Long Beach Post
By Jason Ruiz
Buying a home in Long Beach is…hard. And with the average home price well over half a million dollars in a city where rents are also increasing each year, it’s becoming more difficult for those who want to make the jump from renter to buyer.
A proposal made by a group of city council members in February will look to make the path to home ownership a little less murky and more accessible to those who want to make the leap by finding creative ways to help buyers with their down payment, as well as secure less-pricey mortgages by partnering with non-traditional lenders. The Los Angeles-Long Beach-Anaheim region was ranked among the least affordable markets for homebuyers by Zillow last week with its recent market overview of the region putting the average home value in Long Beach at $579,000.
That figure represents a 7 percent increase from January 2017. During that same period Zillow’s data shows that rents have increased by 3 percent with the median Long Beach rental running about $2,200 a month. With rents and home values both going up renters are being squeezed at both ends as they try to save money for a down payment for a home or condo in the city.
Vice Mayor Rex Richardson, the lead author of the motion that is seeking to help build a bridge from renting to owning, said what multiple reports and surveys over the past few years have verified: people want to buy but the prospect of saving nearly $100,000 has dwindled as the cost of living has increased. Doing that, he said, could help close the wealth gap between minorities and whites in the city, who own homes at nearly twice the rate of blacks and Latinos.
“The average person may be able to make the payment but without assistance with the down payment from a family member, another property to pull equity from, other investments…that’s [buying a home] almost impossible,” Richardson said. “But, cities are figuring it out.”
And he wants Long Beach to figure it out, too.
With the dissolution of the redevelopment agency the city lost much of its funding to financially help potential homebuyers through down payment assistance. But Richardson wants the city to get creative and partner with nonprofits and non-bank lenders, the leading source of home loans in Long Beach.
According to The Greenlining Institute’s December 2017 report titled State of Gentrification: Lending to People of Color in California, institutions like Broker Solution, Loan Depot and Stearns Lending dominated loan originations for homes sold to people of color in Long Beach in 2015. Unlike traditional banks, Richardson said the city has yet to reach out to these entities to discuss partnerships to encourage home buying in the community.
Traditional banks, like Bank of America and Wells Fargo were the only two to make the top 10 lenders in the city for loans, and two of three banks to make the top 10 list for refinancing in Long Beach.
Vedika Ahuja, an economic equity senior manager with The Greenlining Institute and co-author of the report, said this is happening for a variety of reasons including tighter regulations passed in the wake of the financial collapse in 2007 that has made securing a loan through a traditional bank much harder.
But her work noted a separate problem within Long Beach across all lenders, that loans originated in low- to moderate-income census tracts were not matched up with low- to moderate-income borrowers. On average the percentage of loans generated in those census tracts (27.6 percent) far outpaced the number of low to moderate income people (5.8 percent) acquiring them.
“So, essentially all the people who are getting those loans are upper and middle income people, not the people who traditionally lived in that neighborhood,” Ahuja said. “Richer folks are moving in and driving prices across the board which includes rent, which has skyrocketed across Long Beach, and home values as well. A lot of things can be done to combat that gentrification.”
The Greenlining Institute is a play off of the term “redlining”, a practice that was employed by financial institutions in the past that took the form of refusing or limiting loans in specific regions of cities, mostly inner-city neighborhoods. Ahuja said the predatory subprime loans that preceded the financial collapse of the mid-2000s was a type of reverse redlining that has decimated wealth among low-income brackets and people of color in particular.
She said now as banks were forced to correct through tighter regulations it has become increasingly harder to qualify for those who were impacted most by the housing market collapse.
To navigate these added hurdles it takes extra help for those with less resources to jump through the hoops that precede entering and closing escrow.
Lori Gay, chief executive officer of Neighborhood Housing Services (NHS) of Los Angeles County, said education plays a pivotal role in ensuring that those who do qualify know what they’re getting into, and that the advice they’re getting is sound.
NHS is the largest affordable home ownership provider in the region and works to buy, keep, sell, refurbish and even develop affordable units. The latter takes the most time and tends to be the most expensive.
They run workshops to help people understand the home buying process and serve as a concierge of sorts to navigate them through options that could lead to smaller and more affordable mortgage payments.
Gay said that credit score, income and savings are always the “big 3” when it comes to buying a home but the affordability aspect of the market has continued to get worse. She said while most people have “beer budgets” and “champagne tastes” in terms of where they’d like to live, those “beer” neighborhoods are drying up.
Adding to that are the findings shown in the Greenlining report, that non-bank lenders are exceedingly filling the credit needs of individuals which are also driving costs up for those who can’t qualify for loans from traditional banks.
“You’d generally seek out that product [mortgage companies] if in fact you had poorer credit and/or you needed to qualify for more because your income was a little lower,” Gay said. “But you’re going to pay for the privilege of that because the mortgage insurance is set up at a premium. It’s not cheap.”
Gay said that through working with non-bank lenders and getting creative, NHS can save buyers anywhere between $7,000 and $15,000 at the close of escrow. That can be huge for most buyers who don’t have 20 percent of a home’s value to put toward a downpayment, something she said about 95 percent of her clients don’t have.
Part of Long Beach’s plan could be to help leverage funds to get people closer to that number. During a presentation last month Santa Ana was referenced as one example of how that could be done as a city.
It works with NeighborWorks Orange County (NWOC), a non-profit organization that promotes housing opportunities and financial responsibility in the region. Through its WISH program, NWOC will match borrowers down payment money 3-1 (up to $15,000) in an effort to help them get closer toward owning a home. The city itself also offers up to $40,000 in loans to buyers with no interest on a first-come, first-served basis.
In its 2016 annual report NWOC boasts having helped 179 families purchase a home while starting over 400 others on that path. Karla Lopez del Rio, NWOC vice president of strategic partnerships, said that the WISH program has been used for decades by the organization and has helped get hundreds of families out of renting and into homeownership.
However, she said that the WISH program’s limitations are quickly being exacerbated by rising housing costs in the region.
To qualify for the program a person must be a first-time buyer, be pre-qualified for a mortgage, live in Santa Ana and have 3 percent down from their own funds. But a borrower cannot make more than 80 percent of the area median income (AMI)—about $58,000 for one person, $66,800 for two people—and the home value cannot exceed $499,000.
She said that in the past her organization has been able to layer funds from the WISH program and other state programs like CalHome to piece together downpayment assistance approaching $70,000, but with the growing number of people applying for the funds and strict income and home value restraints it’s become more difficult to find people and properties that can qualify at the current AMI standards.
“If they’re [city officials in Long Beach] really committed to home ownership and giving their constituents the chance to build wealth, the WISH program is not going to bridge that gap,” Lopez del Rio said. “We have to have a bigger conversation with cities about high rents and the rising cost of living.”
Any approach to making homeownership more approachable in Long Beach will likely require an offensive on many fronts from city leaders. Partnering with groups like NHS and NWOC, establishing inroads with non-bank lenders, seeking out of state and federal grant money and educating buyers of these opportunities will all be necessary. But Richardson said its a task worth tackling as homeownership has the ability to lift up families for generations.
“Bottom line is if we’re able to help even one family get assistance with their downpayment to own a home and achieve a life dream, be able to build equity, put one person through college…it’s going affect their whole family,” Richardson said. “It’s going to have a social and economic impact on their whole family.”