The URL can be used to link to this page

Home My WebLink About7.3 First Time Homebuyer Loan Program CITY CLERK File # D~~-~~ AGENDA STATEMENT CITY COUNCIL MEETING DATE: September 19,2006 SUBJECT: First Time Homebuyer Loan Program (FTHLP) - Approval of Loan Documents Report prepared by: Jeri Ram, Community Development Director and John Bakker, Deputy City Attorney ATTACHMENT: 1) Resolution Authorizing City Manager to Approve final form of Loan Agreements, Deeds of Trust and Promissory Notes for the First Time Homebuyer Program and authorizing the City Manager to execute such loan documents on behalf of the City. 2) Resolution 31-06 of the City Council approving The First Time Homebuyer Loan Program RECOMMENDATION:.. /J J. .ry 1) (\ UV"\t9 2) .~ 3) \",., ~\, Receive the Staff Report; Deliberate; and Adopt Resolution Authorizing City Manager to approve final Form of Loan Agreements, Deeds of Trust and Promissory Notes for the First Time Homebuyer Loan Program and authorizing the City Manager to execute such documents on behalf of the City. FINANCIAL STATEMENT: $500,000 for Fiscal Year 2006-2007 has been allocated for the FTHLP from the Inclusionary Fund, budgeted in the Housing Division Budget. PROJECT DESCRIPTION: The City Council included a First Time Homebuyer Program as a high priority in the 2005-2006 Goals and Objectives for the City of Dublin. At a Joint Study Session held on December 13, 2005, the City Council provided Staff with direction on policy issues affecting the development of a First Time Homebuyer Loan Program (FTHLP). Staff returned to City Council on March 21, 2006 with the document entitled "City of Dublin First Time Homebuyer Program" ("the FTHLP Summary"), which the City Council approved by Resolution. Staff indicated at that meeting that the development of loan documents would follow and would be brought back to City Council at a later date. COPIES TO: FTHLP Advisory Group In House Distribution Page 1 of3 ITEM NO. 7. ~ K:\First time homebuyers\Staff Reports\Staff Report Real Est docs for FTHLP 9-] 9-06 doc (2).DOC Staff intends to begin marketing the FTHLP at the beginning of October. The marketing of the Program will include a press release, posting information on the City's website and meetings with local real estate brokers and lenders. Summary of the FTHLP: As outlined in the FTHLP Summary, persons receiving loans are subject to certain eligibility criteria. The loans will be restricted to persons that have not owned residential property within the previous three years (i.e. a first time homebuyer). While FTHLP loans will be available on both inclusionary units and market-rate units, only households with household incomes that are no more than 140% of area median income are eligible for FTHLP loans. Furthermore, eligibility for the program is limited to those households with no more than $250,000 in total assets, excluding pensions and federally approved pre-tax savings accounts. In addition, FTHLP loans are only available to United States Citizens and those with a legal right to reside in the United States. Finally, the FTHLP requires that persons receiving loans occupy the home for 10 months out of the year. The FTHLP loans are deferred loans, which means that no loan payment is due until the unit is sold, refinance of the first mortgage of a market rate unit or the buyer otherwise defaults on the terms of the loan. The FTHLP contains different terms for loans to purchase inclusionary units and those to purchase market-rate units. The units are treated differently because under the Inclusionary Zoning Regulations the resale price of the inclusionary units is restricted to an affordable price. Thus, loans for market-rate units provide that, when payment becomes due, the borrower shall pay to the City, in addition to the loan principal, the greater of the following: (i) interest at a fixed interest rate set at the time the loan was made or (ii) an equity share based on the proportion ofthe City's loan compared to the original purchase price of the home. Thus, if the City's loan contributed 10% of the purchase price of the home, the City would be entitled to 10% ofthe increase in equity upon sale or the calculated interest, whichever is greater. By contrast, loans made for Inclusionary Units provide that, when payment becomes due, the borrower shall pay the City the principal amount of this loan, together with simple interest. Inclusionary Units are subject to separate restrictions that limit the price at which the units can be sold and therefore limits the amount of equity that may be created in the home. Thus, the equity sharing concept is not workable for Inclusionary Units. Loan Documents: Staff and the City Attorney's Office are presently finalizing the three form documents ("the FTHLP Legal Documents") that will be used to document and secure the loans to individual buyers. These documents are the following: 1) . Loan Agreement. This agreement will be entered into by the City and the buyer and would specify in detail the terms of the loan, including the occupancy restrictions. For inclusionary units, the Loan Agreement will incorporate the terms of the Resale Restriction and Option to Purchase Agreement that the City uses in its Inclusionary Zoning Program. 