California may scale down its new home loan program designed to assist first-time homebuyers
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In this economy, who has enough money for a down payment on a house?
Despite a projected $25 billion budget deficit, the state of California does. At least for now.
The California Housing Finance Agency is poised to launch a scaled-down version of its new shared equity home loan program on March 27. With the Dream for All program, the state plans to provide $300 million worth of down payments for an estimated 2,300 first-time homebuyers.
The complicated program involves the state paying some or all of the upfront costs for buying a home — the down payment, for instance — in exchange for a share in the home’s value when it is sold, refinanced or transferred.
If the home appreciates in value, those gains to the state would then be used to fund the next borrowers — a little for the seller; a little for the next aspiring buyer.
Everybody wins — as long as prices go up.
The trouble is that home prices have been declining in the state for months, even as higher mortgage interest rates have made monthly mortgage payments more expensive.
A potential economic downturn looms as well, as the Federal Reserve weighs raising borrowing costs even further as soon as today.
And California’s tech industry is taking a beating and laying off workers, contributing to a decline in personal incomes. Income taxes are the state’s biggest revenue source.
Given the uncertainty, Gov. Gavin Newsom in January proposed a significantly smaller version of the 10-year, $10 billion program originally envisioned by Senate President Pro Tem Toni Atkins, a Democrat from San Diego. In his January budget, Newsom proposed spending an initial $300 million on the program, a cut from the $500 million compromise signed last year.
Optimism and expectations
The size and scope of the Dream for All program will likely be a subject of negotiations between Newsom and the overwhelmingly Democratic Legislature this year. The governor is expected to offer a revised state spending plan and a new financial forecast in May. Lawmakers must pass a balanced budget by June 15 in order to get paid.
The proposed cut “will not impact the Administration’s commitment or timeline for implementing the program,” Newsom’s Department of Finance said in January.
In a Feb. 13 email to CalMatters, Christopher Woods, budget director for Atkins, said her office will seek more funding for the program.
“The Governor ‘proposing’ to pull back some funds has very little to do with what will actually happen,” Woods wrote to CalMatters, in response to earlier coverage of the program. “No one should expect the program to be cut, and we should all fully expect additional funds – perhaps as much as $1 billion – to be allocated in the 2023-24 Budget Act.”
“With interest rates rising, the program is needed more than ever … and there are several innovative ways to fund the program,” Woods wrote.
Woods declined to answer follow-up questions for this story.
Atkins, who championed the equity sharing program last year, has said the Dream for All program is a priority. She said in a recent statement she isn’t giving up on getting more money for it.
“Our state is about to launch a program that will help change people’s lives for the better, and make the dream of homeownership a reality,” she said. “While existing funding for the California Dream for All is a great first step, we are working to allocate additional funding in the upcoming state budget — with the ultimate goal of providing $1 billion per year — to help even more families set the foundation for building generational wealth.”
Falling equity
The uncertainty in the economy and housing market has been a subject of discussion at CalHFA for months, as officials and political appointees seek to launch a program meant to take advantage of rising home prices at the very moment home equity is falling.
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