No on Prop 37: Sacramento Wants to Be Your Second-Mortgage Lender

A $25 billion state-run mortgage program, written by the real estate lobby and sold as “zero cost to taxpayers.” The fine print says who really holds the bag.

I pay my own mortgage. So do you. The money comes out of a paycheck that was already taxed once on the way in, and it goes to a bank every month for the privilege of a roof over my family. Nobody co-signed for me. Nobody handed me 17 percent of the purchase price. I scraped it together, the way working Californians have always done.

On November 3, voters are being asked to make the State of California a $25 billion mortgage lender for other people. That is Proposition 37. Its backers — the California Association of Realtors, the building-trades unions, and former Assembly Speaker Bob Hertzberg — want you to believe it costs you nothing. Before you take their word for it, read what the measure actually does, who wrote it, and what “no cost to taxpayers” really means when the state gets into the lending business.

What Prop 37 actually does

Strip away the campaign language and Proposition 37 is a lending program. It authorizes the California Housing Finance Agency (CalHFA) to issue up to $25 billion in revenue bonds and use the money to write second mortgages for homebuyers. The buyer puts down at least 3 percent. The state writes a second mortgage for up to 17 percent of the price. A private bank writes the first mortgage for the rest. The buyer then makes two mortgage payments every month — one to the bank, one on the state loan.

The loans are limited to newly built homes (or units newly converted from commercial buildings) where the buyer is the first purchaser. The buyer must have lived in California for a year, must occupy the home, and must earn no more than twice the area median income. The price cap is roughly $1 million to $1.5 million depending on the county, adjusted every year.

Think about those limits for a second. A couple earning well into the $200,000s — in some counties more than $300,000 a year — qualifies as “middle class” under this measure. The home can cost up to $1.5 million. And it has to be new construction. This is not a program for the family in a Canyon Country apartment trying to buy a 1970s tract house. It is a demand pump aimed squarely at the inventory that homebuilders and Realtors are trying to move.

“Zero cost to taxpayers” — read the fine print

Let us be precise, because the Yes campaign is counting on voters not to be. Proposition 37 does not raise your taxes. It does not take money out of the General Fund today. The bonds are revenue bonds, not general obligation bonds, which means the state’s budget is not legally pledged to repay them. The Legislative Analyst’s Office says the measure would have no direct state or local cost because borrowers are supposed to repay the bonds through their loan payments. The official voter guide prints that line, and the Yes campaign repeats it in every ad.

That claim is true exactly as far as it goes, and not one inch further.

“No direct cost” is an accounting statement about today. It is not a promise about what happens when a $25 billion book of second mortgages — the riskiest slice of any home loan, the part that gets wiped out first when prices fall — goes bad. Second liens on 3-percent-down purchases of top-of-market new construction are precisely the loans that failed in 2008. The Hoover Institution’s analysis of the measure puts it plainly: the “no cost to taxpayers” claim holds only if borrowers repay in full, and what the measure really creates is what public-finance analysts call a moral-obligation or contingent risk. The nonpartisan League of Women Voters, which opposes the measure, notes the same thing in fewer words: if borrowers default, there may not be enough money to repay the bonds.

So who eats that loss? On paper, the bondholders. In the real world, the bonds carry the name of a California state agency. When a state housing agency’s bonds start defaulting, two things happen: every other bond the state tries to sell gets more expensive, and the Legislature faces enormous pressure to make investors whole so the state’s credit does not take the hit. That is how a “no cost” program becomes a taxpayer cost — not by a tax on the ballot, but by a bailout vote in Sacramento five years from now, after the people who wrote this measure have cashed their commissions.

CalHFA also has to square a circle that nobody in the Yes campaign wants to talk about. To sell $25 billion in bonds backed by risky second liens, it has to offer investors a return that compensates for that risk. To make the program attractive to buyers, it has to lend at a rate below what the market would charge for the same loan. The California Budget & Policy Center — no conservative outfit — warns that the Prop 37 second-mortgage rate could land above the roughly 6.5 percent buyers already pay on a conventional first mortgage, and that the monthly cost of the second loan could erode much of the help the program was supposed to provide. The Legislative Analyst itself lists investor demand and borrowing costs as the measure’s major unknowns. Voters are being asked to approve a loan program without knowing the interest rate, the term, or the monthly payment.

