Governor Revives Failed Plan to Help First-Time Home Buyers : Housing: Deukmejian, after rediscovering a largely unspent $200 million, proposed to use it as part of a $2-billion, housing-opportunity program.

An ambitious $200-million program approved by voters eight years ago to help first-time home buyers break into the housing market proved to be a failure and vanished from view, its money unspent and its promise unfulfilled.

Yet the message from voters was clear: Nearly 4 million of them agreed to a 1982 bond measure that would establish the Cal-First Home Buyers program and help a new generation of Californians break into the increasingly expensive housing market.

But the program, which was administered by the California Housing Finance Agency, was abandoned as unworkable with only $10 million in bonds outstanding and just 945 loans approved.

And no one tried to fix it.

Not the Legislature that had put the bond measure on the ballot. Not George Deukmejian, who as the Republican candidate for governor in 1982 had enthusiastically endorsed it. Not the state agency that was empowered to administer the program. Not the California Assn. of Realtors, which had sponsored the measure.

That changed earlier this year, when the governor rediscovered the largely unspent $200 million and proposed to use it as part of a $2-billion housing opportunity program “to help put the dream of home ownership back within the reach of many Californians.”

Deukmejian’s effort to resurrect the bond sales--eight years after they won approval and six years after the program proved a flop--has generated sharp criticism from Democratic legislators.

“If the money was available, why wasn’t it utilized?” asked Assemblyman Dan Hauser (D-Arcata), chairman of the Assembly Housing and Community Development Committee. “Or if there was a problem, why wasn’t it brought to the Legislature’s attention?”

Said Sen. Leroy Greene (D-Carmichael), chairman of the Senate Housing and Urban Affairs Committee: “The money hardly helped anybody. And what would it buy today as opposed to its purchasing power eight years ago? . . . $200 million eight years ago will buy only $100 million in today’s market.”

Karney Hodge, whom Deukmejian appointed to head the California Housing Finance Agency, defended the Administration’s record. “That wasn’t our program to really even tinker with,” Hodge said. “It’s not the agency’s program. It’s the Legislature’s program.”

The governor, Hodge said, has been considering programs to help first-time home buyers for several years, but Deukmejian “has had a full plate. He can’t do everything at one time. He must sensibly prioritize the issues he’s addressing, and this was the year for housing.”

The chairman of the housing finance agency’s board of directors, Glendale real estate investor Sebastiano Sterpa, conceded that the $200-million program approved by the voters probably should have been revived sooner.

“Some leadership should have been exercised that really could have done that,” he said. The first program’s failure, he said, produced “a natural reluctance to go to the voters” with another.

Sterpa, as president of the California Assn. of Realtors, came up with the idea of a state-backed program to help first-time buyers in a period of rising housing prices and extraordinarily high interest rates.

Under Sterpa’s direction, the real estate association developed a plan for a state-sponsored loan program that could help energize a sluggish real estate market.

The bond money would be used to give buyers a break on interest rates in the first five years of their mortgages. Monthly payments would gradually rise until the home buyer was paying the full market rate interest plus an additional monthly amount to pay back the housing finance agency for the earlier interest reduction.

It was the state’s version of “creative financing”--a scheme that allowed borrowers to find the money they needed and start out with reasonable monthly payments at a time when interest rates were as high as 16%.

Critics were quick to point out that the financing was such that after five years, first-time buyers would owe more on their mortgages than when they took out the loans. The home buyers also would have to make monthly payments that were substantially higher than when they entered the program. That was fine as long as inflation continued to fuel sharp increases in income, but a disaster if anticipated wage increases did not materialize.

“That was one major problem,” said Joel S. Singer, an economist who helped design the program for the California Assn. of Realtors and is now the group’s executive vice president. “Everybody had to pay back all the benefits.”

And by the time the program was put into place, interest rates on conventional home mortgages had fallen off so sharply that eligible buyers could get loans on their own. And, Singer said, neither borrowers nor lenders were enthusiastic about a state program that few understood and that was complicated to administer.

Deukmejian came up with a new proposal in his annual state of the state address in January.

As part of his plan to implement his $2-billion proposal, the governor will seek legislative approval to ask the voters for reauthorization of the $200 million first approved in 1982.

The new program represents a departure from earlier mortgage programs run by the agency because it raises the eligibility standards to include home buyers with incomes as high as $70,000 in some high-income parts of the state--like Orange and Santa Cruz counties. In the past, no one with an income higher than $44,900 could qualify. And eligible borrowers could use the money under the new program to purchase houses costing as much as $239,100 in high-price areas like San Francisco, Marin and San Mateo counties. (In Los Angeles, the income limit would be $57,800 and the top sales price $188,100.)

Lawmakers like Hauser and Greene are complaining that the governor’s program would shift the state’s emphasis away from helping the neediest in the state to helping the middle class.

“Helping somebody with an income at 150% of the median, people whose income is $50,000 or $60,000 or $70,000 (a year) . . . that is deplorable,” Greene said. “We have street people, people on welfare, people on the poverty line. . . . True middle-income people do not need help, not like those at the bottom of the economic ladder. They aren’t helpless. It is outrageous to spend money in this fashion.”