Report on Faculty Housing and Affordability Revised Draft August prepared

Report on Faculty Housing and Affordability Revised Draft - August 12, 2002 prepared for Academic Senate University of Southern California Summer 2002 prepared by David Dale-Johnson Associate Professor of Finance and Business Economics Marshall School of Business Lusk Center for Real Estate Hoffman Hall 701 Los Angeles, California 90089-1427 213.740.6526 ddj@marshall.usc.edu This paper is in draft form. Much of the data and rudimentary analysis in this paper can be enhanced with additional time and resources. In the meantime, comments are welcome. Felicia J. Lee provided able assistance interviewing university administrators and USC faculty. The California Association of Realtors provided recent data regarding median house prices in Los Angeles County. We thank Maxine McNeal USC’s Program Administrator for her cooperation as well as other administrators and faculty who were generous with their time as we prepared this report. Introduction The purpose of this document is to provide the Academic Senate insight into housing affordability as if affects USC faculty members. The goal is to document the challenge of acquiring housing that faces new faculty of various ranks when they join USC. Housing preferences vary dramatically among households as do the constraints each face. In this brief study, we do not try to understand or represent for the reader the myriad of conditions facing individual USC faculty. Rather, we illustrate, using prototypical faculty compensation packages along with information about Los Angeles housing markets, the nature of the housing problem that many individual faculty members must tackle. This report is organized as follows. In the next section, we provide some context for the problem with an overview of the Los Angeles housing market using some recent data provide by the California Association of Realtors. Then, we provide an overview of the USC housing assistance programs. We also describe some aspects of programs at some other universities and include in Appendix B a summary of a number of programs surveyed for the purpose of this report. In order to get a sense for the impact or benefit of USC’s programs, we undertake some simple case studies. A small number of interviews of USC faculty with recent experience in the housing market permit us to provide a summary of the challenges as seen by some faculty. We complete this paper with some critical comments regarding the USC programs. Overview The following section provides a brief overview of the housing market environment in the US and in Southern California in order to provide some context for the issues discussed in this paper. We participate in a national and increasingly international market for faculty. Housing markets vary dramatically across the country as they are driven by regional economic factors, the evolution of employment markets and related migration. For example, the technology ‘bubble’ has had a significant impact on housing prices in Boston and San Jose. Figure 1 shows that the housing markets in San Jose and Boston have outperformed the markets in Los Angeles and 2 Chicago since 1995.1 However, as we will see, the market in Los Angeles is heterogeneous and it is dangerous to use too broad a brush to describe changes in the marketplace. The median existing house price in Los Angeles increased 68% between December 1996 and May 2002. While interest rates were low in 1996 (See Figure 3), they are even lower today and are expected to fall further given the recent dismal performance of the stock market and the faltering of the economic recovery. Though affordability has declined fairly steadily since early in the year 2000 as is indicated in Figure 4, we are still much better off than we were in the early 1990s because of today’s low interest rate environment. Note that affordability measures the percentage of households that can afford the median priced home in a particular market.2 As of May 2002, 32% of households in Los Angeles could afford the median priced home. The ratio reached as high as 43% in January of 1999 and was last at 32% in January of 1993. The homeownership rate in Los Angeles has been growing slightly as a function of the strength of the economy over the last five years. However, homeownership rates are well below those in urban areas where housing prices are not as high as they are in Los Angeles. Figure 5 indicates that in 2001, the home-ownership rate in Los Angeles crept above 50%.3 Most housing markets are heterogeneous but the market in the Los Angeles region is particularly so. The California Association of Realtors reports housing prices for 101 separate jurisdictions within Los Angeles County. Many of these jurisdictions have their own local government, mix of public services and quality of life that influence