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90-073 RESOLUTION NO. 90R-73 A RESOLUTION OF THE CITY OF ANAHEIM AUTHORIZING THE ANAHEIM REDEVELOPMENT AGENCY TO ADOPT AND ADMINISTER 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, ASSIGNING SUCH ALLOCATION TO THE REDEVELOPMENT AGENCY AND AUTHORIZING 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 City has found and determined that it is in the best interest of the City to participate in the Program and to consent to the operation of the Program by the County within the geographic boundaries of the City pursuant to the Act; and WHEREAS, the City has determined that the Redevelopment Agency of the City is best equipped to participate in the County's program on behalf of the City; and WHEREAS, the City desires to enter into a Cooperative Agreement with the Redevelopment Agency and the County to permit the operation of the Program in the City; and WHEREAS, S~'~tion 146 o~ 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 allocation 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, including the City, 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; and WHEREAS, the City now desires to authorize the Redevelopment Agency to file on behalf of the City an application for s portion of the state ceiling; and WHEREAS, the City has determined, pursuant to Section 50193 of the Act, to assign any allocation received from the Committee to the Redevelopment Agency and to approve the assignment of such allocation by the Redevelopment Agency to the County; and WHEREAS, one percent of the amount of the allocation to be requested by the Redevelopment Agency on behalf of the City is to be held in an escrow account pursuant to Section 8869.94 of the Government Code and the Regulations of the Committee; NOW, THEREFORE, the City of Anaheim resolves as follows: Section 1. Each of the foregoing recitals is true and correct and is incorporated herein by reference. Section 2. The City hereby approves the cooperation of the Redevelopment Agency 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, in conjunction with the Redevelopment Agency, with respect to all property located within the geographical boundaries of the City. Section 3. The execution by the City of the Cooperative Agreement with'~ County~nd the Redevelopment Agency (the . "Agreement"3, a copy of which is attached, is hereby approved. The Mayor, with the advice and consent of the City Attorney, is authorized to approve of any sdditions to or changes in the form of the Agreement deemed necessary or advisable, approval 8570n/2620-00 -2- of such additions or changes to be conclusively evidenced by execution by the Mayor of the City. The City Manager and other officials of the City are further authorized to enter into such additional agreements, execute such other documents or take such other action as they may deem necessary or appropriate to carry out the purpose and intent of the Agreement or to cooperate in the implementation of the Program. Section 4. The Executive Director of the Agency, 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, to be assigned to the County by the Redevelopment Agency for application to the issuance of mortgage credit certificates by the County. The City elects to exchange all of its authority, as a local agency, to issue qualified mortgage bonds for authority to issue mortgage credit certificates and intends that it will henceforth not use any qualified mortgage bond authority. The City will assure that the dollar amount of mortgage credit authority will not be exceeded by requiring the County, which shall operate the Program within and on behalf of the City, to certify that the County shall issue no more than the maximum allowable amount. Section 5. The City hereby authorizes the assignment to the Redevelopment Agency of all of the allocation of the state ceiling for mortgage credit certificates allocated to the City _.~ by the Committee. The Executive Director or designated representative 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 mortgage credit certificates to ~, qualifying persons residing within the City and the County. Section 6. The City hereby finds that the operation of the Program outside of the established redevelopment project areas of the Redevelopment Agency will be of benefit to such established redevelopment project areas. Section 7. The officers and employees of the City are authorized and ~ected, j~o~ntly and severally, to do any and all things Decess'~ry or advisable in order to effectuate the purposes of this resolution or the issuance of the mortgage credit certificates by the County, the administration of the Program by the Redevelopment Agency and all actions previously taken by such officers