Who wrote it, and who gets paid

Follow the money. The sponsor is the California Association of Realtors, which has told its members in writing that it is sponsoring Prop 37 and is recruiting “Prop 37 Ambassadors” to mobilize agents before Election Day. The Carpenters union and the nurses union are on board. The initiative is restricted to new construction, and it ties builder incentives to labor standards. Every dollar it lends is a dollar that lands in a transaction with a Realtor on each side and a builder at the closing table.

There is nothing illegal about an industry writing a ballot measure that pumps $25 billion of state-backed credit into its own product. But do not call it a middle-class housing program. Call it what it is: a demand subsidy for the people who sell new homes, with the risk parked on a state agency’s balance sheet.

And note what the Yes side chose not to do. The California Budget & Policy Center points out that because revenue bonds do not require voter approval, this entire program could have been created by the Legislature or by CalHFA on its own. It went to the ballot instead — where a campaign funded by the industry gets to define the terms, and where, as it turns out, no argument against Proposition 37 was even submitted for the official voter guide. Nearly every California voter will open their ballot pamphlet and see one side of this question.

Subsidizing demand in a supply crisis

California does not have a down-payment crisis. It has a supply crisis, manufactured over decades by the same Sacramento establishment now asking you to fix it with more borrowed money. CEQA abuse, impact fees, permit timelines measured in years, and prevailing-wage mandates have made it almost impossible to build an ordinary house at an ordinary price. Prop 37 touches none of that. It does not cut a single fee or shorten a single permit. It adds buying power.

Any first-year economics student can tell you what happens when you add $25 billion of credit to a market that cannot add supply: the price goes up. The builder who knows that his buyer can now bring 20 percent to the table instead of 3 percent will price the house accordingly. The subsidy gets capitalized into the sale price, the buyer carries two mortgages instead of one, and the Realtor’s commission — a percentage of that higher price — grows. The program is designed to help the people who sell homes more than the people who buy them.

“Help” that means deeper debt

The down-payment barrier is real. It is also, for most families, the last honest signal left in the housing market: if you cannot save 10 or 20 percent, you probably cannot afford the house. Prop 37 does not remove the barrier. It replaces savings with a second loan. The buyer still owes the money — now with interest, on top of a first mortgage, property taxes, insurance, and maintenance. The League of Women Voters, which spends most of its time on the other side of the aisle from this newspaper, opposes the measure for exactly that reason: it gets more people into homes only by putting them deeper into debt, on terms they will not know until after they vote.

We have run this experiment before. Low-down-payment lending with the risk shifted onto a government-linked entity was the engine of the 2008 collapse. It ended with millions of families underwater, the Treasury writing checks to Fannie Mae and Freddie Mac, and the people who structured the loans long gone. California now proposes to do the same thing with its own housing agency and call it compassion.

The fairness question nobody in Sacramento will answer

Here is what the Yes campaign cannot explain. Millions of Californians did it the hard way. They rented longer than they wanted to. They drove the old car. They saved the down payment out of after-tax income and they make the payment every month out of after-tax income. Prop 37 tells those people that the state will now lend 17 percent of a $1.5 million house to a household earning $300,000 a year — and that if the loan goes bad, the state’s name is on the bonds.

Government has no business being anyone’s second-mortgage lender. Not because helping families is wrong, but because a state that writes $25 billion in risky loans has created a $25 billion reason to make taxpayers cover them later. That is the honest version of “my taxes will pay for someone else’s mortgage.” It will not happen on November 3. It happens the day the defaults start.

What supporters say

In fairness, the case for Prop 37 is not nothing, and readers should hear it. Supporters — including the California Democratic Party, State Treasurer Fiona Ma, State Controller Malia Cohen, gubernatorial candidate Xavier Becerra, the Realtors, the Carpenters and the United Nurses Associations — argue that the down payment is the single biggest wall between working families and ownership; that the program is a loan, not a grant, repaid by the people who use it; that private lenders and bond investors, not the General Fund, carry the default risk; that limiting it to new construction will spur building rather than bid up existing homes; and that the measure carries audit and transparency requirements. The California Republican Party has taken no position. The NO case made here is that every one of those assurances depends on the loans performing, and that voters are being asked to bet $25 billion of the state’s credit on it.

The vote

A NO vote on Proposition 37 does not take anything away from anyone. Existing state down-payment programs continue under current law. What a NO vote does is keep California out of a $25 billion mortgage business it has no business being in, written by the people who profit from it, with the risk parked where it always ends up.

Election Day is Tuesday, November 3, 2026. Good Shepherd Media recommends a NO vote on Proposition 37.