relative housing prices within the region. Regional economic conditions and quality of life play a significant role in determining house prices in the region relative to other metropolitan areas around the country. Thus aggregated data 1 These indexes are repeat sales indexes derived from multiple sales of the same housing units. A layman’s discussion of the methodology is included in Case (1994). Repeat sales indexes have become the standard for measuring house price changes as they provide a relatively easy way to solve the problem of changing quality of the homes that actually sell. Obviously, an index should represent the changes in price for a house having the same attributes. Since houses are heterogeneous, repeat sales indexes finesse this problem. They are, however, criticized for possible sample selection bias. However, there is no better mousetrap at the moment. 2 The ratio measures the percentage of households based on income that could afford to buy the median priced home assuming current financing terms. Thus, the affordability ratio increases as interest rates decline assuming house prices stay the same. 3 The surnames of the top five buyers of residential of residential properties in Los Angeles were, in order, Lee, Kim, Garcia, Hernandez and Martinez. The Latino market has historically had low home-ownership rates and increasing rates of home-ownership in this segment are contributing to the growth rate in the overall homeownership rate. 3 must be interpreted with caution. Figures 6, 7 and 8 show how median housing prices have performed since the first quarter of 1992 in each of 14 separate jurisdictions in the Los Angeles region. The prices are in nominal dollars. Figure 9 shows the nominal rates of increase between the first quarter of 1992 and the first quarter of 2002. These numbers need to be interpreted with caution as they reflect the paths of median house prices in the different markets (Figures 6-8) and the percentage change in median house prices (Figure 9). Median housing prices are not the ideal measure of house prices as the attributes of the houses that are sold and make up the sample used to compute the median may vary through time and across space. It is unlikely that the sample of houses and thus the prices used to compute the median (for each data point) are comparable.4 More sophisticated price indexes can be created or acquired but not without cost. Thus, for the purpose of this report, we report median prices which are readily available for the California Association of Realtors. USC Programs USC has two programs designed primarily to assist faculty and staff, the Short-term Loan Program and Subsidy Program. The Neighborhood Assistance Program is another alternative, however, this program serves the simultaneous objective of stabilizing and revitalizing the neighborhood surrounding USC. The Short-term Loan Program states that it is designed to assist the participant in obtaining favorable primary financing. The loan may be for $100,000 or 10% of the purchase price, whichever is less. The loan is due in 7 years and may be amortizing (over 15 years at 7%, currently) or interest only at 8%. A life insurance policy in the amount of the loan is required naming USC as the beneficiary. The following criteria also apply. Housing expenses including mortgage payments, insurance, property taxes and homeowners’ association dues (HOA) cannot exceed 35% of gross income. As well, monthly debt obligations cannot exceed 40% of gross 4 In addition to variation in the physical attributes of housing units, other factors that influence housing values may vary. For example, the local public service/public revenue mix varies from community to community even in California where Proposition 13 reduces the variance among local tax burdens. Alternate revenue sources such as the local portion of the state sales tax and user fees have a significant impact on the ability of each local government to offer quality local services. Within some school districts, parent teacher organizations or foundations often provide additional funding for facilities, equipment, materials and special programs (e.g., music). The existence of such funding mechanisms are a function of the wealth of the community and the quality of its grass-roots organizations. 