Homeownership just a dream for many households in the state and region
■ Mary Ann Morris / Editor
Most families’ primary source of wealth is their home, so homeownership is vital to achieving prosperity and passing it on to future generations, especially for minority and low-income households. It’s all part of the American Dream. According to the 2017 Prosperity Now Scorecard, conditions have stabilized for current homeowners, but stagnant homeownership rates demonstrate that states have failed to open pathways for potential new owners.
And the fact that median incomes are not rising in proportion to the increases in home values means that fewer people will be able to qualify for affordable home loans. Efforts to target increased access to affordable homeownership and housing can help address systemic exclusions facing people with low incomes and people of color.
California earns a grade of D for Homeownership & Housing
Despite falling foreclosures and delinquent mortgages, as well as low mortgage interest rates, the national homeownership rate held constant at 63 percent, while in San Jacinto the rate is slightly higher, at 65.1 percent. In Hemet, homeownership rates are much lower than the national average, at 56.4 percent. However, Hemet’s rate of homeownership is higher than the California average, which is 53.6 percent.
In addition to the above statistics, flat or declining homeownership rates reflect the fact that buying a home is becoming less affordable, as median home values are rising more quickly than household incomes. According to the rankings in the table, California earned a “D” grade for Homeownership & Housing. California earned “F” grades in the Homeownership Rate category as described above and three others:
1. Home affordability – The average home price in California is seven times higher than the annual median income, compared to the national average of 3.5 times higher than median income.
2. Housing cost burden to homeowners is 39.5 percent, compared to 29.6 percent nationally. This means that almost 40 percent of California homeowners spend more than 30 percent of their income on housing. In the San Jacinto Valley, that number is much higher, with 46.7 percent of Hemet homeowners and 45.2 percent of San Jacinto homeowners being cost-burdened.
3. Housing cost burden to renters is 55.8 percent statewide, meaning almost 56 percent of people who rent their homes spend more than 30 percent of their income on rent. The national numbers are slightly lower at 50.6 percent. However, again, the San Jacinto Valley is hit harder, with 65.5 percent of Hemet renters and 59.4 percent of San Jacinto renters spending more than 30 percent of their income on rent.
What do these numbers mean? Simply speaking, renters and homeowners who spend more than 30 percent of their income on rent are unable to save up enough money for the down payment for a home, invest in their families future, and have less money to spend on necessities such as food, clothing, education and health care, much less an unforeseen emergency such as vehicle repair or inability to work. These cost burdens often place families on the brink of financial ruin, according to the Scorecard, because any shortfall in their budget leaves them vulnerable to eviction or foreclosure.
California has adopted six of 12 policies that are designed to protect homeowners. Regarding first-time buyers, while California does provide down payment assistance through grants, second mortgages or resources financed with premium bonds, the state does not offer direct lending programs to first-time homebuyers, nor does it fund homeownership counseling, according to the Scorecard.
Foreclosure laws and deficiency judgments
One of the big worries borrowers have after a foreclosure is whether the lender is entitled to a deficiency judgment. If the property sells for less than is owed to the lender at the foreclosure sale, the difference between the sales price and the total debt is known as the deficiency. For example, if a homeowner owes $200,000 to the lender, and the property sells at the foreclosure sale for $150,000, the deficiency is $50,000.
In some states, the lender is allowed to sue the homeowner for the difference and obtain a deficiency judgment, which is a personal court judgment against the borrower. This allows the lender to recoup the deficiency through garnishing the borrower’s wages or by levying a bank account. California has laws to protect homeowners in the case of non-judicial foreclosure. (Most residential foreclosures are non-judicial.) However, if you have a second or third mortgage, or a home equity line of credit, the lender may be entitled to file a lawsuit and recoup damages.
So while the state does regulate mortgage servicers, has abolished or limited deficiency judgments, foreclosures are not required to be reviewed in the presence of a neutral third party. Additionally, tenants are afforded some protections when the home they rent is foreclosed upon.
Housing trust funds
California has taken several steps to advance local funding of affordable homes, and in fact has created 45 housing trust funds, according to the Housing Trust Fund Survey Report 2016. For years, California communities benefited from the availability of redevelopment agency tax increment funds, with a state requirement that 20 percent of these funds be committed to providing and preserving affordable housing. This program provided some $1 billion in funds each year to provide secure affordable homes throughout the state, according to Center for Community Change. However, Gov. Jerry Brown eliminated the redevelopment agencies in December 2011.
Starting in 2012, a portion of the funds that originally went to the Redevelopment Agencies have been redirected to each jurisdiction’s general fund. Two options are available to recapture the funding: (1) a portion or all of the redirected funds (referred to as boomerang funds) from the former Low and Moderate Income Housing Fund (the required 20 percent set aside) can be committed to affordable housing activities and (2) a portion or all of ongoing annual tax increment revenues can be committed to affordable housing.
California’s Department of Housing and Community Development (HCD) administers a Local Housing Trust Fund matching awards program. A $2.85 billion voter approved housing bond (Proposition 1C) funds the program which operates as a competitive grant program that helps finance local housing trust funds dedicated to the creation or preservation of affordable housing. Eligible applicants include cities, counties, and charitable nonprofit organizations.
Manufactured homes an affordable option
Manufactured homes are typically much more affordable than site-built homes. While the state treats manufactured homes the same as site-built homes, there are differences in finding financing for these homes. Academy Mortgage Corporation, a mortgage broker in Hemet, offers a 30-year fixed rate FHA loan for manufactured homes that have been permanently installed on a site for at least one year prior to application. Shorter loan terms are also available.
There are specific requirements to qualify, though. The financing must be the first lien on the property, the applicant must have a minimum FICO score of 660, the manufactured home must be skirted (the bottom crawl space must be enclosed) and the property must be taxed as real estate to qualify.