Laguna to Consider Home Loans for City Employees

Laguna Beach city employees who can’t afford to live there may soon be able to buy homes closer to work with city loans, the first program of its kind in California.

Permanent employees of the city could get low-interest second mortgages of up to $25,000 under the plan, which the City Council will consider Tuesday.

“I’m not aware of anybody else doing this,” City Manager Ken Frank said. The resort city, he said, has had a “serious problem” finding and keeping employees because of the housing costs.

“We have police officers who live in Riverside County,” he said. “If a job opens up out there, they leave us and take it. We just lost a police officer from out there who took a job in Garden Grove and cut his commute time in half.”

A rookie police officer in Laguna Beach makes $2,020 a month before taxes, a firefighter $1,855, a maintenance worker $1,530. Paychecks that size don’t go far in a town where the average home costs $225,000, and anything under $200,000 is “too small and maybe not suitable for young families,” said Rob Clark, assistant to the city manager.

Joni Culp, a research assistant for the League of California Cities, said several cities, including San Juan Capistrano and Santa Ana, make housing loans to attract top-level managers. But she said she knew of no city in the state that extended loans to workers at all levels.

Frank said the city needs to have a certain number of police officers, firefighters and maintenance workers living nearby so they can be called from home quickly in an emergency. “A couple of weekends ago we had heavy rains and called some workers out at 10 at night to deal with the problem. Most of them lived in the vicinity, but they bought their houses a long time ago before prices went up. Now, none of our younger people can live in the city.”

The Laguna Beach plan would not help workers buy houses in that city. Instead, the loans would be used to help any employee who qualifies buy one of about 500 affordable units built during the past five years in San Clemente, Dana Point, Laguna Niguel and Laguna Hills.

The city’s home loan plan also would help keep those 500 units in the county’s affordable housing stock, said Ralph Kennedy, a member of Community Housing Enterprises. That is a little-known group that oversees affordable housing along Orange County’s coast for the Coastal Commission.

Second Mortgages

“One of the major problems we’ve had is that when people who originally bought these units wish to sell them, the new buyers generally have to come up with fairly substantial down payments,” Kennedy said. “Since they have to qualify for affordable housing . . . it’s very difficult for them to do this.”

While new buyers can assume the original, low-interest loan on the units, they usually cannot afford market rates for second mortgages, Kennedy said.

“We have 60 days to find a qualified buyer for a resale unit,” Kennedy said. “After that, the owners can sell them themselves without any resale controls, and they escape from our affordable housing inventory forever.”

About 20 units, or roughly one-third of the units put up for resale, have been lost because of the financing problem in the last two years, Kennedy said, and second mortgage loans of $10,000 or $20,000 at “reasonable” rates would make the difference in many cases. “This simple program that Laguna Beach is considering has the potential of making our program work as originally intended,” he said.

Under the proposed plan, an initial limit of $150,000 in loans would be placed on the program, but Clark said that total could be increased if the program proves popular. The money would come from the city’s $10-million investment fund.

No points or fees would be charged on the loans, and the interest rate would be the average of what the city has earned on its investments during the previous three years, “two or three points below market rate,” Clark said.

The payments would be deducted directly from the employee’s paycheck.