$6-Billion Plan to Aid Buyers of O.C. Homes
The nation’s largest provider of mortgage funds is expected today to announce a $6-billion, five-year plan to help up to 60,000 low- and moderate-income families buy homes in Orange County, the most expensive housing market in the Southland.
The program, House Orange County, is backed by the Federal National Mortgage Assn., or Fannie Mae, and is one of the largest efforts ever to address the county’s growing housing affordability problem.
Housing experts said the Orange County plan could play a significant role in helping tens of thousands of families overcome the financial barriers to home ownership. On average, an additional 12,000 families a year would qualify for loans up to $240,000 that they may not have obtained otherwise. In 1998, that number would have boosted sales during a record year by 22%, and in 1997, the second strongest year of the decade, by 30%.
But with a chronic shortage of low- and medium-income housing in Orange County and throughout Southern California, it is unclear whether qualifying more potential buyers for loans will actually increase sales.
The program, designed for individuals and families whose annual household income ranges from about $40,000 to $68,500, will allow lenders to be more flexible in determining an applicant’s credit-worthiness. Lenders will be able to offer zero-down-payment loans, allow employers to cover part of a worker’s down payment, and give commuters from the Inland Empire higher priority if they are willing to move into a home within walking distance of work.
In addition, employees will be able to have mortgage payments deducted from their weekly paychecks, which will allow them to save tens of thousands of dollars in interest over the life of a loan.
“Lenders now have been given more tools and more firepower to help people get into homes,” said one business executive who was briefed on the program, but asked not to be named. “More people than ever before will have access to financing.”
Fannie Mae, which is planning to open an office in Orange County, will outline the program at a ceremony this morning at the Orange County Civic Center in Santa Ana, according to agency officials. Fannie Mae has funded similar programs around the state in recent years, including $16 billion for several Bay Area counties in June, and $7 billion for Los Angeles in 1997.
The announcement will come only weeks after the federal government unveiled one of the most ambitious programs ever to house low- and moderate-income families through Fannie Mae and the Federal Home Loan Mortgage Corp., better known as Freddie Mac.
Under that plan, known as Affordable Housing Goals, the two companies would raise the number of mortgages used for buying homes and constructing apartment buildings to 50% of its portfolio from 42%, costing $488 billion. More than $34 billion will be spent in the five-county Southland area, including $9 billion in Orange County.
Fannie Mae and Freddie Mac are quasi-governmental agencies that buy mortgages of up to $240,000 from traditional lenders and package and sell them to the so-called secondary markets. The two agencies, which set lending guidelines to which banks strictly adhere, provide a critical function. Lenders who sell mortgages to the two agencies turn immediate profits, but also obtain the funds for another cycle of home loans.
Fannie Mae won’t actually provide the loans, but will earmark the $6 billion to buy mortgages made by Orange County lenders. That reduces the lenders’ risk and allows them to provide loans to borrowers that they may not otherwise make.
The announcement expected today will eventually bring some relief, but Orange County’s housing problems remain far from solved. Prices have soared over the past year to a near-record median of $238,000, meaning that half the homes in the county sold for more, half for less. That price is out of reach for two out of every three Orange County families.
The root of the county’s housing problem lies in its booming economy, which has created far more jobs than houses over the past five years. A study earlier this year by the Meyers Group, an Irvine real estate research firm, found that four new jobs were created in the county for every new home built, a rate that is more than twice the national average.
As a result, analysts expect housing prices to climb over the next year and become even less affordable as interest rates, which rose again Tuesday, continue to climb.
Orange County, which led the Southland’s housing recovery and saw home values rise faster last year than anywhere in the nation, recently has been overtaken in home appreciation by Los Angeles and the Inland Empire.
As home prices move beyond the reach of more Orange County families, more home buyers are turning to less expensive areas in Riverside and San Bernardino counties, causing values to rise at a faster pace, according to First American Real Estate Solutions, an Anaheim-based research firm.
Still, for many families, finding homes in Orange County that fall within the program’s loan limit of $240,000 could be a challenge. The median price of resale homes was $260,000 in July, nearly matching the all-time high set earlier this year, according to Acxiom/Dataquick Information Systems Inc., a La Jolla-based real estate research firm.
Housing prices have been a top concern among Orange County’s corporate executives since 1995, said Dennis Aigner, a professor at UC Irvine.
Rising home prices have persuaded businesses and other private groups to rally around an effort to create more-affordable housing. The Orange County Affordable Home Ownership Alliance, whose founders include the Orange County Business Council, Merrill Lynch & Co., the Enterprise Foundation, Fannie Mae and the Building Industry Assn. of Orange County, was formed this year.
The group’s goal includes raising $50 million to help increase the supply of lower-cost housing in Orange County, said Stan Oftelie, president of the Business Council, the county’s largest business advocacy group. It is the first time that business interests in Southern California have taken such a high-profile approach to housing issues.
A new director, Jill Dominguez, has been hired as interim executive, and the group is putting together a board of directors. Fannie Mae officials formally described their program Tuesday to others in the alliance.
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Mortgage Bonanza
Fannie Mae is expected to announce today that it will earmark an additional $6 billion in mortgage money for Orange County home buyers during the next five years.
Why they’re doing it: Orange County is the most expensive housing market in the Southland, and barring an unforeseen economic calamity, prices aren’t expected to ease any time soon.
What it means: During the next five years, an additional 60,000 low- and middle-income families will be able to qualify for a home loan.
Who’s eligible: Low- and moderate-income individuals and families who want to buy a home here and whose annual household income ranges from $41,100 to $68,500.
To obtain a loan: Contact any bank, mortgage lender or nonprofit lender. Information also can be found in human resource departments of companies offering financial assistance to employees for a home purchase.
Source: Federal National Mortgage Assn.