4 income. Finally, all income must be verified. These loans are must be approved by the Treasurer’s Office. One version of the Subsidy Program is designed to reduce monthly mortgage payments and cannot exceed 20% of the applicants base salary. The subsidy can be for a dollar amount or can be structured as a reduction in the interest rate of the primary loan. Alternately, the Program can subsidize the downpayment but is restricted to $100,000 or 10% of the purchase price, whichever is less. Also, customary closing costs may be subsidized. These subsidies are restricted to departmental budget restrictions. There is a Rental Subsidy Program and it is constrained to 20% of the applicant’s base salary. The Program is for newly recruited faculty and is also subject to departmental budget restrictions. It is designed to close the gap between Los Angeles area rental costs and the rental costs in the city from which the applicant moved. The Neighborhood Assistance Program targets the USC neighborhood and provides $25,000 over 7 years for purchasers of homes. The latter program provides benefits for purchasers interested to buy with the USC neighborhood. Usage of USC Programs Table 1 provides a summary of the usage of the USC Programs with the exception of the Neighborhood Assistance Program. We assume that the 2002 data do not reflect a full year of activity and we also expect that current low mortgage rates have reduced the demand for the programs. The average number of users of the Subsidy Program since 1998 is 47.2 with a high of 60 and a low of 38. The average number of users of the Short-term Loan Program is 59.8 with a high of 81 and a low of 33. More detail on usage is available by rank/title. One piece of data of likely interest is activity by rank. 85 full professors have participated in the Short-term Loan Program since 1998 compared to 54 assistant professors and 65 associate professors. Only one of four assistant professors was aware of the subsidy program, although they were aware of the Short-term Loan Program. The data indicate that from the year 2000 to 2002, 19 assistant 5 professors per year have been allowed/invited to participate by their departments, while during the same time, 35 full professors and 29 associate professors have participated.5 Other Programs Appendix B includes a summary of other selected housing programs around the country. Our informal survey tried to identify universities from within our peer group and universities in locations where there are high housing costs. The economic value of each program varies from limited and focused to generous. The most generous by far is Stanford University’s. The University has a number of programs including a direct subsidy program like USC’s. There is a menu of loan options including (a) a 50% loan up to a maximum of $600,000 at 3.5%.6 The loan is ‘interest only’ so the payments are relatively low for any given loan amount; (b) a 60% loan up to a maximum of $750,000 at 7% fully amortized over 10, 15 or 30 years (due in 10,15 or 30 years); and (c) a deferred interest loan up to 20% of the purchase price to a maximum or $175,000. The interest accrues and the loan is due in 30 years or on demand of the University. Options (a), (b) and (c) are exclusive. We assume that there are underwriting criteria. However, we do not have that information at present. Option (a) has the advantage of reducing the periodic out of pocket costs even if there is a higher rate at which interest accrues increasing the downstream obligation of the borrower. Option (c) is a mechanism for providing a downpayment. Author’s notes in italics. Case Studies Here, we undertake some simple computations to illustrate the housing price a USC faculty member can afford based on his or her own salary. Note that many households have two incomes, so under that circumstance the household can afford to spend more and, of course, can qualify for a larger loan. We leave more complex individual scenarios to the reader. For this report we simply develop baseline scenarios for discussion. 5 The Program Administrator of the Short-term Loan Program and the Subsidy Program maintains summary data on the activity in each program by department or school, by rank, by year. 6 It is not clear if this loan is actually at 7% and one half of the 7% (350 basis points) simply accrues to be paid at loan termination. We plan to clarify this. 6 We were unable to get precise information on faculty salaries at USC. For illustrative purposes, we explore affordability for faculty with base salaries of $50,000, $75,000 and $100,000. We compute the housing price that one can afford at the above salaries assuming a 35% payment-to-income ratio where the payments include the mortgage payment, property tax and property insurance.7 We assume a 6 ½ % fixed rate mortgage which is consistent with current market rates. At a 6 ½ % mortgage rate, annual debt service will be 7.58%8 of the face value of the mortgage. We assume that the annual cost of property taxes is 1.5% of property value and fire insurance is 0.5% of property value. With an 80% conventional loan, 2% of property value translates into 2.4% of the loan amount.9 7.58% plus 2.4% equals 9.98% which is the annual percentage of a loan at 6 ½ % which would be required for debt service, property tax and property insurance. We can then use that percentage and the 35% percent payment to income ratio to determine a loan