2) Promissory Note. The promissory note is the buyer's pledge to the City to repay the loan on the terms set forth in the Loan Agreement. 3) Deed of Trust. The deed of trust is recorded against the property and provides security for the City's loan. It provides that, if the buyer fails to make the required payments or otherwise defaults on its obligations, the City may foreclose on the property. Staff requests that the City Council authorize the City Manager to approve the final form of the FTHLP Legal Documents and subsequent amendments to such form documents provided that he or she finds that the documents are consistent with the FTHLP Summary. In addition, Staff requests that the City Council Page 2 of3 authorizes the City Manager, or his or her designee, to execute FTHLP Legal Documents on behalf of the City for loans to individual buyers. Each applicant that receives a City of Dublin First Time Homebuyer Loan would be required to meet with Staff to ensure the applicant understands the loan documents. Prior to the buyer closing escrow, the buyer and the City Manager would execute the required documents and, as appropriate, the documents would be recorded. RECOMMENDATION: Staff recommends that the City Council: 1) Receive the Staff Report; 2) Deliberate; and 3) Adopt the Resolution Authorizing the City Manager to Approve Final Form of Loan Agreements, Deeds of Trust and Promissory Notes for the First Time Homebuyer Loan Program and authorizing the City Manager to execute such loan documents on behalf of the City. Page 3 of3 /0 "l A i RESOLUTION NO. - 06 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN ********************************************* AUTHORIZING THE CITY MANAGER TO APPROVE FINAL FORM OF LOAN AGREEMENTS, DEEDS OF TRUST AND PROMISSORY NOTES FOR THE FIRST TIME HOMEBUYER LOAN PROGRAM AND AUTHORIZING THE CITY MANAGER TO EXECUTE SUCH LOAN DOCUMENTS ON BEHALF OF THE CITY WHEREAS, the City Council approved a First Time Homebuyer Loan Program ("FTHLP") on March 21,2006; and WHEREAS, the program will make available home loans to qualified applicants; and WHEREAS, the provision of home loans require the use of certain legal documents to document the loan and secure the payment ofthe City's loan, including a loan agreement, a deed oftrust, and a promissory note ("Loan Documents"); and WHEREAS, the City Council desires to authorize the City Manager to approve the form of such documents and to execute such documents on behalf of the City for loans to individual buyers. NOW, THEREFORE, BE IT RESOLVED that the City Council ofthe City of Dublin hereby authorizes the City Manager to approve the final form ofloan agreements, promissory notes, and deeds of trust as well as subsequent amendments to such form documents provided that the Loan Documents approved are consistent with the City of Dublin First Time Homebuyer Loan Program adopted by Resolution 31-06 or as subsequently amended. BE IT FURTHER RESOLVED that the City Council ofthe City of Dublin authorizes the City Manager, in conjunction with First Time Homebuyer loans made by the City to individual buyers pursuant to the FTHLP, to execute the Loan Documents in substantially the form previously approved by the City Manager. PASSED, APPROVED, AND ADOPTED this 19th day of September 2006 by the following votes: AYES: NOES: ABSENT: ABSTAIN: Mayor ATTEST: City Clerk K:\First time homebuyers\StaffReports\Resolution REal Est docs for FTHLP (2) DOC (2).DOC 7:;:(f&: lob Attachment 1 c"< .,? 1 RESOLUTION NO. 31 - 06 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN .....w1f** APPROVING THE FIRST TIME HOMEBUYER LOAN PROGRAM WHEREAS, the City of Dublin ("City") seeks to implement a First Time Homebuyer Loan Program ("Program") to provide assistance to households striving to enter the home buying market in the City by offering financial assistance and education, and WHEREAS, the City included this program as a high priority in its 2005-2006 Goals and Objectives~ and WHEREAS, at a Joint Study Session on December 13, 2005, the City Council and Planning Commission discussed the components of First Time Homebuyer Loan Programs generally and gave City staff direction on what the City's Program should include; and WHEREAS, the direction of the City Council and the Planning Commission is incorporated in the Program attached as Exhi~it A. and WHEREAS, it is anticipated that non~material changes and interpretations may be made to the Program by the City Manager or his or her designee as City staff begins to administer the Program; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin does hereby approve the Program attached as Exhibit A and authorizes the City Manager or hIs or her designee to make non-material changes and interpretations to the same. PASSED, APPROVED AND ADOPTED this 21st day of March, 2006, by the following vote' AYES' Council members Hildenbrand. McCormick, Oravetz and Zika, and Mayor Lockhart NOES. None ABSENT None ABSTAIN None ATTEST ~ ". Clerk Reso No. 31-06, Adopted 3/21/06, Item 7.2 Pap;e 1 of 1 Attachment 2 3') ,4 '/ CITY OF DUBLIN FIRST TIME HOMEBUYER LOAN PROGRAM Goal of PrQi!ram: The