and employees in connection with the 8570n/2620-00 -3- application for the allocation authorized to be requested are ratified and approved. THE FOREGOING RESOLUTION is approved and adopted by the City of Anaheim this13th day of March , 1990. ATTEST: ~,City Clerk 8570n/2620-00 -4- CLERK STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF ANAHEIM ) I, LEONORA N. SOHL, City Clerk of the City of Anaheim, do hereby certify that the foregoing Resolution No. 90R-73 was introduced and adopted at a regular meeting provided by law, of the City Council of the City of Anaheim held on the 13th day of March, 1990, by the following vote of the members thereof: AYES: COUNCIL MEMBERS: Daly, Ehrle, Kaywood, Pickler and Hunter NOES: COUNCIL MEMBERS: None ABSENT: COUNCIL MEMBERS: None AND I FURTHER certify that the Mayor of the City of Anaheim signed said Resolution No. 90R-73 on the 14th day of March, 1990. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the City of Anaheim this 14th day of March, 1990. (SEAL) I, LEONORA N. SOHL, City Clerk of the City of Anaheim, do hereby certify that the foregoing is the original of Resolution No. 90R-73, duly passed and adopted by the Anaheim City Council on March 13, 1990. CITY CLERK OF THE CIT~OF ANAHEIM 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. 905,-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 duly authorized, and their official seals to be hereto affixed, all as of the date first above written. Chairman of the Board of Supervisors SIGNED AND CERTIFIED THAT A COPY OF THIS DOCUMENT HAS BEEN DELIVERED TO THE CHAIRMAN OF THE BOARD OF SUPERVISORS Clerk of the Board of Supervisors APPROVED AS TO FORM: County Counsel ANAHEIM REDEVELOPMENT AGENCY By ~ ATTEST: ~~Sec ret a r y~~~~ CITY OF ANAHEIM ATTEST: ~. City Clerk APPROVED AS TO FORM: A~en~ Counsel EXHIBIT "B" MCC PROGRAM SUM/~ARY 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 be 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 mortgage 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 $130,000 $130,000 Mortgage Interest Rate 10.75% 10.75% Term (years) 30 30 ~ Monthly Mortgage Payment (P&I) 1,214 $ 1,214 Mortgage Credit Certificate Rate N/A 233 Monthly Credit Amount N/A N/A "Effective" Monthly Mortgage Payment $ 1,214 $ 981 "Effective" Interest Rate 10.75% 8.2% Note: The effective interest rate is calculated by applying monthly payment to the original loan amount and term. What happens to the tax deduction for mort~aqe 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 c~/alified 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 homebuver 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 applicant adjusts the W-4 form or not, the tax credit will have to be listed when filing federal income tax returns. ~How does a homebuver apD1v 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 localitv create an MCC proqram? a. 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. b. During the 120 days, the locality designs the program criteria, develops program procedures and marketing materials. c. 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 program Datameters? Income: The program is limited to households with the annual incomes adjusted by family size: Family 1-2 100% of median $46,900 Family 3-4 115% of median $5~,935 Purchase Price: MCC purchase prices are limited to the following: Existin~ Homes 90% of IRS published average sales price $198,718 EN-ExB 2/12/90 EXHIBIT "C" MCC PROGRAM DESIGN BUDGET ORANGE COUNTY ANAHEIM SAHTA 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 doas not include program administration costs. Staff Time and Overhead Orange County staff costs. $ 15,000 Financial Advisor Assistance with design, document preparation and implementation of program $ 25,000 $ 2,500 Tax Attorney Review procedures manual and procedures for compliance with IRS rules $ 15,000 Miscellaneous Telephone, copying, form printing and contingency $ 5,000 CDLAq Fee $ 6,250 TOTAL $ 68,750 (~ 5) Cost per City and County $ 13,750 CDLAC Deposit 1% of Requested Authority $250,000 (~ 5) Cost per city and County $ 50,000 EN-ExC 2/13/90 EXHIBIT "D" 1990 MORTGAGE CREDIT CERTIFICATE PROGRAM Schedule Date Action By February 12, 1990 o Meet with Cities to discuss program guidelines, procedures and program costs. February 27, 1990 o Cities and Counties approve resolutions of cooperation, application and deposit to the State for allocation. February 28, 1990 o Board of Supervisors approves resolution. March 1-15, 1990 o Finalize MCC program design. o Submit CDLAC application. March 1-10, 1990 o Submit application to CDLAC with necessary deposit certifications. April 30, 1990 o Attend CDLAC meeting. o Receive allocation. May 30, 1990 o Issue first MCC EN-ExD 2/12/90