amount and an attainable housing price based on a given salary level. These prices appear in the table below. At $50,000 Annual Income $50,000 × 35% = 17,500 $17,500 ÷9.98% = 175,300 $175,350 ÷ 80% = 219,188 $219,188 $43,838 Downpayment* * Excluding closing costs At $75,000 Annual Income $75,000 × 35% = 26,250 $26,250 ÷9.98% = 268,026 $268,026 ÷ 80% = 328,782 $328,782 $60,756 Downpayment* At $100,000 Annual Income $100,000 × 35% = 35,000 $35,000 ÷9.98% = 350,701 $350,701 ÷ 80% = 438,376 $438,376 $87,675 Downpayment* So in the current market environment using a market loan and market underwriting assumptions a faculty member earning $50,000 in gross income annually can afford to purchase a house worth $219,188 provided he or she has available $43,838 as a down-payment. There are 7 35% is a standard ‘front end ratio’ employed by mortgage lenders. Higher ratios are allowed but usually at higher interest rates. 8 7.58% or 0.0758 is the annual loan constant (ALC) for a 6 ½ % mortgage amortized over 30 years with monthly payments. 9 80% is the loan-to-value (LTV) ratio and determines the maximum loan amount for a ‘conventional’ loan. Higher ratio loans are available but usually at higher rates. Second mortgages are available increase the effective LTV but are offered at a higher rate reflecting the higher default risk. Therefore, typically the effective rate on a 90% LTV financing will be higher than the rate on 80% LTV financing no matter which approach is used. 7 additional closing costs that might add another 2 % of the purchase price ($4,384) to the buyer’s required equity (for a total of $48,222). Table 2 below lists 14 cities in Los Angeles County and provides their 2002:1 median price. Combining the above Table with the information in Table 2, one can readily see which cities are affordable depending on the faculty member’s income. Note that the median priced house in each community will have quite different attributes With this background, let’s now look at USC’s Short-term Loan Program. The Program provides additional financing up to $100,000 or 10% of the purchase price (whichever is less). The loan is at 7% if amortized over 15 years or at 8% if interest only. Note that above, we have computed the attainable house price by using market mortgage information. Both of the USC loan options (7% amortized over 15 years or 8% interest only) have an effective periodic cost in excess of a market loan.10 Therefore, the only possible circumstances in the current environment where the loan makes sense is if it is treated as a second mortgage allowing the purchaser to go to a 90% LTV. However, in the case we have described above, the buyer is already at the 35% threshold for the payment-to-income ratio precluding further borrowings. The faculty member could not use the loan program to offset the required equity as the buyer would already be at the maximum payment-to-income ratio. In cases where the buyer has sufficient equity to contribute, at current market rates, it would be rational for the buyer simply to take out a larger conventional loan. Regarding the Subsidy Program, extra income designed to fill the gap between the 35% of regular gross income and the necessary payments to acquire the target property readily solve affordability problems. The data suggest that numerous of these packages have been offered. However, not surprisingly, such subsidies are not generally available and are subject to budgetary constraints by department by year. 10 The annual mortgage constant for a 7% loan amortized over 15 years is 10.79% while the annual mortgage constant for an 8% interest only loan is 8%. Both these ratios exceed the 7.58% annual mortgage constant for a 6.5% loan amortized over 30 years. 8 Faculty Interviews Appendix C is a summary of a small number of interviews of faculty undertaken over the summer of 2002. These faculty members were identified as faculty who had recently ‘entered’ the housing market in Los Angeles and thus had experienced the challenge of finding a house and a neighborhood which they could afford which is in keeping with their preferences. Some of the key observations from the interviews are: 1. 2. The Subsidy Program appears not to be generally available; The Neighborhood Assistance Program funds might be offered in lump sum to facilitate creating a nest egg for a down-payment; 3. The 35% payment-to-income ratio is in conflict with the idea of providing additional financing to facilitate acquisition. This is particularly true if the market rates on first mortgages are below 7% (author’s note). 4. High quality school districts are usually in expensive housing markets. There is a large literature in public finance documenting the extent to which school quality is reflected (capitalized) in housing values. Los Angeles is a great laboratory for examining this phenomenon. The markets for which we report median housing price trends were chosen from the list of ‘top’ school districts in Appendix A (author’s note). 