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					CITY OF ALAMEDA
    Memorandum

    To:       Honorable Mayor and
              Members of the City Council

              Honorable Chair and
              Members of the Community Improvement Commission

    From:     Debra Ku rita
              City Manager/Executive Director

    Date:     May 6, 2008

    Re:       Response to Current Mortgage Crisis: Adopt Loan Guidelines for the
              Downpayment Assistance Loan Program and Below Market Rate
              Housing Program

BACKGROUND

The City of Alameda offers two programs to assist low and moderate income first time
homebuyers. The City s Below Market Rate (BMR) Housing Program provides homes
for sale at below market prices to qualified households. The City s Downpayment
Assistance (DPA) program provides " silent second" loans to qualified first time
homebuyers to    help pay for their down     payment   and non-recurring closing costs.
Participants in both programs obtain a first mortgage from a lender of their choice. The
proposed Loan Guidelines for the two programs are intended to ensure that the first
mortgages obtained by program participants are compatible with the City s programs,
and that both borrowers and the City are fully protected given California s current
mortgage crisis. Specifically, the City will only accept loans that can reasonably be
expected to result in affordable costs to the borrower over the life of the loan and that
wil not result in the borrower owing more than the sales proceeds upon resale of the
home.

DISCUSSION

The City Council and Community Improvement Commission of the City of Alameda
(CIC) adopted the DPA program in 2003. Program guidelines adopted at the time stated
that the first mortgage must be obtained from a reputable lender with terms that avoid
predatory lending practices. To date, the     City has closed 17 DPA loans. All first
mortgages obtained in conjunction with the 17 DPA loans have been fully documented,
amortizing mortgages. However , given the influx of new, risky lending products in the
past five years, it is prudent to more fully define the types of first mortgages that would
be acceptable. The Downpayment Assistance Program Loan Guidelines (Attachment 1)
establish the types of loans acceptable to the program:

                                                                         CC/CIC/HABOC
                                                                      Agenda Item #3-
                                                                               05- 06-
Honorable Mayor and                                                           May 6 , 2008
Members of the City Council                                                   Page 2 of 3

Honorable Chair and
Members of the Community Improvement Commission

   Fully amortizing fixed rate loans with terms of any length.
   Adjustable rate loans with the following characteristics:
       Fully amortizing
   o No interest-only, negative amortization , deferred interest , principal increases
     or balloon payments
       Fixed rate period of at least five years
       Adjustment no more than annually after fixed rate period

The program also allows for additional down payment assistance , including deferred
interest loans offered through employer down payment assistance programs and
agencies such the California Housing Finance Agency (CaIHFA) or Federal Home
Loan Bank , provided that such additional subsidies are reviewed and approved by
the City on a case by case basis. Homes purchased through the DPA program
contain no resale restrictions and are purchased and sold at market rates.

In 2004 , the City Council adopted a Citywide Inclusionary Housing Ordinance , and
the CIC adopted resolutions establishing the inclusionary housing requirement in
redevelopment areas. BMR homes developed to meet a developer s inclusionary
housing obligation are sold with 59- year resale restrictions , which limit appreciation
and ensure ongoing affordability to future purchasers. Since 2004 , over 50 BMR
homes have been sold as part of the Bayport development. Loan guidelines were
reviewed by the CIC specifically for the Bayport project. The Below Market Rate
Housing Program Loan Guidelines (Attachment 2) establish the types of loans
acceptable for BMR homes citywide , including in redevelopment areas.

For the Bayport project , the CIC allowed a very limited number of fully amortizing
adjustable rate mortgages. In the future , staff recommends that only fixed rate loans
be allowed as part of the BMR Housing Program. Eliminating adjustable rate
mortgages will limit a borrower s choice and may exclude some households from the
BMR program; however , an adjustable rate mortgage could subject the borrower to
the risk   of higher , unaffordable housing costs at   some point in    the future and
encourages refinancing. Currently, most other jurisdictions wil only allow fixed-rate
loans in conjunction with their BMR housing programs.

BUDGET CONSIDERATION/FINANCIAL IMPACT

There is no cost associated with adoption or implementation of the Loan Guidelines.
Honorable Mayor and                                                         May 6 , 2008
Members of the City Council                                                 Page 3 of 3

Honorable Chair and
Members of the Community Improvement Commission

MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE

The DPA and BMR Housing programs are consistent with the Housing Element of the
General Plan.

ENVIRONMENTAL REVIEW

Adoption of Loan Guidelines is not considered a project pursuant to CEQA Section
15378.    which states that the definition of " project" does not include the creation of
government funding mechanisms or other government fiscal activities which do not
involve any commitment to any specific project which may result in a potentially
significant physical impact on the environment.

RECOMMENDATION

Adopt Loan Guidelines  for the   Downpayment Assistance Loan Program and Below
Market Rate Housing Program.




