CAN THE AMERICAN DREAM DOWNPAYMENT ACT HELP CALIFORNIA?

In the middle of the 19th century there were as few as 700 people living in what was to become the state of California. In 2003, the U.S. Census Bureau declared that California is still the most populous state in the nation with 35.5 million people, an increase of over a half million people since 2002.

Our continued growth impacts our housing crisis. In 2004, our state’s median home price is expected to climb 13 percent to $414,000. What is a first time homebuyer to do?

"Some of the things the governor has signaled looking at was infill development and attached housing in order to all create an affordable product without being in conflict with environmental rules of preserving open space," predicted Jon Ross, legislative counsel for the California Mortgage Bankers Association.

And, in its own small way, the federal government is trying to help. On December 16, 2003, President George W. Bush signed the American Dream Downpayment Act, a new program that provides grants to help first time homebuyers with downpayment and closing costs. The proposal authorizes $200 million dollars for the program for fiscal year 2004. The rhetoric was strong:

"Today we are taking action to bring many thousands of Americans closer to the great goal of owning a home," said President Bush. "These funds will help American families achieve their goals, strengthen our communities, and our entire nation."

"This is a good day for thousands of families who have only dreamed about sharing in the American Dream of homeownership," said Housing and Urban Development Acting Secretary Alphonso Jackson. "Not only will this law allow thousands of hard-working Americans to unlock the door to homeownership, it will also help close the gap that separates minority households from the rest of the country when it comes to owning a home to call their own."

How can the American Dream Downpayment Act work for California? A recent California Association of Realtors study indicated that only 23 percent of California households were able to afford a median-priced home. FYI - the minimum income needed to buy that home is $93,490. Nationally, a minimum of $40,990 in annual income was needed to purchase a median-price home, which cost $177,500 in August 2003.

According to American Dream Downpayment Act, the maximum downpayment grant is $10,000 or six percent of the purchase price of the home. Know anyone whose got a home to sale for under $150k? It’s expected that the new legislation will provide an average of $7,500 in down payment and closing cost assistance to help first-time homebuyers with annual incomes that do not exceed 80 percent of the area median income. (Or anyone earning under $75k in CA.)

It’s a nice holiday gift, but should have marginal impact here in Santa Monica where the average cost of a single family home is in the neighborhood of 1.2 million dollars, and the average 20% down payment on such a property is nearly $250,000. Closing costs are around 3%.

The objective of the American Dream Downpayment Act is to lower closing costs by approximately $700 per loan in order to stimulate home ownership for all Americans. The government would like to increase the home ownership rate, especially among minority groups, who have lower rates of home ownership. Es verdad.

Grants will be made to state and local governments through HUD's HOME Investment Partnership program. Families interested in applying for grants should contact their state or local housing agency or check out www.hud.gov <http://www.hud.gov>.

The American Dream Downpayment Act includes two other important provisions. It will increase Federal Housing Administration loan limits for the construction of multifamily housing in high-cost areas. The aim is to increase private construction of affordable rental housing in major urban areas like Boston, New York, Los Angeles and San Francisco. The per-unit maximum loan limit would increase from $194,190 to $218,465, which means the per-unit loan limit for a typical two-bedroom apartment in a high-cost urban area would rise from $136,749 to $153,843. If we can keep litigation costs and local government construction fees to a minimum, maybe we can address the local housing crisis.

Second, the American Dream Downpayment Act provides a technical correction to the FHA's adjustable-rate mortgage program that aims to make the product more available to consumers.