5. Other factors including religion, accessibility, diversity, community ‘feel’, and access to amenities are significant in the buyer’s choice of location. Comments These comments result from a relatively quick assessment of the current market situation, the perceptions of USC faculty and our understanding of the extant USC programs. We have some sense of the level of compensation and the variance for incoming faculty (assistant professors). We also recognize that there is tremendous variation in the packages offered senior faculty as well as the housing market conditions in their prior location. We also recognize that solving 9 everyone’s perceived housing affordability problem would be inordinately expensive. With this in mind we make the following comments: 1. The rates that are employed in the Short-term Loan Program are too high in the current environment. The administration should consider tying these rates to an index so that the program can have the necessary impact during low interest rate environments such as we are currently experiencing; 2. The underwriting criteria appear to be too onerous. If the goal is to top up the downpayment so that buyer can get a conventional 80% loan and benefit from the consequent lower interest rates, the low debt service to income ratio defeats the purpose; 3. Since the University is involved in some magnet schools, it may make sense to focus on a combination of school quality and subsidies in particular housing markets where housing is affordable and our programs can have some influence on school quality; 4. We might want to encourage the University to think about more aggressive loan programs involving deferred interest. Deferral of interest on a loan permit the loan (1) to augment a nest egg to provide for the necessary down-payment (e.g., the Stanford DIP) with reduced immediate debt service requirements; or (2) to reduce periodic costs of debt (e.g., the Stanford MAP with interest accrual at a higher rate). These are clearly riskier loans than are being currently made but they provide a product in between market mortgages and direct subsidies which facilitate a faculty member entering the housing market but allow the University to recoup the subsidy downstream. This strikes us as a better option than the Subsidy Program provided the new loan alternatives are generally available. 10 Figure 1: Housing Price Indexes - Selected Cities 250 Index Value (1995:1=100) 200 150 100 Boston Chicago Los Angeles San Jose 50 0 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 Date Figure 2: Median House Price -Los Angeles $280,000 $270,000 $260,000 $250,000 $240,000 $230,000 $220,000 $210,000 $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 11 10% 20% 30% 40% 50% 0% % 10% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Figure 3: Interest Rates Figure 4: Affordability Ratio FRM ARM Federal Funds Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 12 Figure 5: Homeownership Rate - Los Angeles 52% 50% 48% 46% 44% 42% 40% 86 87 88 89 90 91 92 93 94 95 96 97 98 99 2000 2001 Figure 6: Selected Cities - Median Housing Prices - 1992:1 - 2002:1 1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 19 92 0 19 1 92 0 19 4 93 0 19 3 94 0 19 2 95 0 19 1 95 0 19 4 96 0 19 3 97 0 19 2 98 0 19 1 98 0 19 4 99 0 20 3 00 0 20 2 01 0 20 1 01 04 South Pasadena Manhattan Beach Rancho Palos Verdes Arcadia Beverly Hills Palos Verdes Estates 13 Figure 7: Selected Cities - M edian Housing Prices - 1992:1 - 2002:1 600000 500000 400000 300000 200000 100000 0 19 92 0 19 1 92 0 19 4 93 0 19 3 94 0 19 2 95 0 19 1 95 0 19 4 96 0 19 3 97 0 19 2 98 0 19 1 98 0 19 4 99 0 20 3 00 0 20 2 01 0 20 1 01 04 T orrance, Caifornia Claremont, California San Gabriel, California Santa Monica, California Figure 8: Selected Cities - M edian Housing Prices - 1992:1 - 2002:1 1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 199201 199204 199303 199402 199501 199504 199603 199702 199801 199804 199903 200002 200101 200104 Malibu T emple City, California Glendora Walnut 14 Figure 9 - Increases in Median House Prices - 1992:1 to 2002:1 Walnut Glendora Temple City Malibu Santa Monica San Gabriel Claremont Torrance PalosVerdes Estates Beverly Hills Arcadia Rancho Palos Verdes Manhattan Beach South Pasadena 0 10 20 30 40 50 60 70 80 Nominal % Increase 15 Table 1 – Usage of USC Programs* Year 1998 Dept Sub Mort 1999 Sub Mort 2000 Sub Mort 2001 Sub Mort 2002 Sub Mort Eng Arch Med KUSC Educ Ger Ath Acad Aff Bus SPPD LAS Stud Aff Dent Hous Soc Wrk Music Law Hlth Aff Pharm Commun Cinema Total 69 6 7 10 1 6 13 0 5 12 0 0 34 4 5 2 3 1 2 0 16 24 4 2 2 5 1 4 1 11 9 0 2 3 0 1 3 0 5 0 1 1 1 22 2 2 1 4 1 3 1 11 7 0 3 1 2 1 3 0 5 0 1 1 0 17 1 2 1 7 1 5 1 10 3 0 2 2 1 0 2 0 11 0 1 1 1 10 0 2 0 8 1 2 1 5 1 4 0 1 1 1 81 50 0 5 1 0 0 1 68 1 1 0 5 1 0 0 1 1 2 0 4 1 0 0 2 1 1 0 2 1 0 0 1 39 60 40 57 38 33 * This chart was complied from data provided by the Program Administrator. The categories for activity in both programs were not identical resulting in empty ////. For subsidies for 1998 and 1999, the categories were incomplete so only the totals were transcribed. The school, department or administrative unit titles were provided by the Program Administrator. 