California has a housing affordability problem.Homes are expensive.
Down payments are enormous.Young families are struggling to buy their first house.So, what's California's latest idea?Get into the mortgage business with $25 billion in borrowing authority.
Apparently, when housing becomes too expensive, the answer is to help people borrow even more money.BILLIONS SPENT BY KEY FEDERAL AGENCY HASN'T MADE AMERICAN DREAM OF HOMEOWNERSHIP ANY EASIER: REPORTWelcome to Proposition 37.Couple admiring the view from the living room of their new house.On November's ballot, California voters will consider a proposal allowing the California Housing Finance Agency to issue up to $25 billion in revenue bonds to finance down-payment assistance.Here's how it works.
Buyers put down as little as 3%.The state-backed program provides a second mortgage covering up to another 17%.
The buyer finances the remaining 80% through a traditional mortgage.WE MUST HELP MORE PEOPLE BUY A HOME.IT’S KEY TO THE AMERICAN DREAMSounds terrific.Except there's one little detail.
The 17% isn't free money.It's another loan.
And by the way, isn’t this the kind of strategy that sparked the last Great Recession of 2008? By offering people more and more money they couldn’t afford?And this distinction matters enormously.THE AMERICAN DREAM NOW COMES WITH A ZIP CODE: HERE'S WHERE STARTER HOMES ARE STILL WITHIN REACHImagine buying an $800,000 California home.With a traditional 20% down payment, you'd need $160,000 upfront and borrow $640,000.Under Proposition 37, you could potentially put down just $24,000.
The state-administered program would lend you another $136,000.Your first mortgage would still be $640,000.You've reduced your upfront cash requirement by $136,000.
But you've also increased your total mortgage debt by $136,000.Assume a hypothetical 6.5% interest rate on the first mortgage and 7% on the second, both over 30 years.Get into the mortgage business with $25 billion in borrowing authorit...