goal of the First Time Homebuyer Loan Program is to provide assistance to households striving to enter the home buying market in the City of Dublin by offering financial assistance and education. Definitions " Area Median Income" shall mean the Median Income adjusted by actual household size as published annually by State Department of Housing and Community Development ("HCD") for the County of Alameda, which Median Income levels shall be adjusted concurrently with their publication by HCD "Application Completion Letter" shall mean that letter sent by the City to the applicant ensuring that the applicant's application was complete and the applicant meets the eligibility requirements. "Below-Market Rate Loan" shall mean a loan of up to fifteen percent (15%) of the sales price capped at the monthly median home price as published by Bay East Association of Realtors. UCity" shall mean the City of Dublin, California. "Conditional Loan Approval" shall mean that the applicant's loan was complete, the applicant meets eligibility requirements, and the applicant may proceed to locate a home and begin the rest of the Loan process. "County" shall mean the County of Alameda, California. "Eligible Houseboldu shall mean a household that meets the eligibility criteria set forth in these policies and procedures. "First Time Homebuyer" shall mean a purchaser who has not owned a home, condominium or mobile home, whether as sole owner, tenant..in-common, joint tenant or other form of ownership within the past three (3) years. The City may consider displaced homemakers or other hardship cases. I'Gross Household Io(ome" shall mean all income from all sources from all adult household members derived as provided in the Internal Revenue Code (26 use Section 61), whether or not exempt from federal income tax. Such income includes, but is not limited to. the following: I Wages and salaries including overtime pay; 2. Compensation for services, including fees, commissions, tips and bonuses; Adopted by Re80 No. 31..(16. 3/21/06, Item '.2 --1-- 1--/ /1 /-' -/ 0 i j 3 Net income derived from business; 4 Gains derived from dealings in property; 5 Interest 6 Rents; 7 Royalties; 8 Dividends; 9 Alimony; 10 Child Support; II Annuities; 12. Income from life insurance and endowment contracts; 13 Pensions; 14. Income from discharge of indebtedness; 15 Partnership distributions; 16 Life insurance survivor benefits; 17 Income from an interest in an estate or trust; 18. Public benefits including but not limited to TANF; 5S!, disability income; and/or 19 When a family has net family assets in excess of $5,000, income shall include the actual amount of income. if any. derived from all of the family assets or two percent (2%) of the value of such assets, whichever is greater. "HUD" shall mean the United States Department of Housing and Urban Development. "Market Rate Loan~~ shall mean a loan of up to ten percent (100,/0) of the sales price capped at the monthly median home price as published by Bay East Association of Realtors. "New" shall mean a home not previously occupied. "Loan" shall mean a loan or any other form of financial assistance provided by the City to assist a homeowner to purchase a home, including the Below-Market Rate Loan Wld the Market Rate Loan. "Program" shall mean the City of Dublin First Time Homebuyer Loan Program, including Market Rate and Below-Market Rate Loans for first time homebuyers. "Public Service Employee" shall mean an employee of any public agency situated within the City Loan Terms: Market Rate Loan. When the property is sold, the City receives not only its original loan but also the greater of: (1) interest in a percentage equal to the average of the City's pooled investments for the previous year; or (2) equity based on the proportion of the City's loan compared to the total cost of the home (for example, if the cost of the home is $450,000 and the loan is $45,000, the percentage would be 10%). The home does not remain an affordable housing unit with a maximum affordable sales price. Adopted by Reso No. 31-%. 3121/06, lwm 7.2 --2-- F^f',~; J v / Below~Market Rate Loan. When the property is sold, the City has right of first refusal and the property may not be sold beyond a maximum affordable sales price. The City also receives interest on the original loan a~ a percentage equal to the average of the City's pooled investments for the previous year The City does not receive a percentage of the increased equity The Loan is considered a "deferred" loan because no payments are due until the owners sell the home or a default occurs. Defaults include, but are not limited to, the following: failure to occupy the property as one's primary residence; refinancing above the value of the Loan balance; violations of senior deeds of trust~ or impermissible transfer If refinancing of tbe primary mortgage occurs Staff will determine if this refinancing wiU require Loan repayment The Loan may pair up with the following primary loan products; a fixed mortgage of30 years or longer, some types 5 year fixed and then adjustable rate mortgage (5/1 ARM), some products that offer interest only for a specified time period and then revert to a fixed mortgage