16 Table 2: Median Prices by City for 2002:1 City South Pasadena Manhattan Beach Rancho Palos Verdes Arcadia Beverly Hills Palos Verdes Estates Torrance Claremont San Gabriel Santa Monica Malibu Temple City Glendora Walnut 2002:1 Median Price 394500 750000 586000 360000 900000 836000 320000 285000 268000 536000 780000 285000 277000 320000 17 Appendix A County of Los Angeles Top Ranked Schools The following list inlcudes top ranked school districts in the County of Los Angeles based on the Academic Performance Index that the California State Department of Education releases every year. Since within school districts, rankings are for individual schools in their respective category (elementary, middle or high school), there is no unambiguous ranking for school districts themselves. The existing rating system ranges from 1- 10 with 10 being the highest rank, but for individual schools. For more detail on each district and school ranking, please see: http://api.cde.ca.gov/api2001base/2001Base_Co.asp?cYear=&cSelect=19,LOS,ANGELES The following districts are comprised of schools, all of which ranked either 9 or 10 in each of the elementary, middle, and high school categories: Arcadia Unified Beverley Hills Unified La Canada Unified Las Virgenes Unified Manhattan Beach Unified Palos Verdes Peninsula Unified South Pasadena Unified The following districts are comprised of schools, all of which ranked 7, 8, or 9 in each of the elementary, middle, and high school categories: Claremont Unified Glendora Unified San Gabriel Unified (w/1 elementary ranked 3; and 1 high school ranked 6) Santa Monica-Malibu Unified (w/numerous schools in each category ranked 10) Temple City Unified Torrance Unified Walnut Valley Unified 18 Appendix B Faculty Housing Assistance Programs at Comparative Institutions University of Southern California Contact: Maxine McNeal mmcneal@usc.edu http://www.usc.edu/admin/nhp/description.html Program: Eligibility: Benefits: Neighborhood Assistance Program Faculty with appointment of at least 50% time or more Staff who hold "benefits eligible" positions of at least 50% or more. --Provides monthly payments totaling $25k over seven years to live in specified areas near campus. Faculty/Staff Housing Assistance Program Full-time tenure track faculty and management staff --Short term loan for down payment on home in the LA area. Loan is for 7 years and is a second loan towards down payment. Maximum loan is $100K or 10% of purchase price, whichever is less. --Interest rates of the loan is 7% for amortized loan calculated over 15 years, but payment is due at year 7; or 8% at interest only. Interest cannot be deferred. --Monthly subsidies to reduce mortgage costs, down payment subsidies, closing cost subsidies, and rental subsidies offered only through departmental budgets and approved by department dean or vice president. Program: Eligibility: Benefits: Stanford University Contact: Jessica Koran koran@stanford.edu http://fsh.stanford.edu/index.html Program: Eligibility: Benefits: Housing Allowance Program Members of Academic Council who have received tenure, have continuing terms of appointment or have term appointments of 3 years or more with the possibility of reappointment. Assistant professors appointed subject to receiving their Ph.D. qualify as eligible persons although they are not members of the Academic Council. Members of the Medical Center Professoriate. Senior Fellow members of the Academic Council at Special Policy Centers and Institutes. University staff members qualify although eligibility depends on rank and nature of loan. --Allowance for purchase of single family home or condominium within specified area. Maximum term of allowance is 9 years and allowance amount depends on applicant's appointment/employment date, starting salary, and year of purchase. Approximate range of allowance is between 60k-110k depending on the faculty member's starting salary. Mortgage Assistance Program (MAP) Program: 19 Eligibility: Benefits: same as above --A MAP loan may be used to purchase a single family home within specified area. University will lend the lesser of 50% of purchase price of the property or 50% of its fair market value, subject to maximum loan of $600,000. Current interest rate is 3.5%. This is an non-amortized loan --Loan is due on the earliest of the following dates: (a) property is sold; (b) property ceases to be primary residence; (c) when