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HomeMy WebLinkAboutMINUTES - 06231992 - IO.4 TO: BOARD OF SUPERVISORS , I 'O.-4 .. Contra FROM. INTERNAL OPERATIONS, COMMITTEE �` < Costa June 15 1992 County DATE: � GrTd' � SUBJECT: APPROVAL OF FIRST TIME HOMEBUYER PROGRAM FOR -THE WEST PITTSBURG AND OAKLEY REDEVELOPMENT PROJECT AREAS SPECIFIC REQUEST(S)OR RECOMMENDATION(S)6 BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1 . - Approve the .First Time Homebuyer Program as outlined in the attached staff. report dated June 15, 1992, including the "loan program with silent second mortgage" feature rather than the shared .equity features originally suggested for the reasons outlined in the attached report 2 . Determine that the affordable housing requirement of Health & Safety Code Section 33413 will be met for the programs under - consideration by providing that the ten year restriction period will begin again with each resale of- the property so as to try to insure that the property remains affordable throughout its useful life. I. Request the Redevelopment Agency staff to bring all necessary paperwork to the Board of Supervisors to implement the First Time Home Buyer Program. for the Pittsburg and Oakley Redevelopment Project Areas as soon . as feasible. 4 . Remove this item as a referral to the Internal Operations Committee. BACKGROUND: Our Committee has been working on various strategies for providing affordable housing in the County for some time. The attached program .has been developed by staff in the Community Development Department and Redevelopment Agency over the past several months . We now believe that the program is developed in sufficient detail that we can recommend it ,to the Board for approval -so staff can prepare the necessary implementing documents for presentation to the Board of Supervisors_. CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY I RECOMMENDATION OF BOARD COMMITTEE APPROVE HE SIGNATURES ACTION OF BOARD ON APPROVED AS RECOMMENDED X OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE UNANIMOUS(ABSENT ' ) AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. CC: Community Development Director ATTESTED 9 4 2- Deputy Redevelopment Director PHIL SATO LOR,CLERK OF THE BOARD OF Carole Norris, Principal Planner SUPERVISORS AND COUNTY ADMINISTRATOR Redevelopment Agency County Counsel M382 (10/88) BY DEPUTY I .O.-4 -2- The one remaining major policy issue was whether to renew the 10 year resale control provisions each time the home is sold so the home remains affordable, although the County is unlikely to recover its loan in the foreseeable future, or whether to have to resale control extend only for a total of 10 years, following which the owner would be responsible for beginning to repay the second mortgage to the County. This latter provision may return some of the money for future loaning, but it removes the home from the affordable housing market in most cases . In addition, there is no assurance that the- County will recover enough of its money soon enough to actually be able to benefit another party in the future. It appears to be of more longterm value to the County to have to housing unit remain "affordable" for the useful life of the home - at least 30 years. Thus, we are recommending that the 10 year resale control be renewed with each resale of the home, meaning that each subsequent buyer would have to qualify as "low-income" . The details of the First Time Home Buyer Program which are outlined in the attached memorandum report from staff are considered to be an integral part of this report and are not, therefore, repeated in the body of the report itself. CONTRA COSTA COUNTY REDEVELOPMENT AGENCY DATE: June 15 1992 TO: Internal Operations Committee FROM: Carole Norris Principal Plan SUBJECT: SECOND DRAFT FIRST TIME HOMEBUYER PROGRAM FOR THE WEST PITTSBURG AND OAKLEY REDEVELOPMENT PROJECT AREAS. The following program outline attempts to integrate the comments of the Internal Operations Committee (IOC) into a demonstration First Time Homebuyer Program in West Pittsburg and Oakley. For the most part, staff has been able to design the program within the confines of IOC comments. However there is one area where this has not been accomplished. Since the last IOC meeting, staff has received further clarification from legal counsel regarding a section of redevelopment law (Section 33413) , which require that Redevelopment Agencies ensure that 15%of all new and rehabilitated housing in each of the project areas be made affordable to persons and families of low and moderate income. In order to comply.with this section, agencies must produce housing units which remain affordable for a minimum of 10 years for homeownership housing and 15 years for rental housing. These affordability requirements must be recorded and remain in place for the minimum required period. State law does not specifically require an agency to use its housing set-aside to meet its housing production requirements. However, given the lack of a countywide inclusionary zoning ordinance which would require that individual developers provide a minimum number of affordable/resale controlled units, it seems prudent to do so. Other possible alternatives might be: 1) to require such inclusionary units only in redevelopment areas which would have a chilling effect on the Agency's efforts to spur new development, or 2) to find another source of funds to build affordable units in Redevelopment Areas, which seems unlikely with existing budgetary constraints. In order for The First Time Homebuyer program to meet the agency's obligations under Section 33413, it should be targeted to either new development, or substantially rehabilitated units whenever possible and the program should include the required resale control provisions. Staff has attached its initial analyses of this law for IOC information. The requirements contained in Section 33413 lead staff to recommend that the First Time Homebuyer Program be designed as a loan program with a "silent" second mortgage, rather than the equity share originally discussed. The loan would be assumable by subsequent "eligible purchasers" as long as the resale control provisions remain in place. It would include a substantial financial penalty for a "non-eligible" sale, during the ten year affordability period. Staff has come to this conclusion for the following reasons: 1. A loan program is straightforward and easily understood by a purchaser. 2. It meets FannieMae requirements, thus making it a desirable program for most lenders. 3. The equity share approach assumes that the property will be sold at market value and that the agency will assume a share of that value. It cannot easily be massaged into a program which requires resale controls. . The remainder of this "memo outlines a program as described above. We have underlined areas in which the IOC expressed strong preferences or'concerns. 