIA, DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS:
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City Council Resolution No. 2014 -001
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SECTION 1. The City of Lake Elsinore agrees to participate in the MCC Program
administered by the EDA in connection with mortgage loans that EDA will make available
for the acquisition of new and existing single - family housing in Riverside County.
SECTION 2. The City of Lake Elsinore agrees 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.
SECTION 3. This Resolution shall take effect from and after the date of its
passage and adoption.
PASSED, APPROVED, and ADOPTED this 14th day of January, 2014.
Natasha Johnson, Mayor
ATTEST:
Virginia J. Bloom, City Clerk
APPROVED AS TO FORM:
Barbara Leibold, City Attorney
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