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Home My WebLink AboutAGENDA REPORT 1998 0121 CC REG ITEM 10FTO: FROM: DATE: MOORPARK CITY COUNCIL AGENDA REPORT Honorable City Council 71A. (-a r ITlEM 10 * • JF INOMAR' . — MORN% aty cmcil :: - Nancy Burns, Management Analyst December 24, 1997 (CC Mtg. of Janu ry 21, 1998) SUBJECT: Consideration of Year 1998 -99 for First Time Buyers Backaround Obtaining HOME Funds for Fiscal Down Payment Assistance for At this time, Ventura County is beginning its public hearing process for CDBG and HOME funds for Fiscal Year 1998 -99. Applications for these funds are due to the County on January 23, 1998. The City obtained HOME funds in Fiscal Year 1997 -98 to facilitate housing rehabilitation projects, with first priority given to properties outside the Redevelopment Project Area, and second priority to properties within the Project Area. Potential properties, located outside the Project Area, have been identified for rehabilitation with these funds. At this time, it may be appropriate to consider the use of HOME funds for the next fiscal year to assist first time home buyers in purchase transactions. Discussion A July 1, 1997, staff report to Council which included a 1996 Housing Element Progress Report identifies ninety -seven (97) new dwelling units approved for occupancy from July 1, 1989 to December 31, 1996, which were considered affordable to households with Low or Very Low income. This represents approximately 100 of the nine hundred fifty -nine (959) units in these income categories which have been identified as Moorpark's share of regional housing needs. The November 16, 1997, issue of the Los Angeles Times provided information on recent trends in real estate in Southern California (Sources: California Association of Realtors and the Construction Industry Research Board). According to data published in this issue, the median home resale price in Ventura County in September 1997 was $227,400. This represents a sixteen C: \M \NLB \AGNDARPT \HOME. -DP ASSISTANCE- January 14, 1998 1 0000;38 per cent (160) increase over the same period, one year earlier ($195,600). The increase in median resale price translates to a reduction in the "Affordability Index" from 450 one year earlier, to 39% in September 1997. The Affordability Index is defined as the percentage of households able to afford the median home sales price. No other county of the six Southern California counties surveyed showed more than a 2% drop in the Affordability Index; Ventura County's drop was 60. Other counties surveyed include Los Angeles, Orange, San Diego and Riverside /San Bernardino. The Simi Valley /Moorpark Association of Realtors reports the median sales price in Simi Valley /Moorpark during the month of October 1997 was $173,999. Information from a real estate marketing consultant indicates that from January - August 1997, the average sales price in North Moorpark (north of Los Angeles Avenue) was $145,615 in the category of properties valued at less than $200,000. In order for low income home buyers to be assimilated into Moorpark neighborhoods, it is likely that some form of down payment assistance is needed. HOME funds may be combined with either the low interest rate California Housing Finance Agency (CHFA) program for low income first time buyers (formerly Moorpark's First Time Home Buyer Program, the California Valleys Joint Powers Agreement Mortgage Revenue Bonds Program) or the Mortgage Credit Certificate Program (MCC), approved by Council November 19, 1997. HOME funds must be restricted to low and very low income households; CHFA loans have higher income limits ($48,880 for a household of one or two persons and $56,212 for a family of three or more; MCCs have even higher income limits ($61,100 for one -two persons; $70,265 for a family of three or more). MCCs limit purchase price to $222,527 for new construction and $203,865 for resales. A portion of HOME funds is allocated to Community Housing Development Organizations (CHDOs). This amount represents approximately ten per cent (10 %) of the total allocation to the County. It is anticipated that, as a CHDO, Cabrillo Economic Development Corporation (CEDC) will seek HOME funds in conjunction with financing arrangements for Gisler Field. The HOME Investment Partnerships Program provides flexibility in the structure of the assistance provided, and certain communities could be targeted, if desired. For instance, the Redevelopment Project Area could be considered a targeted neighborhood, as could a condominium complex with a low owner - occupancy ratio, such as Park Springs. Both new construction as well as resales are eligible; purchase price is limited to 95% of area median. Currently, HUD's determination of area median is $208,600, which C: \M \NLB \AGNDARPT \HOME -DP ASSISTANCE- January 14, 1996 2 0000W allows for a maximum purchase price of $198,170 for HOME participation. If HOME funds are used in conjunction with other loan programs, such as the CHFA loans, the purchase price limits of those programs might be lower. (CHFA limits are $169,109 for new construction and $190,349 for resales.) The HOME