HomeMy WebLinkAboutAGENDA REPORT 2012 1219 CCSA REG ITEM 09J ITEM 9.J.
1v q
/a- = - -
MOORPARK CITY COUNCIL`_110--W 4 �
AGENDA REPORT
TO: Honorable City Council
FROM: David C. Moe, II Redevelopment Manager
DATE: December 12, 2012 (CC Mtg. December 19, 2012)
SUBJECT: Consider Authorization of Changes to Language in the First Time
Home Buyer Program Resale and Refinance Restriction
Agreement and Option to Purchase Property
BACKGROUND
In June 2004, the City Council approved general program guidelines for the first seven
units in the City's First Time Home Buyer Program (FTHB), with the intent for staff to
bring back a formal guideline document sometime in the future. In November 2004, the
City Council approved the purchase documents including the FTHB Program agreement
templates. One of the guidelines pertained to equity sharing with the City at the time of
resale. As the Council will recall, the methodology for accounting for the Affordable
Sales Price of the unit is set by Section 50052.5 (b) of the Health and Safety Code and
is based on current median income. Currently at resale, when there is an increase in the
affordable sales price due to an increase in median income, the owner is entitled to any
equity in the property generated as a result of paying down principal on the first
mortgage, the amount of the original downpayment, plus up to $50,000 in net proceeds.
Any funds available after the deduction of these amounts will be shared by the owner
and City, one-third to owner, two-thirds to City. The Resale Refinance Restriction
Agreement and Option to Purchase Property ("Resale Refinance Agreement") contains
the language that affects the equity sharing requirement of the program.
As discussed below, the Federal Home Loan Mortgage Corporation ("Freddie Mac")
changed their underwriting requirements. This requires the City to modify its guidelines
if we want to use a lending institution that resells the mortgage to Freddie Mac: In
addition, the City has a few requests to refinance existing FTHBs which cannot be
accommodated without this change to the City's guidelines. These requests have been
made in hopes of taking advantage of lower interest rates. No cash out will be allowed
on refinancing.
243
Honorable City Council
December 19, 2012
Page 2
DISCUSSION
To date, Wells Fargo Home Loans has provided most of the First Trust Deed mortgages
for the FTHB units. In 2011, staff received communication from Wells Fargo's
underwriting department indicating that the Freddie Mac guidelines they use to
underwrite the FTHB loans had changed. The change only allows additional financing
instruments (such as the City's silent second) to contain provisions for equity sharing,
provided that the amount of equity share does not exceed, as a percentage, the amount
of the Silent Second Deed of Trust divided by the appraisal value (market value). In
order for Wells Fargo and any other lender using Freddie Mac underwriting guidelines to
lend to the City's program, the language in the City's Resale Refinance Agreement must
be modified. The new language will be as underlined below:
VI. DETERMINATION OF APPROVED RESALE PRICE
(b) In the event of a re-sale of the subject Property for the Approved
Resale Price, where as a result of an increase in the Area Median
Income and there is a net amount of sale proceeds remaining after
the payment of the Seller's original downpayment, First Mort,.,ryo
^I^°iRg ^^S+S, such net proceeds shall be distributed as follows:
Seller will receive the first $50,000, inclusive of the paving down of
the principal on the First Mortgage loan. aR arnount equal to any
PFORGipal on the FiFst IVIE)Ftgage Loan, as well as the amOURt of the
SelleF's original downpayment plus up to $50,000 in Ret PFOGee
less v nrnr•eeds retained by Seller from aRy Additienal Finannina
City's
"Seller's n
and then any PFOEeed-s ^„e s„^h celler's Sha-ntThe remaining
equity shall be split among Seller and City as follows: one-third to
Seller and two-thirds to the City provided that the City's share of
appreciation will not as a percentage exceed the principal amount
of the second loan amount divided by the appraisal value of the
property at time of initial origination.
This will also apply to refinancing requests. As stated previously, no cash out will be
allowed on refinancings.
244
Honorable City Council
December 19, 2012
Page 3
FISCAL IMPACT
The modified language in the Resale Restriction Agreement puts a cap on the amount
of total equity the City can receive from the equity share formula. For example if the fair
market value of the property is $314,000 and the amount of the affordable second is
$153,000 the total amount of equity the City can receive from the equity share language
is 49%. This percentage will not change until the property is resold. In a hypothetical
equity situation with the following paramters:
Buyer has paid down $30,000 of their first mortgage
Amount of original downpayment is $8,000.
And the increase in median income allows for an additional $50,000 in equity
Current Language Proposed Language
$88,000 Total Equity $88,000 Total Equity
Owner gets $8,000,$30,000 Downpayment of $8,000 plus
paid down on mortgage and $58,000 first $50,000 to the owner
$88,000 first $50,000
$0 equity left to share $30,000 equity left to share
$0 1/3 to Owner $10,000 1/3 to Owner
2/3 to City (percentage of total
$0 2/3 to City (percentage of $20,000 City equity is 67% and cannot
equity does not matter) exceed 49%)
It is important to remember that equity is generated for the program when the affordable
sales price increases and the affordble sales price is based on median income (Fair
market value has no bearing on the affordable sales price or equity share). Below is an
example of increases in median income and corresponding increases in affordable
sales price for a three bedroom affordable unit at Pardee's Waverly Place development:
245
Honorable City Council
December 19, 2012
Page 4
2008 2009 2010 2011 2012
Median Income $83,900 $86,100 $86,700 $88,100 $89,300
Affordable Sales
Price $147,000 $152,000 $154,000 $157,500 $161,000
The new language would begin to effect the equity share to the City when the City's
portion of the equity sharing reaches above the 49%. Staff's analysis revealed that in
this scenario it would take approximately 50 years for the City's equity share to raise
high enough to reach the 49% cap. Different units will have different scenarios based on
when they are bought or refinanced, but they will always have a cap based on dividing
the affordable second by the fair market value of the property at the time of the initial
transaction.
STAFF RECOMMENDATION
1. Approve the changes to the Resale and Refinance Restriction Agreement and
Option to Purchase document as outlined in the staff report with authority granted to
City Manager for final language approval.
2. Authorize City Manager to approve First Time Home Buyer refinancings with no
cash out.
246