Bonds Would Let Gardena Help 1st-Time Home Buyers

First-time home buyers in Gardena who earn as much as $70,000 annually will be eligible to receive loans from the city under legislation passed last week by state lawmakers.

The bill, authored by state Sen. Ralph Dills (D-Gardena), authorizes the city to issue revenue bonds to raise money that would be lent to the home buyers with flexible payment schedules.

Gardena officials say the legislation, which was initially opposed by low-income housing advocates and still must be signed by the governor, will allow the city to assist middle-class residents who otherwise would be forced to buy in less expensive housing areas.

“My God, it takes a small fortune to get in,” Councilman Jim Cragin said, adding that his three sons were forced to purchase homes outside Gardena because they could not afford to buy within the city.

“We have to be very conscious of that group of people who need homes and need to get their feet on the ground,” he said.

The legislation was approved by state senators on Friday. The next day, legislators voted to put a $325-million bond proposal on the November ballot to assist first-time home buyers and build low-cost housing statewide.

The state measure would calculate income limits on a different basis than the Gardena program. Gardena officials say that, even if the proposal wins statewide approval, Dills’ legislation will provide Gardena with complete autonomy.

“It’s our program and we’ll call the shots,” said Michael Wapner, the city’s senior administrative assistant.

Dills’ legislation initially would have applied to all cities statewide and was staunchly opposed by low-income housing advocates. The advocates contended the bill served a high-income group at a time when many cities have failed to make substantial progress in meeting their state-mandated goals for low-income housing.

However, the advocates took a neutral position when Dills amended the bill to apply only to Gardena, which in recent years has taken steps to provide such housing. For example, in 1985 the city, in what was hailed as a unique move, issued revenue bonds to buy a mobile home park that was slated for demolition. The park’s tenants, many of them low-income, were allowed to remain.

City Manager Ken Landau said the legislation was necessary because the income limits established previously by law would have precluded the city from selling bonds and lending the money to home buyers whose incomes exceeded roughly $47,000.

Under the approved legislation, however, first-time Gardena home buyers whose incomes do not exceed 35% of the median purchase price of a home are eligible to receive a city loan. Because the median-priced home in Gardena is about $220,000, people whose household incomes range up to about $70,000 are eligible.

Landau said details of the city’s bond program have yet to be worked out, but the legislation requires the home buyer to provide a down payment of at least 5%. Also, the buyer would have to qualify to meet the debt service on both the city loan and the remainder of the mortgage. A first-time home buyer is defined as anyone who has not owned a home during the previous three years.

The legislation also allows the city to delay a buyer’s initial payments on the city loan for up to five years and specifies that the mortgage contract cannot exceed 40 years. The purchase price of homes cannot exceed the city’s median price.

Landau said Dills’ legislation allows the city to lend up to 65% of the purchase price, but city officials intend to lend only up to 15%.

Gardena officials say they do not know what interest rates borrowers might pay, but they are confident the rates will be below those offered by conventional banks or savings and loan institutions.

Although the city-backed bonds would be exempt from state taxes, they would be federally taxable. One longtime legislative analyst, who did not want to be identified, expressed doubts that the bonds would be attractive to institutional buyers because they are subject to federal tax.

However, several city officials said they believe the bonds will be marketable, largely because of the city’s excellent credit rating.

Under the statewide proposal that will go before voters this fall, $200 million would be used to help first-time home buyers obtain second mortgages at low-interest rates. The state is authorized to issue loans with interest rates as low as 3% to home buyers who can come up with a down payment of 5%. The money from the state loan would be payable when the house is sold, refinanced or paid off. Although the proposal does not specify a maximum state loan amount, it is expected to be capped at $35,000.

Fred Noteware, director of programs for the California Housing Finance Agency, which would administer the program, said first-time home buyers whose incomes do not exceed 35% of the average resale price of a home in the county in which they are buying would be eligible.

In Los Angeles County, where the average resale price is $171,000, the income of a household with one or two persons could not exceed $59,900, Noteware said. The price of the home could not be more than $171,000.

Households with three or more people are allowed to purchase a home costing 10% more than the average resale price. In Los Angeles County, that means the price could go up to $188,100, Noteware said.

“My feeling is this brings housing programs into the real world for high-cost areas like Los Angeles County,” Noteware said.