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ARA1990-07RESOLUTION NO. ARA90-7 A RESOLUTION OF THE ANAHEIM REDEVELOPMENT AGENCY ADOPTING A MORTGAGE CREDIT CERTIFICATE PROGRAM IN COOPERATION WITH THE COUNTY OF ORANGE, AUTHORIZING AN APPLICATION TO THE CALIFORNIA DEBT LIMIT ALLOCATION COMMITTEE FOR AN ALLOCATION FOR THE ISSUANCE OF MORTGAGE CREDIT CERTIFICATES AND THE TRANSFER OF SUCH ALLOCATION TO THE COUNTY OF ORANGE WHEREAS, there is a shortage in the County of Orange (the "County") and in the City of Anaheim (the "City") of decent, safe and sanitary housing, particularly of housing affordable by first-time home buyers, and a consequent need to encourage the availability of homes affordable by such persons and otherwise to increase the housing supply in the City and in the County for such persons; and WHEREAS, the Board of Supervisors of the County has declared its intent to engage in a mortgage credit certificate program (the "Program") pursuant to Part 5 of Division 31 of the Health and Safety Code of the State of California (the "Act") to issue mortgage credit certificates pursuant to the Act to provide funds for the Program; and WHEREAS, the Redevelopment Agency has found and determined that it is in the best interest of the City to participate in the Program and to con~ent to the operation of the Program by the County within the geographic boundaries of the City pursuant to the Act; and WHEREAS, the Redevelopment Agency desires to enter into a Cooperative Agreement with the County and the City to permit the operation of the Program in the City; and WHEREAS, Section 146 of the Internal Revenue Code of 1986, as amended (the "Code"), limits the amount of mortgage credit certificates that may be issued in any calendar year by entities within a state and authorizes the governor or the legislature of such state to provide the method of allocation within such state; and WHEREAS, Chapter 11.8 of Division 1 of Title 2 of the Government Code of the State of California (the "Government Code") governs the allocMtion of the state ceiling (as that term is defined in the Code)~among'governmental units in the State of California (the "State") having the authority to issue mortgage credit certificates'; and WHEREAS, Section 8869.85 of the Government Code requires a local agency to file an application for a portion of the state ceiling with or upon the direction of the California Debt Limit Allocation Committee (the "Committee") prior to the issuance of mortgage credit certificates; ahd WHEREAS, the City has approved the filing by the Redevelopment Agency of the application to the Committee on behalf of the City and to transfer any allocation of the state ceiling to the Redevelopment Agency pursuant to Section 50193 and Section 50197.5 of the Act; and WHEREAS, the Redevelopment Agency has determined to transfer to the County pursuant to Section 8869.85(d) of the Government Code, the total amount, if any, of authority to issue mortgage credit certificates allocated to the City and transferred by the City to the Redevelopment Agency from the state ceiling; and WHEREAS, one percent of the amount of the allocation to be requested by the Redevelopment Agency is to be held in an escrow account pursuant to Section 8869.84 of the Government Code and the Regulations of the Committee; NOW, THEREFORE, the Redevelopment Agency of the City of Anaheim resolves as follows: Section 1. Each of the foregoing recitals is true and correct. Section 2. The Redevelopment Agency hereby agrees to participate in the Program for the purpose of increasing the housing supply in the County and in the City and consents to the operation of the Program by the County with respect to all property located within the geographical boundaries of the City. The Redevelopment Agency hereby finds that the operation of the Program outside of the various redevelopment project areas of the Redevelopment Agency will be of benefit to all of such redevelopment project areas. Section 3. The Cooperative Agreement between the City, the County and the Redevelopment Agency (the "Agreement"), a copy of which is attached hereto as Exhibit A, is hereby approved and the Chairman is hereby authorized and directed to execute and deliver the Agreement, for and in the name and on behalf of the Redevelopment Agency. The Chairman, with the advice and consent of the City Attorney, is authorized to approve any additions to or changes in the form of the Agreement deemed necessary or advisable, approval of such additions or changes to be conclusively evidenced by execution by the Chairman of the Agency. The Chairman, with the advice and consent of the City Attorney, is further authorized to enter into such additional agreements with the County, execute such other documents or take such other actions as they may deem necessary or appropriate to carry out the ~urpose and.intent of the Agreement or to cooperate in the implementation of the Program. Section 4. The Executive Director, or designated representative, is authorized, on behalf of the City, to submit an application, and such other documents as may be required, to the Committee for an allocation in the amount of $5,000,000, for