1. Family and Income Targeting Eligible participants in the First-time Homebuyers Program will be first-time purchasers, defined as those who have not owned a home within the past three years, who currently either live or work in Contra Costa County. The program will be marketed primarily within the public service employment sector, and will provide a preference for those persons working in public service. If sufficient buyers do not.emerge, the program will be advertised more broadly. The income range for eligible families will be a minimum of 65% to a maximum of 100% of Oakland Primary Metropolitan Statistical Area (Alameda and Contra Costa Counties) Median Income. The income eligibility range therefore would be as follows: 1 person 2 person 3 person 4 person 650 of Median $21,320 $24,310 $27,360 $30,420 100% of Median $32,800 $37,400 $42,100. $46,800 2. Maximum Assistance Maximum Assistance will be $50,000. 3. Structure of Program The Redevelopment Agency will provide financing.in the form of a second mortgage to fill the gap between the purchase price of the home and the amount the homeowner can afford based on his/her income level. In this way, the Agency provides just enough subsidy to make the home affordable to the low or moderate income homebuyers. The amount of the Agency second mortgage will be calculated to equal the difference between the home purchase price minus the sum of the lender first mortgage plus the homeowner's equity contributions. The amount of the expected lender mortgage can be determined by affordability criteria under California Redevelopment Law, as shown on the affordability chart below. A minimum 5% downpayment will be required; higher equity contributions will be encouraged. The Agency will consider a grant up to 2% of the downpayment for families between 65% - 80% of area median who can demonstrate the need for downpayment assistance. Criteria will be established by staff The maximum home price would be a function of income range and maximum assistance. Using a 5% down payment and maximum mortgage payments allowed under California Redevelopment Law affordability criteria, the maximum home prices for a family of four are $145,350 for families between 65%and 80% of area. median, and $243,050 for families from 81% to 1000 of area median. Maximum home price could exceed these limits if the purchaser can make more than a 5% down payment. Using the criteria for affordability under California Redevelopment Law, the following affordability chart is an estimate of the potential subsidy necessary for the targeted income groups at home prices between a low of $125,000, and the maximum allowable price. This chart assumes an 8.5% interest rate, a 5% down payment and closing costs at 4%. For families at 65% to 80% of area median, the subsidy required ranges from $38,350 for a home at $125,000 to the maximum of $50,000 for a home at $145,350. For families at 81% to 100% of area median, a subsidy is not required unless the home sells for over $193,050 ($184,275 mortgage plus $8,775 down payment) . When the program is actually operational, the lender will make the determination of the maximum first mortgage. The Agency will then provide the subsidy, up to the maximum amount available, to fill the gap between the home purchase price and the maximum mortgage. To the degree that this program can be used with the MCC Program, the amount of subsidy will be reduced. Affordability Level 65% -80% of Median 81% - 100% of Median Fair Market Value 1251000 145,350 125,000 243,050 Affordable Price 91,000 91,000 184,275 184,275 Estimated 5% 43-350 4,350 8,775 8,775 Downpa merit Estimated Closing Costs @ 3,480 3,480 7,020 7,020 4% Total Paid by Buyer 7,380 7,380. 15,795 15,79 1st Mortgage 86,650 86,650 175,500 175,500 Agency 2nd Mort a e 383,350 50,000 0 50,000 IIl. Type of Assistance /Resale Controls The Agency subsidy will be in the form of a loan. Payments of principal and interest will be deferred until sale or transfer of the property. The loan will be assumable by a purchaser eligible under the program criteria. There will be a significant pre-payment penalty should the property be sold to a non- eligible purchaser within the first ten years of the program. The Agency loan will be secured by a promissory note and deed of trust. The Agency's mortgage will be in second position to the private lender mortgage financing; the Agency will only subordinate to any other loans or mortgages if the owner can demonstrate that the proportional security of the agency loan is no less than when the original loan was made. The purchase price of the property to an eligible purchaser will be the lowest of: A. The appraised value. B. The Owner's purchase price plus a percentage increase tied to median income. C. In no event shall such adjustment reduce the purchase price below the Owner's original purchase price. The purchase price will be adjusted by any approved capital improvements over a set limit. After a family has resided in a property for 10 years, the resale restriction agreements will become null and void. Agency Loan The financing that the Agency provides will be structured as a loan..The loan will accrue interest over time. All payments of principal and interest will be deferred. For the first ten years, the loan plus interest will only become payable upon sale, transfer or assignment of the property outside the resale controls. As indicated above, the contingent interest will be at a rate that includes a substantial prepayment penalty as a deterrent to selling outside the resale controls. After the ten year resale restriction period, the interest representing a pre- payment can be waived; and the loan can continue to accrue interest at a more reasonable rate. Principal and interest can continue to be deferred until sale, transfer or assignment of the property. The ten year resale restriction period can either begin with the initial date of sale and run for a ten year period regardless of how many times the property changes hands, or begin newly with each sale. IV. First Mortgage Financing The Agency will establish a partnership with a private lender to provide the first mortgages on favorable terms. This will be done through a competitive process. The Agency will seek 30 year fixed rate mortgage financing. The Agency will work with FannieMae staff to ensure that the lender mortgages will meet all FannieMae requirements. The Agency will perform the program marketing through written materials, the real estate broker community and other publicity. Homebuyers who meet the general program criteria will be asked to file an application with the lender chosen for the program; the lender will perform the full credit approval. V. Scope of Program The initial commitment by the Agency to the program will be approximately $1,000,000. The amount of lender financing that will be required is estimated to be $4,000,000.