HomeMy WebLinkAboutAGENDA REPORT 1986 0106 CC REG ITEM 11B i .
LAW OFFICES VSI&Tri /1
BURKE, WILLIAMS 8e SORENSEN
ONE WILSHIRE BUILDING
MARTIN J. oUwKC' THOMAS M. DOWNY
624 SOUTH GRAND AVENUE. II' FLOOR t[L[FIrONt: 12131 623-1000
GORGE W TAC/SASLOW PETER M.TNORSON LOS ANGELES. CALIFORNIA 90017 T2LCCOPICR: 12131 623.0297
J AMES T. ORAOSMAW JR.. NAROLO A GRIMES
MARK C. ALLEN,JR• CYI[RYL J (IANC
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B RIAN J. SCOW. SCOTT I I.. *1 December 20, 1985
TNONEIL F J. FC[LEN GRIM W L SIERRA ROYAL M. 505(115(11
NEIL F. YCAGCR• JOHN W OCI.C+ICR 11014-1963)
B RIAN A PICRIR• DANIEL D. LAUFCNOERG
.ATHCRIM( C. STONE. 6ENJAMIN B. KAUFMAN
CHARLES M. CALOCRON• MICNACI J. LONG
ELLEN M. 6(11OCR D.COUNUC.
0510117 A NEWELL
•F.OTCSSIONAL COA►BRAVO. GCORGC W. WAREFICLD
The Honorable James Weak and
Members of the City Council
City of Moorpark
799 Moorpark Avenue
Post Office Box 701
Moorpark, California 93021
RE: Mortgage Credit Certificates
Dear Mr. Mayor and Council Members:
At a recent meeting of your council, Councilwoman
Yancy-Sutton requested a report relative to recently adopted
mortgage credit certificate legislation. (A.B. 2297 ; Stats.
1985, Ch. 1399) . The bill was adopted as urgency legislation
and became effective on October 1, 1985
Summary of the Statute
Under existing federal law, there is a limit on
the total amount of qualified mortgage bonds (QMBs) that can
be issued to finance owner-occupied dwellings. The. Costa-
Marks Housing Bond Allocation Act of 1981 allocates the amount
of QMBs that may be issued annually in California among the
various units of state and local government.
The new legislation changes the name of that act
to the Costa-Marks Mortgage Bond and Credit Certificate Act.
This act implements provisions of the federal Tax Reform Act
of 1982 relative to mortgage credit certificates (MCCs) by
authorizing the state and local governmental units to es-
tablish MCCs programs. In order to establish such a program,
•
the issuer (i.e. , City of Moorpark or related authority)
must exchange all or part of its allocation of QMBs for MCCs.
In other words, the amount that can be issued in MCCs is not
in addition to the amount that can be issued in QMBs. MCCs
are subject to similar eligibility and target area require-
ments as QMBs. In order to determine whether more housing
can be subsidized through MCCs or through QMBs, a detailed
analyses must be performed on the specific alternatives
under consideration. Any exchange must be approved by the
California Mortgage Bond Allocation Committee.
The Honorable James Weak and
Members of the City Council
December 20, 1985
Page Two
Basic Differences Between QMBs and MCCs
The basic principal of a QMB is that the city
borrows money from investors at a reduced rate of interest,
because the investor is not required to pay on the interest
received on the bond. The lower interest rate is passed on
to the home buyer. The home buyer receives a tax credit for
the interest paid on his mortgage.
In contrast, a MCC is simply a device that permits
the home buyer to convert part of his interest payment from
a tax deduction to a tax credit. The credit is more valuable
to the home buyer, because it reduces his tax liability on a
dollar-for-dollar basis. For example, when a taxpayer is in
a forty percent (40%) bracket, a $1, 000. 00 deduction is worth
$400.00 to the home buyer, but a $1, 000. 00 credit is worth
$1, 000 .00 to the home buyer.
The MCC program does not involve the city in
borrowing money and relending it to the home buyer. Instead,
the city issues a certificate to the eligible home buyer.
The certificate specifies the information needed to calculate
the amount of credit that the home buyer can apply against
his federal income tax. The home buyer obtains his own loan
from any financial institution of his own choice at the best
interest rate that he can negotiate. Since the buyer does
not borrow from a bond issue, the interest rate will, in all
probability, be higher under the MCC program than it would
be under a QMB program.
Authority to issue MCCs is presently scheduled to
terminate on December 31, 1987 together with the authority
to issue QMBs .
Ver truly , ours,
Y1C21-"L—
CHERY4111 KANE
CITY ATTORNEY, MOORPARK; and
BURKE, WILLIAMS & SORENSEN
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