transfer to the County for application to the issuance of mortgage credit certificates by the. County. Section 5. The Redevelopment Agency hereby authorizes the transfer %o the County of all of state ceiling allocated to the City by the Committee and transferred to the Redevelopment Agency by the City. The Executive Director or designated representative, on behalf of the Redevelopment Agency, is authorized and directed to take such steps and execute such documents as are necessary to effect the transfer of such allocation to the County solely for application to the issuance of mortgage credit certificates, the proceeds of which are to be used to induce the origination of home mortgage loans to qualifying persons residing within the City and the County. Section 6. The officers and employees of the Redevelopment Agency are authorized and directed, jointly and severally, to do any and all things necessary or advisable in order to effectuate the purposes of this resolution or the issuance of the mortgage credit certificates by the County, and all actions previously taken by such officers and employees in connection with th~ application for th~ allocation authorized to be requested are ratified and approved. THE FOREGOING RESOLUTION is approved and adopted by the Anaheim Redevelopment Agency this 13%h day of ~.~arch , 1990. ANAHEIM REDEVELOPMENT AGENCY ATTEST: EN-RES3 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF ANAHEIM ) I, LEONORA N. SOHL, Secretary of the Anaheim Redevelopment Agency, do hereby certify that the foregoing Resolution No. ARAg0-7 was passed and adopted at a regular meeting of the Anaheim Redevelopment Agency held on the 13th day of March, 1990, by the following vote of the members thereof: AYES' AGENCY MEMBERS' Daly, Ehrle, Kaywood, Pickler and Hunter NOES' AGENCY MEMBERS' None ABSENT' AGENCY MEMBERS' None AND I FURTHER GERTIFY that the Chairman of the Anaheim Redevelopment Agency signed said Resolution on the 14th day of March, 1990. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 14th day of March, 1990. (SEAL) EXHIBIT A COOPERATIVE AGREEMENT BETWEEN THE COUNTY OF ORANGE AND THE ANAHEIM REDEVELOPMENT AGENCY THIS COOPERATIVE AGREEMENT (the "Cooperative Agreement") is hereby made and entered into as of , 1990 by and between the County of Orange, a legal subdivision and body corporate and politic of the State of California (the "County"), the City of Anaheim, a charter city and municipal corporation, and the Anaheim Redevelopment Agency, a political subdivision of the State of California ("Redevelopment Agency"). WITNESSETH WHEREAS, the County has determined to engage in a mortgage credit certificate program (the "Program") pursuant to Part 5 of Division 31 of the Health and Safety Code of the State of California (the "Act") in connection with the acquisition of homes in the County, all as provided for in said Act; and WHEREAS, the County has determined to finance the Program by the issuance of mortgage credit certificates as authorized by the Internal Revenue code of 1986 (the "Code"); and WHEREAS, the County, pursuant to the Act, has established the Program by Ordinance No. 3314 passed on March 16, 1982, and by Resolution No. 90R--73 adopted 3/13 , 1990, and has determined to cooperate with the City and the Redevelopment Agency pursuant to the Act and in the exercise of its powers under the Act for purposes of the Program; and WHEREAS, pursuant to its Resolution No. 90R-73 , the City consents to the operation of the Program within the City and approves the transfer of allocation of "state ceiling" (as defined in Section 50176 of the Act) to the Redevelopment Agency and the assignment of such allocation by the Redevelopment Agency to the County for use in connection with the Program; and WHEREAS, the Redevelopment Agency has adopted the Program and determined to cooperate with the County pursuant to the Act in the exercise of their powers under the Act for the purposes of the Program; NOW, THEREFORE, in consideration of the mutual covenants hereinafter provided, the parties hereto agree as follows: SECTION 1. The recitals hereof are true and correct and are incorporated herein by reference. SECTION 2. The words and phrases of this Cooperative Agreement shall, for all purposes hereof unless otherwise defined herein, have the meanings assigned to such words and phrases in the Act. SECTION 3. The County agrees to use its best efforts to undertake the Program to issue mortgage credit certificates therefor pursuant to the Act and the Code from time to time to the extent that the County receives allocation from the State of California. SECTION 4. The City represents that (i) the City has heretofore adopted a General Plan for the City in the manner as required by the provisions of the Planning and Zoning Law of the State of California (Government Code Sections 65000 et seq.), (ii) said General Plan includes a Land Use Element as required by Government Code Section 653092, and (iii) the program complies with said Land Use Element and Housing Element. SECTION 5. The City and the Redevelopment Agency agree that the County may issue mortgage credit certificates under the Program, all as more specifically