HomeMy WebLinkAboutAGENDA REPORT 2011 1019 CC REG ITEM 10D ITEM 10.D.
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AGENDA REPORT - -_�-�- -- -='-
TO: Honorable City Council
FROM: David Moe, Redevelopment Manager
By: Jessica Sandifer, Management Anal sf1l)
DATE: October 3, 2011 (CC Mtg. October 19,
SUBJECT: Consider Authorization of First Trust Deed Loan for 81 First Street
First Time Home Buyer Unit
BACKGROUND
In 2010, the City completed construction of a single-family home located at 81 First
Street. The home was built to be sold as a part of the City's First Time Home Buyer
Program (FTHB). Issues with grading on the property have kept the home from being
sold under the FTHB program. These issues have been resolved and staff is now ready
to move forward with the sale of the unit to an eligible first time home buyer.
DISCUSSION
In the past, Wells Fargo Home Loans has provided First Trust Deed mortgages for the
FTHB units. Recently, staff received communication from Wells Fargo's underwriting
department indicating that the Federal Home Loan Mortgage Corporation ("Freddie
Mac") guidelines they use to underwrite the FTHB loans has changed. The change no
longer allows additional financing instruments to contain provisions for equity sharing.
The Silent Second Deed of Trust and the Resale Refinance Restrictions that the City
maintains on the FTHB units contain a requirement for equity sharing upon sale or
refinance. As such, Wells Fargo can no longer provide home loans to the FTHB
program. Staff is in the process of identifying other lenders that may be able to assist us
with provision of loans to the programs.
Given the fact that 81 First Street is ready to be sold and the program does not currently
have a lender, staff is proposing that the City take the place of the first mortgage lender
for the unit and use the City Affordable Housing Fund as the funding source.
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Honorable City Council
October 19, 2011
Page 2
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. The affordable sales price for this unit is $190,300. Staff believes the market
value of the unit to be approximately $360,000 so the City will maintain a second trust
deed of $169,700 to ensure that the unit is encumbered up to market value to
discourage extension of additional liens or lines of credit.
When an eligible buyer is identified, the City will sell the unit to the buyer for the same
purchase price, plus closing costs. The eligible first time home buyer will have to pay
closing costs associated with the buyers side of the transaction and the City will be
required to pay closing costs associated with the sellers side of the transaction. At
escrow closing, the City will receive the buyer's down payment of $9,515. The City will
record a first mortgage deed of trust in the amount of $180,785. The term of the loan will
be 30-years and the interest rate charged will be 6%. The buyer will be making principal
and interest payments of $1,083. In addition, the City will be requiring an impound
account for property taxes and insurance, of approximately $258 per month. Staff is
recommending that the loan be outsourced to a loan servicing company to take care of
receiving payments and paying the taxes from the impound account, reporting the loan
to the credit agencies, and provide general customer service. The cost for the loan
servicing is $14 per month which will be paid by the borrower. The total mortgage
payment will be $1,355. Any resale would be governed by the same provisions as other
FTHB loans.
FISCAL IMPACT
Since the City already owns the unit, no funds need to be allocated for the loan. A lien
will be recorded against the property to secure the loan. The closing costs associated
with the transaction will be taken from the City's proceeds of the sale, the downpayment
of $9,515, with the remaining proceeds to be transmitted to the City by the escrow
company.
The City's Affordable Housing Fund will receive revenue from the principal and interest
payments on the loan for $1,083 per month for the 30-year term.
STAFF RECOMMENDATION
1. Authorize first trust deed mortgage for new first time home buyer as described in
this report; and
2. Authorize the City Manager to sign all documents needed for the transactions,
subject to final language approval of the City Manager and City Attorney.
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