Low-Interest Lenders Have Few Takers : Two Agencies Serve Californians, but Are Not Well-Known

David W. Myers specializes in the financial aspects of real estate

How would you like a fixed-rate, 30-year mortgage with an 8.4% interest rate--about two full percentage points below the rate of a conventional fixed-rate loan--and still be able to make a down-payment of as little as 5% of the purchase price of the home?

That's the bargain currently being offered by the little-known California Housing Financing Agency. And surprisingly, the deal comes with very few strings attached.

CHFA, which was created by California's Legislature, is one of two mortgage-making organizations currently suffering from an identity problem. The other is the Federal Home Loan Bank of San Francisco's Community Investment Fund, which offers below-market financing for a wide array of housing-related projects.

Combined, the two organizations have a "loan warchest" that exceeds $1 billion. But CHFA is so anxious to lend money that it is testing an advertising campaign in an effort to make the public more aware of its program.

CHFA, which has offices in Culver City, San Francisco and Sacramento, was created primarily to help first-time home buyers. But unlike many other loan programs, even relatively high-income people can get a CHFA loan.

Its program is relatively simple. To qualify for an 8.4% loan, a borrower must be a first-time home buyer or not have owned his principal place of residence during the last three years. This requirement is waived for loans originated in federally designated "target areas."

Although wealthy people can't get a CHFA loan, most Californians can. Income-qualification limits vary from county to county, but they're generous compared to most other low-interest loan programs.

For example, a single person living in Los Angeles can qualify for a CHFA loan as long as the income doesn't exceed $36,200 a year. A couple can qualify as long as they don't make more than a combined $40,800, while a family of four can get a loan as long as its income doesn't top $45,300.

Limits in Counties

In San Bernardino and Riverside counties, the limits are $32,200, $36,200 and $40,200. In San Diego, the limits are $34,300, $38,600 and $42,900.

Limits of $40,100, $45,100 and $50,100 apply in Ventura County, while the income of Orange County borrowers can't exceed $44,200, $49,700 or $55,200.

Perhaps the most difficult task a potential CHFA borrower must perform is finding a home that meets the agency's sales price limitations.

Only homes that sell for $122,600 or less in Los Angeles County, $97,100 in Riverside and San Bernardino, or $113,900 in San Diego, can qualify for the program. Ventura County's sales price limit is $119,600, while Orange County's limit is $136,300.

Mortgage Insurance Needed

Like borrowers who use the Federal Housing Administration's popular loan-insurance program, CHFA borrowers must make at least a 5% down-payment on the property and find a seller willing to pay a relatively small loan-origination fee.

The mortgage must be insured by the FHA, or CHFA will provide private insurance at competitive rates.

Of course, a borrower must also have a good credit rating and acceptable employment history in order to get the loan.

Technically, CHFA doesn't actually make the loans. Instead, it raises cash by selling tax-exempt bonds backed by the state.

Some Developers Participate

Proceeds from the sale of those bonds are then committed to the 40 or so lenders who are taking part in the program. A complete list of those lenders can be obtained by contacting any of the three CHFA offices.

Although most CHFA borrowers purchase existing single-family homes, some developers of new houses and condominiums have agreements with the agency that allow them to offer below-market rates to people who purchase units in their new projects. However, income and sales-price limits vary widely.

CHFA offices can provide a list of developers and projects eligible for the program.

Unfortunately, the tax-reform bill recently signed by President Reagan will have a negative impact on CHFA and its potential borrowers. That's because the new law will likely reduce the agency's ability to make new bond offerings, which in turn means it'll have less money to lend.

Earn Too Much Money

In addition, the new law will lower a borrower's income-qualification limits. As a result, thousands of people who currently qualify for the program won't be able to get a CHFA loan because they make too much money.

Consumers interested in obtaining a CHFA loan can contact participating lenders or get more information from the agency's offices.

The second low-interest loan program, the Community Investment Fund, was revived by the Federal Home Loan Bank of San Francisco last year. According to James E. Yacenda, an official at the bank, "it's the second generation" of a highly successful program his agency operated from 1978 to 1983.

The bank has made $500 million in CIF funds available to its member lenders in California, Arizona and Nevada in an effort to get them to make low-interest loans for various types of community investment activities.

Finance Various Projects

CIF funds have been used to finance an array of projects, ranging from the construction of huge apartment complexes built by community redevelopment agencies to tiny, single-family homes built by individual property owners.

In East Los Angeles, for example, homeowners Amalia and Enrique Galarza wanted to build a new home on the back of their lot for their daughter and son-in-law. All four had been living in the existing two-bedroom, 800-square-foot house at the front of the property.

The Galarzas contracted with Los Angeles-based Design Construction Co. to build the new house. Then Maurice Tubert, Design Construction's president, suggested that the family look into getting a CIF loan from a local lender, Quaker City Federal Savings & Loan Assn.

The Federal Home Loan Bank had already committed $2 million in low-interest CIF funds to Quaker City. As a result, the Galarzas were able to get a loan that was about one-half of one percentage point below conventional rates. They also saved about $800 in loan-related charges.

Not for Everyone

Although homeowners like the Galarzas say they're happy with their CIF loan, the program clearly isn't for everyone. Some lenders who are taking part in the program have targeted certain low-income areas where they want to lend the cash; ironically, potential borrowers in those areas sometimes don't make enough money to qualify for the loan.

In addition, says Harold L. Rams, Quaker City's vice president, many lenders shy away from the CIF program because they don't want to bother making relatively small loans. Others don't want to deal with the extra paper work CIF funds entail, and still others simply don't know about the program.

So far, about $100 million of the initial $500 million in CIF funds has actually been lent out. More information about the program can be obtained from the Federal Home Loan Bank of San Francisco, 600 California St., San Francisco 94108.

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