borrower ceases to be eligible person; or (d) other conditions stipulated on promissory note. Fixed Rate Amortizing Mortgage (FARM) same as above --Offers a low market fixed interest rate loan to assist faculty and staff by providing a loan for the portion of the purchase price of a home within specified area. FARM is to be used for a purchase, not to refinance existing mortgage loans. --University will lend lesser of 60% of the purchase price of the property or 60% of its fair market value, subject to a maximum loan amount of $750,000. The current interest rate is approximately 7 %. --Loan is fully amortized over a ten, fifteen, or thirty year term at the option of the borrower. --Loan is due on the earliest of the following dates: (a) 10, 15 or 30 years after the loan date; (b) property ceases to be primary residence; (c) when borrower ceases to be eligible person; (d) other conditions stipulated on promissory note or (e) when the property is sold. --Primary difference between MAP and FARM loans are 1) the MAP loan is nonamortizing while the FARM loan amortizes over either 10, 15 or 30 years. (If a loan amortizes, it means that every month the borrower is paying off both the principle and the interest on the loan) and 2) MAP requires both current and deferred interest payments, while FARM only has current interest payments. --Side note: In practice, because the FARM rates are higher than rates being offered by outside lenders, people are no longer using the FARM loan Deferred Interest Program (DIP) same as above --DIP is a secured nonamortizing mortgage loan only to be used for purchase of a new home within a specified area. There are no current interest payments. This is an non-amortized loan However, deferred interest is payable at the time of sale, prepayment, or refinancing. --University will lend the lesser of 20% of the purchase price of the property or 20% of its fair market value, subject to a maximum loan of $175K. -- Loan is due on the earliest of the following dates: (a) 30 years after the loan date; (b) property ceases to be primary residence; (c) when borrower ceases to be eligible person; (d) other conditions stipulated on promissory note; (e) when the property is sold or (f) upon demand of the university. DIP is not meant to be used to provide a down payment in combination with a MAP or FARM loan. This is a Program: Eligibility: Benefits: Program: Eligibility: Benefits: 20 separate loan and faculty must provide 10% of their own money of purchase price as down payment to qualify for this loan. UCLA Contact: Ruth Assily ruth.assily@ucop.edu http://www.ucop.edu/facil/olp/brochure/welcome.html Program: Eligibility: Benefits: Mortgage Origination Program Fulltime University appointees who are members of the Academic Senate or hold an equivalent title and members of the senior management group --Offers a 40-year loan with a one-year variable rate based upon an internal university rate. Since 1993, MOP note rate has been under 7%. Standard loan is 30 years but borrower may request a shorter or longer term up to the 40-year maximum. --Property must be the primary place of residence and cannot be used for construction financing. Repayment is required 6 months after separation from the university unless for retirement or disability. University of Pennsylvania Contact: Steffany Jones stefanyw@pobox.upenn.edu http://www.upenn.edu/EVP/communityhousing Program: Eligibility: Benefits: University Guaranteed Mortgage Program Fulltime UPENN employee with proof of passing 6 month probationary period --Loan for maximum purchase home price of $304,700 within specified area. --Will finance an additional 15% of purchase price for property rehabilitation. --Loan amount due when borrower ceases to be an employee of the university, ceases to occupy the property as primary residence, and/or ceases to be the owner. --Interest rates depend on the lender. Enhanced Mortgage Program same as above Same as above except eligible borrowers may apply for a lump sum of $15K, payable at closing. Funds may be used for closing costs, down payment, interior home improvements, and exterior home improvements. Also, specified residential area is less geographically broad and involves a Target Area very close to the university. Program: Eligibility: Benefits: George Washington University Contact: Yvette Hicks yhicks@gwu.edu http://www.gwu.edu/~gwhome/about.html Program: GW Loan Program 21 Eligibility: Benefits: Any fulltime employee who has worked 2 or more years and restricted to employees with a maximum household income of $110K. --Maximum amount for this loan is $5K and must be used for down payment and/or closing costs. --Loan is for first time homeowners. Loan is for 9 years and home must be located in the District. Monetization Loan Program Same as above except incomes must be no more than $130K for families and $90K for