Leslie A. Little
Development Services Director



By: Dorene E. Soto
    Manager , Business Development Division



By: Rachel Silver
   Development Manager , Housing

DK/LAL/DES/RS:

Attachments:
   1. Downpayment Assistance Program Loan Guidelines
   2. Below Market Rate Housing Program Loan      Guidelines
              DOWNPAYMENT ASSISTANCE PROGRAM LOAN GUIDELINES
 The City of Alameda Downpayment Assistance (DPA) program provides " silent second" loans to qualified
 first time homebuyers. Borrowers obtain a first mortgage from a lender of their choice , and may use the
 City s subordinate DPA loan to help pay for their downpayment and non-recurring closing costs. The
 City of Alameda will only agree to subordinate to loan types that are compatible with the DPA program
 i.e. loans that can reasonably be expected to result in affordable costs to the borrower over the life of the
 loan and that will not result in the borrower owing more than the sales proceeds upon resale of the home.

AVOIDANCE OF PREDATORY LENDING
 Borrowers must qualify for a first mortgage from                    a reputable lender with terms that avoid predatory
 lending practices. All loan applications must be fully documented.

MORTGAGE FINANCING
The City s Deed of Trust may initially be in as low as the fourth position behind a private mortgage and
up to two forms of other assistance; however , the City will not agree to subordinate its interest upon
subsequent refinancing. Combined loan to value of all proposed encumbrances cannot exceed 100% of
purchase price. Only the following types of loans are accepted for use in the program:
    Fully amortizing fixed rate loans with terms of any length.
   Adjustable rate loans with the following characteristics:
        Fully amortizing
        No interest-only, negative amortization , deferred interest , principal increases, or balloon
          payments
          Fixed rate period of at least five (5) years
          Adjustment no more than annually after fixed rate period

ADDITIONAL DOWNPAYMENT ASSISTANCE
Notwithstanding the above , borrowers might be allowed to take advantage of                           deferred interest
down payment assistance loan programs offered through employer down payment assistance programs
and other agencies such the California Housing Finance Agency (CaIHFA) or Federal Home Loan Bank
provided that such additional subsidies are reviewed and approved by the City on a case by case basis.

REFINANCING
The City of Alameda DPA loan is due and payable upon refinancing of the original purchase financing.

FAIR HOUSING & EQUAL OPPORTUNITY
It is the City s policy that all aspects of this program shall be conducted without regard to gender , marital
status , disability, race , political affiliation , religious creed , color , national origin , sexual orientation , or age.
The City of Alameda adheres to all state and federal Fair Housing and Civil Rights laws, including the Equal
Credit Opportunity Act and encourages minorities , women , and people with disabilities to seek funding.




                                                                 EQUAL HOUSING                        CC/CIC/HABOC
                                                                 OPPORTUNITY
                                                                                                    Attachment 1 to
C:\DOCU ME -1 \cdd - user\LOCALS-1 \ T em p\GWViewer\DP A Loan Guidelines. doc                    Agenda Item #3-
                                                                                                           05-06-
           BELOW MARKET RATE HOUSING PROGRAM LOAN GUIDELINES
The City of Alameda Below Market Rate (BMR) Housing Program provides homes for sale at below
market prices to qualified households. The BMR homes contain resale restrictions , which limit
appreciation and ensure ongoing affordability to future purchasers. It is the intent of the City of Alameda
to approve only those loan types compatible                     with the BMR Housing Program , i.e. loans that     can
reasonably be expected to result in affordable costs to the borrower over the life of the loan and that will
not result in the borrower owing more than the sales proceeds upon resale of the home at an affordable
price.

ENCUMBRANCES ON BMR UNITS
The total amount of encumbrance on the property (amount owed) shall never exceed 100% of the sales
price paid by the purchaser at the time of purchase.

MORTGAGE FINANCING
Borrowers may place up to three liens on the property (first , second and third mortgages), as long as the
combined totals do not exceed 100% of the sales price. Only the following types of loans are accepted
for use in the program:
     Fully amortizing fixed rate loans with terms of any length.

DOWNPAYMENT ASSISTANCE
The City of Alameda s Oownpayment Assistance (OPA) Program is available to eligible buyers of BMR
units on a first come/first served basis. Oownpayment Assistance loans may be used as " gap financing
for those who would not otherwise be able to purchase a home. All program requirements, including
credit and affordability criteria , of the City s OPA Program will apply to BMR unit purchasers.

REFINANCING
The above requirements apply to all refinancing as well as original purchase financing.

FAIR HOUSING & EQUAL OPPORTUNITY
It is the City s policy that all aspects of this program shall be conducted without regard to gender , marital
status , disability, race , political affliation, religious creed , color , national origin , sexual orientation , or age.
The City of Alameda adheres to all state and federal Fair Housing and Civil Rights laws , including the Equal
Credit Opportunity Act and encourages minorities, women , and people with disabilities to seek funding.




                                                                EQUAL HOUSING
                                                                OPPORTUNITY
                                                                                                    CC/CIC/HABOC
C:\DOCU ME -1 \cdd - user\LOCALS-1 \ T emp\XPgrpwise\BMR Loan Guidelines. doc
                                                                                                  Attachment 2 to
                                                                                                Agenda Item #3-
                                                                                                         05-06-