Investment Partnerships Program requires a 25% match from the City, which can be furnished from several possible sources, as long as the funds are non - federal. The match can be satisfied with contributions to affordable housing that is not HOME- assisted (either tenant -based rental assistance or affordable housing). Sources such as a special district, developer fund, revenue housing bonds, etc. are considered appropriate. Match funds can be contributed through the value of sweat equity, as well, under an established program. Tax Increment Set -Aside funds are frequently used to fund the match portion for HOME as Down Payment Assistance. The County has agreed to establish a "sub- account" for the City's contribution within the HOME Investment Trust Fund and to track and compare the City's match to that of other jurisdictions participating in the HOME Program. Assuming the City continues in the HOME Program, expeditiously expending funds, etc., the County's intention is to redirect past City matching funds for down payment assistance to future projects for this purpose in Moorpark. The principal sum of HOME funds plus the required 25% match must eventually be returned to the County Trust Account; seventy -five per cent of any Program Income, such as earned interest or shared equity appreciation, would be returned to the Trust Account, as well. The value of properties assisted with HOME funds must be monitored through the period of affordability. Deed restrictions are required which provide for a fair return on investment to the original HOME- assisted owner in the event of a sale before the end of the period of affordability. The period of affordability is based on the amount of assistance provided by HOME funds: Homeownership Assistance HOME Amount Per Unit Minimum Period of Affordability in Years Under *15,000 5 $15,000 to $40,000 10 Over $40,000 15 C: \M \NLB \AGNDARPT \HOME -DP ASSISTANCE- January 14, 1998 . 3 Ji 000®.40 Loans may be written for five, ten or fifteen year terms, and may be amortized, deferred, or a combination, i.e., interest - bearing, payment deferred for the first few years, then converting to an interest bearing, fully amortized loan for the remaining years of the term. Loans may be structured so the HOME- assisted owner recovers his /her investment (down payment plus any capital improvements) at time of resale before recapturing the HOME investment. Another option is to provide an accelerated forgiveness clause in the loan instrument, so that the longer the original HOME assisted buyer maintains residency in the property, the higher the percentage of any accrued loan interest would be forgiven at time of sale. A two - for -one match could be provided to each First Time Home Buyer, with two dollars of HOME funds for each dollar the home buyer invested, with a minimum buyer down payment of three per cent (30) and a maximum loan amount such as $15,000 of HOME funds. With a buyer's minimal down payment of three per cent (30) and six per cent (6a) down payment assistance as a deferred interest second mortgage using HOME funds, a Low Income family of four with minimal consumer debt could qualify for a $160,000 home. The same family could qualify for a $180,000 home with three per cent down if the deferred HOME loan was $15,000. These scenarios assume the buyer pays all reasonable closing costs, an assumption which may not be reasonable. A First Time Home Buyer Counseling Program is recommended in conjunction with down payment assistance. Such an educational program would be a valuable component to the CHFA loan program, MCCs, and the 203(k) loan program, as well. Completion of a HUD - approved home buyer educational program enables participants to qualify for a discount on their Mortgage Insurance (M.I.). This office has discussed such a program with representatives from Consumer Credit Counseling Service and mortgage lenders. The services of Consumer Credit Counseling Service are available at no charge. A Down Payment Assistance Program is needed to help Low Income residents plan and budget for home ownership and become assimilated into Moorpark communities. Prudent financial assistance will open up opportunities for home ownership that are available, but not currently accessible to Low Income residents. A counseling component of a Down Payment Assistance Program which provides support after Close of Escrow will ensure ongoing financial stability for families who take advantage of this program. C: \M \NI,B \AGNDARPT \HOME -DP ASSISTANCE - January 14, 1998 4 0000011 Recommendation Authorize staff as follows: 1. To apply for HOME funds in the amount of $112,500, to be used as Down Payment Assistance for Low and Very Low Income First Time Home Buyers; and 2. To request the Moorpark Redevelopment Agency authorize a twenty -five per cent match of the total funding for this program, up to $37,500, in Redevelopment Agency Tax Increment Set -Aside funds if the above application is successful, with match funds to be calculated first from a sweat equity program, if such a program becomes available in the City. C: \M \NLB \AGNDARPT \HOME -DP ASSISTANCE- January 14, 1998 5 000042