of 30 years or longer, or any CalHF A product. However, others may be considered on a case..by...case basis. The specifics of the primary loan products will be reviewed on a case-by-case basis to determine if the loan is deemed secure enough to pair up with the City's '.silent second." The Loan may also work witb layered financing as long as the other loans do not reduce the security of the City's funds. Examples are down payment loans along with primary loans provided by CatHFA. The maximum Loan amount for which an Eligible Household may qualify does not indude the amount the City will front for servicing fees or the cost of any additional due diligence for which the City was required to obtain (i.e. title reports, tennite inspection, credit report and appraisal). Such expenses will be added to the debt secured with the Loan. The Loan shall contain no co-signatories, and only the purchaser's/s namels may be on tbe deed. Oualifvin2 Criteria: A household is eligible for a Loan if it meets the following criteria. I First Time Homebuyer Meets the definitions of First Time Homebuyer described above. 2. Income: The total Gross Household Income must be no more than 120% of the area median for a Below-Market Rate Loan, and no more than or 1400/0, of the area median fOf Market Rate Loans. The area median is based upon the numbers established annually by Hen, and is adjusted fOf hQusebold size. 3 Assets: The household may have no more than two hundred and fifty thousand dollars ($250,000) of total assets, excluding pensions and federally approved pre-tax savings accounts. 4 Owner Occupancy' Applicants must certify that they will occupy the property as their full-time residence at least ten (10) months each year, and that they will not rent or lease the property . Adopted by RellO No. 31-06. 3121/06. Item 7.2 ..3.. (pole; 5 US CitizenshiplLe.aa1 Re~id~ncy' Applicants and all household members must be United States Citizens or have the legal right to reside in the United States. 6 Down Payment: Applicants must be able to provide three percent (3%) of the sales price of the home as a down payment. Preferences: The Program contains preferences for certain individuals (described below). The preferences are detennined when the application is processed for completeness. If the applicant has preference points, the applicant moves ahead of other applications that have yet to receive a letter from Staff confirming a complete application. A household receives preference for a Loan ifone of its members meets any of the following criteria: Lives in the City Works in the City Public Service Employee Senior (62 years +) Permanently Disabled Immediate relative of a City resident Demolition or condominium conversion 3 points 3 points I point I point 1 point I point 1 point Auolication Submi~al J.kg!iremen~; Application - Review for Completion A completed application packet wouJd contain the following: 1 Identifi~JlliQn: Drivers license, birth certificate, or other form of legal photographic identification for all adult household members; 2. Mort8as.e...Materials: Pre-approval letter with description of loan type and completed mortgage application. 3 Account Sliltem~n~~: Three (3) most recent months of statements for all accounts, including checking, savings, or other investment accounts owned in part or full by all adult household members. 4 Employment Income Verification: Verification must specify the amount and type of pay (Le. wages., overtime wages, commissions, bonuses). frequency of pay, and year-ta-date earnings. including check stubs or earning statements showing employee's gross pay per pay period and frequency of pay Due to the unpredictable nature of overtime, commission, and Adopted ~ RellO No. 31-06, 3121/06. Item 7.2 ..4-. 7ol1 bonus income, if necessary, these forms of income may be estimated using prior year income history 5 Other Inc9m~ Verification: For sole proprietors, gross business receipts and three (3) most recent business tax returns, including all schedules and attachments; social security, pensions, public assistance or disability; alimony or child support. 6, Tax Returns: Three (3) most recent income tax returns for all adult household members including all attachments and schedules. 7 applicable. V ~ific.tion of Divorc~ or SmIJ]).ti9n Status: Signed and filed court document, if 8 AuthQrg;ation to Obtain Credit Rep9[ts: Each adult household member shall authorize the City to obtain his or her credit report. AJ1Dlit;ation Processing Once an application packet is received by the Staff, the qualifications of the applicant will be evaluated. Staff will detennine income, credit score. total debt, and preferential status by reviewing the application material. ldm!tification: Staffwill confirm the identity of each applicant. 2. MQrtgage Materials: Staff will confirm that applicant has been pre-approved for a type of primary loan accepted under the Program. 3 Accounl SW:t~ents: Staffwill analyze accounts to detennine that the household does not have more than $250,000 in assets, excluding pensions and federally approved pre-tax savings accounts. 4 Employment Income Verifi~D:tion: Staffwill analyze most CWTent documentation to establish whether income ex:ceeds 1200~ or 1400..10 of the area median income. 