Easing Home Buyer Crisis
A federal initiative to pump billions of dollars of mortgage money into housing primarily for moderate-income families is good news, particularly for Southern California, with its tough combination of low wages and high housing costs. But while one hand giveth, the other taketh away: Congress is planning deep cuts in federal spending designed to help local authorities boost homeownership. Moreover, as long as the Los Angeles city government continues to resist the construction of new apartment buildings, the federal initiative will have a limited impact.
The Department of Housing and Urban Development plan, which is still months away from implementation, would bring to the five-county Los Angeles area some $34 billion in new mortgage money over the next 10 years for new homes and apartment buildings. Of the total, Orange County--where the average monthly apartment rent has now passed $1,000, forcing many workers to live elsewhere and commute long distances--would receive $9.3 billion, enough to help 83,000 families find housing.
That’s in theory. The prospect for the practice is somewhat less rosy. For hundreds of low-income families in Los Angeles, the federal ownership program has worked only when supplemented with subsidized loans through the L.A. Housing Department to help with the down payment and initial repairs. Those are the loans being slashed by Congress in the name of fiscal prudence.
Housing officials believe that, because of high real estate prices, the HUD plan would work best if a large share of the money went for the construction of affordable dwellings in buildings containing either rentals or condos. Two-thirds of Los Angeles residents are renters, and the city is experiencing a housing crunch. With the lowest vacancy rate in years, Los Angeles will soon be unable to house its growing population. However, construction of new apartment buildings has been hampered by strong opposition from community groups hostile to high-density residential development.
The HUD program will not reach poor families, but it could make mortgages available to tens of thousands of families earning in the vicinity of $50,000.
Here’s how one program works: Bank of America, knowing its mortgages would be bought back by Freddie Mac or Fannie Mae--the two government-sponsored institutions implementing the program--has created a “credit flex” plan to make home loans available to family day-care providers in Los Angeles for as little as $500 down. Most licensed day-care providers, no matter how well run their businesses or how stable their income, have to rent because they have no credit record to speak of and banks consider them too big a mortgage risk. Under this plan, the banks accept rent or utility payment receipts as proof of their credit-worthiness. Nearly 200 day-care providers have signed up.
Low-cost manufactured housing companies are building homes in places like Watts, South Los Angeles and Santa Ana designed to fit within the HUD plan, which has strict price limits.
More cooperation from local officials, including readier acceptance of higher-density housing, will be required to get the most out of the federal plan.
