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Home My WebLink AboutMINUTES - 07151997 - C58 - Contra ` Costa TO: REDEVELOPMENT AGENCY i J County FROM: Phil Batchelor Executive Director DATE: July 15, 1997 SUBJECT: Legislative Amendments for Loans to First-Time Homebuyers SPECIFIC REQUEST(S) OR RECOMMENDATIONS(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS AUTHORIZE the Chair to execute a letter to Assemblyman Torlakson requesting various amendments to the California Civil Code to better accommodate loans by redevelopment agencies to first-time homebuyers. FISCAL IMPACT No general fund impact. The proposed amendments would provide additional financial protection for redevelopment agency loans to first-time homebuyers. BACKGROUND/REASONS FOR RECOMMENDATIONS Redevelopment agencies in California currently run a variety of mortgage assistance programs for first-time homebuyers. The Contra Costa County Redevelopment Agency has active programs in North Richmond and Bay Point. A previous program provided first-time homebuyer assistance in Oakley. The form of financial assistance is generally in the form of a deferred second mortgage. The second mortgage is usually accompanied by a resale restriction in which the resale price is kept at affordable levels for a period of time. CONTINUED ON ATTACHMENT: XX YES SIGNATURE: �? itT.( � RECOMMENDATION OF EXECUTIVE DIRECTOR EC MMENDAT OF AGEt,4,6Y COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF AGENCY ON S -j9 9 7 APPROVED AS RECOMMENDED OTHER tj VOTE OF COMMISSIONERS / I HEREBY CERTIFY THAT THIS IS A ✓ UNANIMOUS (ABSENT ) TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE REDEVELOPMENT AGENCY ON THE DATE SHOWN. Orig: Beth Lee 335-1256 ATTESTED l b 7 cc: County Administrator PHIL EkTCHELOR County Counsel AGENCY SECRETARY Redevelopment Agency via Redevelopment California Redevelopment Association BY DEPUTY JK:BL:Ih sra26/1 sttime.bos These ongoing affordability goals are being defeated by mortgage lenders who agree to provide mortgages in third lien position. Since the redevelopment agency second mortgage is deferred, no payment is required initially. When payments are required, the homeowner may not be able to afford them because the sum of the first mortgage and the third mortgage exceeds available funds. To provide a solution, amendments to the California Civil Code Sections 2924.6 and 2949 are proposed. The amendments would permit agencies to prohibit junior financings in certain circumstances. R6&Velopment Agency Contra Comminloro`s Costa J`t`�t County Administration Building 1st District 651 Pine Street,4th Floor,North Wing Gayle B.Ulikema Martinez,California 94553-1296 County 2nd District Phil Batchelor Donne Gerber Executive Director aE.,s E_s t••,0 3rd District Harvey E.Bragdon `_F Wrk DeSaWnler Assistant Executive Director 4th District James Kennedy j'� Joe Carrciamilla Deputy Director-Redevelopment x� : .` w.,i 5th District (510)646.4076 o sT'� COUX'� July 15, 1997 Assemblyman Tom Torlakson 11 th Assembly District 815 Estudillo Street Martinez, CA 94553 --'p,n,— Dear Assembl ora cson: Redevelopment Agencies currently run a variety of programs to provide affordable housing to low and moderate income families. One type of program is a First Time Homebuyer Program which helps low and moderate income families own their own homes. The assistance to the homebuyer usually takes the form of a deferred second mortgage provided by the Agency. The purpose of the deferred second mortgage is to reduce the amount of the purchase price that the homebuyer must finance with a conventional loan, to an amount which they can affordably finance. In some programs, payment on the Agency mortgage is deferred for five years. In others, the homebuyer does not have to make payments on the Agency loan until they sell their house. The mortgage is also often accompanied by a resale restriction, that restricts the resale price to affordable levels for a certain period of time. Currently, however, the benefit of these homebuyer programs is being severely diminished by mortgage lenders who agree to provide homeowners third mortgages behind the Agency's deferred loan. These mortgages are provided without any consideration of how feasible they are for the homeowner to finance. They defeat the carefully constructed affordability goals of the Agency programs. As a result of these additional loans, the homeowner may end up spending too much of his or her income on housing costs. They then become overburdened with debt and often default on their first mortgages. In most cases the homeowner would not have been able to purchase their own home without the Agency's assistance. Yet, while the Agency has agreed (as required by law) not to receive any payments on its loan during the period while it is deferred in order to make the home purchase affordable, the third lender is immediately able to receive payments, making the home unaffordable. The sum of the loan payments on the first and third loans may them preclude repayment of the Agency Loan, while defeating the Agency goal of affordable homeownership. To provide a solution to this problem, the Contra Costa County Redevelopment Agency is proposing that the California Legislature amend sections 2924.6 and 2949 of the California Civil Code in order to permit agencies to prohibit junior financing in certain circumstances. Civil Code Section 2924.6 currently prohibits a mortgagor from accelerating the maturity date on a mortgage or deed of trust if the homeowner secures a junior mortgage on their property. The Agency proposes that the legislature amend this section so that this provision would not apply to any public agency that provides a loan secured by a deed of trust or mortgage as part of an affordable homeownership or housing rehabilitation program. The proposed amendment will permit a public agency to prohibit the homeowner from obtaining a junior mortgage where the public agency has provided a mortgage loan to a homeowner pursuant to an affordable homeownership or housing rehabilitation loan program. Similarly, Civil Code Section 2949 prohibits a mortgage or deed of trust from being defaulted or the maturity date from being accelerated, if the homeowner secures a junior mortgage or deed of trust on the property. The Agency is proposing that the legislature also amend this section to exclude mortgages and deeds of trust provided by public agencies as part of an affordable homeownership or housing rehabilitation program. The Agency, through its First Time Homebuyer Program, is committed to providing affordable homeownership opportunities to low and moderate income families. When the Agency's assistance is effectively used to leverage a greater amount of debt financing than most homeowners in the program may have been able to obtain otherwise, the policy of affordability is undermined. Through these amendments, agencies will be able to include prohibitions against junior mortgages in their affordable housing program loan documents, thereby safeguarding the affordability of agency-assisted homes. Sincerely, WKVAYZ,�__ Mark DeSaulnier Chair Contra Costa County Redevelopment Agency cc: Supervisor Rogers, District 1 Supervisor Uilkema, District 2 Supervisor Gerber, District 3 Supervisor Canciamilla, District 5 Jim Kennedy, Deputy Director- Redevelopment c:wp6o\torIakltr.doc