CAN THIS FIX THE HOUSING MARKET

SPEAKER_1 (0:00)

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Michael Zuber (0:30)

All righty, folks. Has California finally figured out how to get more folks in the homes? Well, something is going on the ballot. November 1st, Proposition 37

It is called the Middle Class Home Ownership and Family Home Construction Act. We're going to talk about what it is, what it isn't, is it going to help, is it not? But again, folks, pay attention. They are clearly trying to tackle the unaffordability in housing.

Now going on the November 1st ballot via Proposition 37 Matt, I know you've done some digging, some poking around. Tell us more. What is Proposition 37?

Matt (1:08)

Right. This just came on my radar yesterday. California Association of Realtors, local Sacramento Realtors, I support them. They're business partners of mine in a certain sense. And so some great involved Realtors in the area kind of pitched this yesterday and said, this is something that we're in support of.

Prop 37 And I think the thing that they were trying to push yesterday is this isn't going to be something that cost taxpayers. And if I can find my note, the way that it doesn't, because everybody's like, oh, yeah, right, it doesn't cost taxpayers.

It's funded through revenue bonds. So people buy these bonds, and those are kind of the bag holders. It's not that, you know, this thing failed.

Michael Zuber (2:02)

So first, let's break it down. Instead of how it's funded, what is this? And essentially, folks near as I can tell, complete outsider, this is they basically said people don't have enough for the down payment. And when they do, they come in with 5% and then they're hit with PMI, which is just an extra cost. So what it looks like this proposition is going trying to do is trying to work around PMI, where California essentially steps into second position, giving you 17%, thus meaning an owner, assuming it qualifies, assuming it passes, could bring as little as 3% down.

So we're basically lowering down payments again, and getting around PMI, which stands for private mortgage insurance. So help me understand why this isn't just risk on top of risk. Again, PMI is there for a reason. It's only on the most risky loans or the least skin in the game. And now we're just creating second mortgages funded by the state or funded by these revenue bonds. How, help me understand why we're not solving one problem only to create another problem.

Matt (3:14)

Right. And I get your point.

So, let me, from a point of view of the people in favor of this, which I see there are people.

Michael Zuber (3:22)

I may or may not be in favor. I'm not sure yet. I'm just asking questions.

Matt (3:25)

Right. Because I honestly see both sides. And so, in favor of it, you look at the average home buyer in California, and a $600,000 house to save $120,000 plus closing costs is going to take them a decade. You know, so a starting nurse or somebody else, and like I talk to these people every day, so I know this is a problem. And solving where, if you bought that house for $600,000 with 3% down, the mortgage is out of reach. That payment is just too high. And so, it doesn't completely solve it, right? Because you're still paying an interest rate on that 17%. I don't know what it is yet.

4%, 5%, it's subsidized.

Michael Zuber (4:08)

So, that's one thing you just said I want to hit again. It is rumored or written in there that the 17% second is a reduced interest rate. So, for example, in today's market, you might get a 7% first. In a normal market, a second would be 9%, 10%, 11%.

What you're saying here is the second will be an artificially low rate, thus creating a blended interest rate that might be more palatable. Is that correct?

Matt (4:31)

Right, plus $200 or $300 a month that you're not paying in private mortgage insurance. So, it's making the home more affordable. And really, I think the bills thing is affordability and availability because, of course, they do a study and they say, we create this demand. Me and you understand, you come in with bags full of money, $25 billion.