individuals. Loan for down payment and closing costs and the loan amount will be from $2,500-$5,000 and must be repaid within 2 years of obtaining the loan. Home must be purchased in the District and for first time homeowners. The Lender Credit Program Same as above except employees must make $66,000 or less --This is a $250 credit to the first 40 GW Loan Program recipients to use as settlement and program expires after the 40 recipients have received credit. Program: Eligibility: Benefits: Program: Eligibility: Benefits: Columbia University Contact: Pat Maher pam3@columia.edu http://www.columbia.edu/cu/ire/ http://www.hr.columbia.edu/hr/html/chap.html (CHAP) Program: Eligibility: Benefits: Columbia University Housing for Faculty and Officers of Administration Fulltime, compensated officers of instruction and research, including those with visiting appointments, fulltime officers of the libraries, and senior officers of administration. Faculty can apply to rent university owned housing. Priority is given to newly appointed officers who are moving to New York from outside tri-state area. There is no mortgage assistance program--it was discontinued. Columbia Housing Assistance Program (CHAP) Fulltime, regular faculty and employees of the university who have completed at least 2 years of fulltime regular service and who purchase a home in the Upper Manhattan Empowerment Zone (central and west Harlem and Washington Heights) and occupy it as a primary residence. --May receive a non-interest bearing, forgivable loan limited to the lesser of $10k or 5% of purchase price. The loan is forgivable at a rate of 20% per year. --------Enhanced benefit is available to employees who purchase in the area bounded by Morningside Avenue on the west, park Avenue on the east, 110th St. on the south and 125th St. on the north. These individuals may receive a non-interest bearing, forgivable loan limited to the lesser of $15k or 7% of the purchase price. --In addition, employees may apply for a grant of $5k if they purchase a home within enhanced area if 1) the property is a new development; or 2) the property is Program: Eligibility: Benefits: 22 newly rehabilitated property where the employee is the first owner since rehabilitation; or 3) the employee intends to rehabilitate the property and will acquire a rehabilitation mortgage to do so. --Repayment of the unforgiven portion of the loan will be required if, within 5 years, the employee is: 1) terminated or terminates employment; 2) sells or transfers the home or the home is awarded in litigation; 3) fails to occupy the home as primary residence; 4) defaults under first mortgage. When repayment is required, interest will be due on the unforgiven balance. 23 Appendix C: Faculty Interviews What: Faculty Interviews Why: Solicit first-hand information on housing issues faced by USC faculty Who: Four faculty members representing various departments within LAS. Question Are you aware of USC Faculty Housing Assistance Programs? Are you aware if your department offers subsidies for housing costs? Response Generally, most faculty were aware of either the USC Neighborhood program or the Faculty Assistance program. Only one faculty member was aware of their department/School offering subsidies for down payments or monthly mortgage payment but did not believe either was offered to non-tenured faculty. 6-8 assistant professors have participated each year since 1998. For these faculty members, it did not meet their needs. One faculty member noted that he did not require assistance for the down payment but more for the monthly mortgage payment but his department did not offer subsidies. Another faculty member commented that the Neighborhood program money would be better served if they could receive a larger lump sum payment to put towards the down payment and lower the mortgage payment. Another faculty member was denied the USC assistance loan based on criteria that housing expenses not exceed 35% of gross monthly income. This person found this contradictory since salaries are so low at USC and the point of the program is to offer extra help, Low salary, high cost of housing, affordable residential area has low quality school districts for children so that does not become a viable option. Good school districts for children and living in a community that represents their values/preferences (i.e. reasonably close to USC, religion, diversity, community feel, access to dining). Two faculty members commented that they are seriously considering leaving USC due to high housing costs. Wondered if subsidies are available only to tenured faculty and not junior faculty. Do you think USC's loan program meets/has met your needs? What has been your primary challenge with finding affordable housing? What factors are most important to you when considering a location for your residence? Other comments? 24