set forth in the Act and the Code, with respect to property located within the geographic boundaries of the City and further agree that the County may exercise any or all of the Redevelopment Agency's powers for the purpose of issuing mortgage credit certificates pursuant to the Act and the Code with respect to property located within the geographic boundaries of the City; providing, however, that the allocation received by the County for the City under this Cooperative Agreement shall be used exclusively for property within the geographic boundaries of the City. SECTION 6. The City, the Redevelopment Agency, and the County agree to undertake such further proceedings or actions as may be necessary in order to carry out the terms and the intent of this Cooperative Agreement; and the Redevelopment Agency, the City, and County further agree to refrain from taking any action which would to their respective knowledge tend to adversely affect the issuance of mortgage credit certificates. SECTION 7. Nothing in this Cooperative Agreement shall prevent the County from entering into one or more agreements with other political subdivisions within the County, if deemed necessary and advisable to do so by the County. SECTION 8. This Cooperative Agreement may be amended by one or more supplemental agreements executed by the County and the Redevelopment Agency at any time, except that no such amendment or supplement shall be made which shall adversely affect the rights of the holders of any mortgage credit certificates issued by the County in connection with the Program. SECTION 9. This Cooperative Agreement shall expire and be of no further force and effect after such time as the full allocation of "state ceiling" assigned to the County has been applied to the benefit of property within the City. IN WITNESS WHEREOF, the parties hereto have caused this Cooperative Agreement to be executed and attested by their proper officers thereunto duty authorized, and their official seals to be hereto affixed, all as of the date first above written. SIGNED AND CERTIFIED THAT A COPY OF THIS DOCUMENT HAS BEEN DELIVERED TO THE CHAIRMAN OF THE BOARD OF SUPERVISORS Chairman of the Board of Supervisors Clerk of the Board of Supervisors APPROVED AS TO FORM: County Counsel ( SEAL ) ATTEST: Secretary ANAHEIM REDEVELOPMENT AGENCY By' : CITY OF ANAHEIM Mayor ATTEST- City Clerk APPROVED AS TO FORM' A Counsel EXHIBIT "B" MCC PROGRAM SUMMARY The Mortgage Credit Certificate Program, authorized by Congress in the Tax Reform Act of 1984, is an alternative to mortgage revenue bond-backed financing as a means of providing financial assistance for the purchase of single-family housing. In 1985, the State adopted legislation authorizing local agencies to make MCC's available in California. This program is designed primarily to benefit first-time homebuyers of new or existing housing units. What is an MCC~ The MCC is a certificate awarded by the local issuer. It authorizes the holder to take certain federal income tax credits. The qualified Applicant who is awarded an MCC can take an annual credit against federal income taxes of up to twenty percent (20%) of the annual interest paid on the Applicant's mortgage. The value of the MCC is taken into consideration by the mortgage lender and may De used to adjust the borrower's federal income tax withholding resulting in an effective reduction in monthly housing costs, and therefore, an increased ability of the Applicant to afford a mortgage payment. What is the difference between a "tax credit" and a "tax deduction?" A "tax credit" entitles a taxpayer to subtract the amount of the credit from the total federal income taxes owed, allowing the taxpayer to receive a dollar-for-dollar savings. A "tax deduction" is subtracted from the adjusted gross income before federal income taxes are computed. With a deduction, only a percentage of the amount deducted is realized in savings. How does the MCC "reduce" the mortqaqe interest rate? An Applicant with a 10.75% fixed rate 30-year mortgage of $130,000 would pay approximately $13,975 in interest payments during the first year of the mortgage. With a 20% MCC, up to $2,795 (20% of $13,975) of the payments would be allowed to be taken as a tax credit toward the Applicant's federal income tax liability. This would effectively reduce the monthly mortgage payment, giving the Applicant greater ability to qualify for and support a mortgage. By increasing the Applicant's purchasing power, the MCC has the same effect as reducing the interest rate on the mortgage. As shown in the illustration below, the MCC effectively reduces the interest rate. It is important to realize, however, that the total effect is achieved only when the MCC holder has sufficient income tax liability to receive the entire benefit of the MCC tax credit. EFFECTIVE INTEREST RATES WITH & WITHOUT AN MCC Without MCC With MCC First Mortgage Amount Mortgage Interest Rate Term (years) Monthly Mortgage Payment (P&I) Mortgage Credit Certificate Rate Monthly Credit Amount ,,Effective" Monthly Mortgage Payment ,,Effective" Interest Rate $130,000 $130,000 10.75% 10.75% 30 30 1,214 $ 1,214 N/A 233 N/A N/A $ 1,214 $ 981 