Is Taxpayer-Funded $150,000 Home Loan Asisstance to Undocumented Immigrants A Good Idea?

 

September 23, 2024

Recently, the California Assembly and State Senate approved AB 1840, a measure introduced by California Assemblyman Dr. Joaquin Arambula (D-Fresno), which would allow undocumented immigrants access to a state program that provides interest-free loans up to $150,000 to cover down payments for new home purchases. The program originally aimed to allow more Californians to own a home.  Unsurprisingly, many media outlets, including X owner Elon Musk, picked up the story and ran with it. Governor Gavin Newsom, cognizant of how this looks to potential voters in a Presidential Primary, has vetoed the bill.

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Assemblyman Arambula created this bill to enhance the California Dream for All (CDA) program. It was designed to give state residents in the lower socioeconomic tiers access to capital to assist their desire to own homes.  According to its website, the CDA is administered and run by the California Housing Finance Agency (CHFA), which generates revenue through mortgage loan repayments, rather than taxpayer money, which proudly says it has a self-sustaining business model. The CHFA uses a concept called the "shared appreciation loan," in that borrowers do not pay interest.  Rather, when they ultimately sell the home, the homeowner only has to pay back the original loan amount, plus 20% of the appreciation of their property. An ABC News story explained that the loan covers 20% of the purchase price, or up to $150,000 to cover a down payment or closing costs.

The article states that the loan must be paired with a 30-year fixed interest rate first mortgage from the CHFA and the recipient of the loan assistance only has to make payments on the shared appreciation loan once the first mortgage is paid off. The program began with an initial amount of $500 million, but the agency blew through $300 million of that money within 11 days. It seems to be a very naked attempt to win the hearts and minds of an ever-growing, potentially powerful voting demographic to lean a certain way, ideologically.  However, California is a solidly safe state that votes overwhelmingly for the Democrats, so this statewide home loan initiative doesn't make too much sense.

California was one of the first states, in conjunction with a goal of the Democratic party, to give Americans in the lower economic tiers access to homeownership and to build on generational wealth to pass on to their descendants. Those good intentions were the basis for the 2008 financial crisis. It resulted from the aggressive nature of loaning money to people who could not repay their obligations. While I think that is a noble goal with kind-hearted benevolence, the task is troublesome and as the saying goes, "the road to hell is paved with good intentions."  The consequences of an action can be far different from what is hoped for.

It would be interesting to know why this bill was even introduced in the state legislature, but vetoing the measure was an easy call. I don't pretend to know Governor Newsom's intentions, but I suspect one of the reasons may have to do with his presidential political aspirations. This is why most likely he will also veto a measure that was introduced by State Senator Maria Elena Durazo (D-Boyle Heights), which would allow undocumented immigrants to receive unemployment insurance. While citizens of the state are struggling in this economy, providing additional, tangible benefits to non-citizens won't win any support from independents and conservatives if you do want to win higher office. The Republican party would likely hang those signatures around the neck of his presidential aspirations.

The process of getting a home loan requires a dependable income over a necessary period, healthy savings, good credit, valid social security numbers, IRS tax records, and thorough vetting by banks. Many American citizens cannot qualify using that criteria.  So what do Assemblyman Arambula and others who supported and voted for this bill think undocumented individuals have metrics to qualify for the CDA? To own a home, is the "American Dream."  The original Dream for All program was designed to do this.  Expanding the language of the program to include undocumented immigrants for reasons not discussed publicly seems curious.

For the FY2024-25 fiscal year, the Legislative Analysts's Office of California projects a budget deficit of $68 billion (there are varying projection estimates from media publications). While Governor Newsom is trying to close the gap with tax increases and reductions in expenditures for other programs, AB 1840 is unlikely to make any improvement in revenue for local communities and the state.  The population for the updated CDA program is not large enough or financially secure enough to justify the generation of funds to offset deficits too much. 

Private equity companies in the United States are buying smaller, or middle-class homes in large numbers.  One of them, Blackstone, uses a subsidiary (Invitation Homes) to buy reasonably affordable homes with the intent of providing rentals to potentially deserving, aspiring homeowners, or young, married professionals buying in cities where jobs are plentiful such as Atlanta, Charlotte, and Phoenix. When large numbers of people move to those regions, having to rent initially before purchasing a home, is where these companies make their money from these home investments.  

Something similar could be happening in California.  It is the state with the largest number of undocumented immigrants in the country. AB 1840 could use the same principle that Invitation Homes does when buying those "middle-class" homes.  It will allow more people to access home ownership, which (it is hoped), would give the state legislature additional funds to pay off debt and move money to other areas. The CHFA would receive money once a home is paid off or sold, and redistribute that money back to the program (in theory) but this takes time, and with it comes uncertainty and opportunity for defaults and losses. Local cities would have revenue from property taxes to improve those communities.  This concept of undocumented immigrants having an easier method to buy a home than hard-working American citizens, and legal immigrants, who follow the rules seems unfair though.

The most likely reason that AB 1840 was introduced and passed in the California legislature was primarily financial, in that counties throughout the state see this as a way to generate revenue from property tax, regardless of who buys the home, or how it was financed. Additionally, owning a home creates demand for surrounding businesses to help maintain that home (HVAC, plumbing, gardening, general contracting), which in turn generates sales and income taxes for supply chain items and increased staffing for those businesses on a micro level.  The larger question is whether these individuals are capable of financially sustaining this model.

This measure needs in-depth investigation so that the real intent and agenda of this bill can be brought into the public sphere for the sake of transparency. The activists and supporters of AB 1840 will probably fight to have this bill re-introduced with either a different governor or a more supportive Democratic president in the future. What better time than now, to find out why this needed to be introduced and came within a whisker of being law.