5. Other Income VerificatiQ{): Staff will analyze most current documentation to establish whether income exceeds 120% or 140% of the area median income. 6. T~ Returns: Staff' will analyze tax returns to determine the assets and income of the applicants, as well as their first time homebuyer status. 7 YerificatiQn Qf pivorce or Separation St.Q,tJls: Staff will review these court documems as necessary to determine how applicant will take legal ownership of the home. 8. 1\~tborization to Obtain Cr~it Report~: Staff will obtain credit reports to determine that FICA credit score is not below 620 Staff will determine that debt-to-income ratio does not exceed 50%. Ad.;)pted by RellO No. 31-06, 3121106. Item 7.2 --5-- $ c:rf! '1 When Staff determines that all the information has been provided, that the application is complete, and the applicant is qualified, Staff shall send a letter to applicant. Receipt of this "application completion letter" ensures that the applicant is conditionally approved and may proceed to locate a home and begin the rest of the Loan process. StatT will then forward an applicant information packet to the Loan Committee. Loan Committee..Review After the applicant has received the application completion letter he/she is considered conditionally approved. The applicant's information packets will be delivered to a three (3) person loan approval committee as detennined by the City Manager or designee from time to time. Within 5 business days, the members of the loan committee will review the application and, upon a two-thirds vote, confirm or deny the eligibility for a Loan. Locating a Home After the applicant has been detennined to be qualified and is conditionally approved, the applicant must then locate a home, place a real estate bid~ have the bid accepted by seller, enter into a purchase agreement, and provide the purchase agreement to Staff fOf review_ The appHcant must also provide a check for 1 % of the home price to the City of Dublin. This check will be held until loan closing. If the loan closes Staffwill send the check to the escrow company for use as part of the 3% required down payment. Jf the loan does not close and the City of Dublin has incurred. expenses in securing documents needed to qualifY the loan (title report, appraisal, termite report, etc.) then the cost of documents secured will be deducted from the 1% provided. The difference from the amount spent, at cost, and the amount provided by the applicant will be returned to the applicant. Due Dilivence on Selected Home 1 Once the applicant has located a home; ifit is an existing, previously owned home, the City of Dublin Staffwill secure a title report on the property to establish the ownership on the property as well as any clouds or conditions on the title to the property that may merit consideration. 2. The Staff will secure a tennite report from the applicant or tennite finn to determine that the structure is soW1d and will work with the Building Division to determine if any of the recommended work must be completed prior to sale to ensure a sound structure and to safeguard the City's interest in the property In any case, if tennite infestation is found in the report, the seller must comply If any work is determined to be necessary the seller must comply before the City will enter into a loan with an applicant for the property This step is unnecessary on a new home. 3 The Staffwill secure an appraisal of the home to assure that the asking price is reasonable. This step is unnecessary on a below-market rate Inelusionary home. Adopted by RallO No. 31..06,3121/06, Item 7.2 --6.. '1 11' C1J.. 'l t7 All of the above due diligence documents may be obtained from the primary lender or the City may need to enter into contracts for the various services with private service providers. Disbursement gJLoan Funds to Escrow Cumpany Once the City receives approval from the Loan Committee, the applicant has located a home, and all due diligence on tbe property is complete, a claim will be made for a check or wire for the total amount to be loaned. The claim will be held until the home enters escrow, at which time the claim will be delivered to the Finance Division for issuance. The loan funds will be delivered or wired to the escrow company along with closing instructions. Loan Documents Staffwill draw up a complete set of loan documents once the home enters escrow Once all due diligence is complete, the buyer will be called into the office to execute the loan and real estate documents, and the executed documents will be delivered to the Escrow Company for closing and recording. Education The applicant must take a HUD or Fannie :Mae certified First Time Homebuyer class within six (6) months prior to loan closing. Staffwill be able to provide locations to applicants where this requirement may be met. ~attrial Chan2es and I~teroretations Material changes and interpretations to the Program may be made only by Council. Non- material changes and interpretations of the Program may be made by the City Manager or his or her designee. Adopt~d by Rcso No. 31..06,3/21/06, Item 7.2 ..1.-