10.75% 8.2% Notg: The effective interest rate is calculated by applying monthly payment to the original loan amount and term. What hapDens to the tax deduction for mortqage interest when applicant uses the MCC? When using the MCC tax credit, the Applicant is still eligible to deduct the remaining 80% of the annual mortgage interest payment not claimed as a credit. For example, assume the Applicant pays $10,000 for the first year in mortgage interest. The Applicant could take an $8,000 deduction (80% of $10,000) and a $2,000 credit (20% of $10,000). How does the MCC credit work? The MCC reduces the amount of federal income taxes otherwise due to the federal government from the Applicant. However, the IRS will not actually make a cash payment if the credit is larger than the amount of taxes owed for the entire year before taking into account withholding taxes or estimated tax payments. Therefore, the benefit to the homeowner cannot exceed the amount of federal taxes owed for the year, after other credits and deductions have been taken into account. What happens if a qualified homebuyer cannot use the entire amount of the MCC credit in any one year? If the amount of the MCC credit exceeds the Applicant's tax liability, the unused portion of the credit can be carried forward for the next three tax years or until used, whichever comes first. The applicant must keep track of the unused credit by year. The current year credit is applied first and the "oldest" credit is used next. How does the homebuyer realize the increase in "Home Buyer Power"? The applicant may consider adjusting his or her federal income tax withholding to receive the benefit from the credit on a monthly basis. In this case, the applicant will refile a W-4 form with his employer reflecting the MCC credit. By taking this action, the number of exemptions will increase, reducing the amount of taxes withheld, thereby increasing the applicant's disposable income. The applicant also has the option to wait until the end of the year and realize the tax credit savings in one lump sum when filing federal income tax returns. Regardless of whether the apDlicant adjusts the W-4 form or not, the tax credit will have to be listed when filing federal income tax returns. How does a homebuyer apply for an MCC? A Mortgage Credit Certificate can be obtained through a participating lender. A lender may participate in the MCC program only after completing an authorized training session. The applicant applies for a Mortgage Credit Certificate at the same time he/she makes a formal application for a mortgage loan. This is done after signing of a purchase agreement. When applying for the MCC, the applicant will need to supply credit information, employment data, and other normal mortgage loan and credit information to the lender. How does the locality create an MCC program? ae The local issuer applies to CDLAC for a "private placement" allocation. The locality must post a 1% deposit of the allocation. Once the allocation is granted, the locality has 120 days to place the first certificate. During the 120 days, the locality designs the program criteria, develops program procedures and marketing materials. Ce Legal counsel reviews the program for IRS regulation compliance. Once legal review is completed, MCC's may be issued according to the established criteria and procedures. What are the proqram parameters? Income: The program is limited to households with the annual incomes adjusted by family size: Family 1-2 Family 3-4 100% of median 115% of median $46,900 $53,935 Purchase Price: MCC purchase prices are limited to the following: Existinq Homes 90% of IRS published average sales price $198,718 EN-ExB 2/12/90 EXHIBIT "C" MCC PROGRAM DESIGN BUDGET ORANGE COUNTY ANAHEIM SANTA ANA GARDEN GROVE IRVINE Assumes Mortgage Credit Certificates (MCC) program subsidizing approximately $25 million worth of first mortgages. Some of these costs are potentially recoverable from application fees and lender participastion fees. This budget does not include program administration costs. Staff Time and Overhead Orange County staff costs. Financial Advisor Assistance with design, document preparation and implementation of program Tax Attorney Review procedures manual and procedures for compliance with IRS rules Miscellaneous Telephone, copying, form printing and contingency CDLAC Fee TOTAL (~ 5) Cost per city and County CDLAC Deposit 1% of Requested Authority (-'. 5) Cost per City and County EN-ExC 2/13/90 $ 15,000 $ 25,000 $ 2,500 $ 15,000 $ 5,000 6,250 68,750 13,750 $250,000 .$ 50,000 EXHIBIT "D" 1990 MORTGAGE CREDIT CERTIFICATE PROGRAM Schedule Date By February 12, 1990 February 27, 1990 February 28, 1990 March 1-15, 1990 March 1-10, 1990 April 30, 1990 May 30, 1990 Action Meet with cities to discuss program guidelines, procedures and program costs. Cities and Counties approve resolutions of cooperation, application and deposit to the State for allocation. Board of Supervisors approves resolution. Finalize MCC program design. Submit CDLAC application. Submit application to CDLAC with necessary deposit certifications. o o Attend CDLAC meeting. Receive allocation. o Issue first MCC EN-ExD 2/12/90