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STAFF REPORT C I T Y C L E R K
DUBLIN CITY COUNCIL File # ^[~~~0 -0^C~
DATE: March 1, 2011
TO: Honorable Mayor and City Councilmembers
FROM: Joni Pattillo, City Manager
SUBJE • Proposed Second Amendment to the First Time Homebuyer Loan Program
Prepared By: John Lucero, Housing Specialist
EXECUTIVE SUMMARY:
Staff is requesting the City Council authorize the Second Amendment to the First Time
Homebuyer Loan Program to address changes in the residential mortgage industry that have
occurred in the past several years. Additionally, the Amendment includes minor clean ups that.
are necessary to streamline processes. ~
Staff is also requesting direction from the City .Council if a change should be explored that
would offer borrowers the ability to repay their loans monthly with fixed principal and interest
payments.
FINANCIAL IMPACT:
For Fiscal Year 2010-2011, $400,000 has been allocated for the First Time Homebuyer Loan
Program from the Inclusionary Zoning In Lieu Fee Fund. The funds are budgeted in the
Housing Division's Budget.
Should the City Council give direction to explore offering a fixed monthly loan payment option
as part of the First Time Homebuyer Loan Program, Staff would return to the City Council with
an approximate eost to provide fixed monthly loan payments.
RECOMMENDATION:
Staff recommends that the City Council: 1) Receive Staff presentation; 2) Provide Staff direction
on exploring the ability for a borrower to repay a loan with fixed monthly payments; and 3) Adopt
the Resolution Approving the Proposed Second Amendment to the First Time Homebuyer Loan
Program.
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S~bmitted By eview y eviewe B
Community Development Administrative Services Assistant City
Director Director Manager
Page 1 of 6 ITEM NO. .
BACKGROUND:
At a 2005 Joint Study Session of the City Council and Planning Commission, the City Council
provided direction on the components of a new First Time Home Buyer Loan Program (FTHB
Loan Program) and procedures and substantive criteria for Staff to underwrite and fund loans.
On March 21, 2006, the City Council adopted the "City of Dublin First Time Homebuyer Loan
Program" and subsequently authorized Staff to finalize the form loan documents and issue
loans. The FTHB Loan Program provides loans to first-time homebuyers who meet certain
criteria. Since the inception of the FTHB Loan Program, thirty (30) households have utilized the
FTHB Loan Program to purchase their first home in Dublin and the average loan is $35,000. As
of June 30, 2010 the balance owed from outstanding First Time Home Buyer Loans was
$982,309.
On September 19, 2006, the City Council authorized the City Manager to approve the final form
of loan 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
FTHB Loan Program. The City Council also authorized the City Manager to execute such loan
documents on behalf of the City.
On June 19, 2007, the City Council adopted a Resolution approving the First Amendment to the ~
FTHB Loan Program, to change the FTHB Loan Program's interest rate to three and one half
percent (3.5%). At the adoption of the FTHB Loan Program the interest rate was set as
"interest at a percentage equal to the average of the City's pooled investments for the previous
year."
Proposed Changes
Based on changes in the residential mortgage industry that have occurred over the past several
years, City Staff has drafted the proposed revisions to the FTHB Loan Program. It should be
noted that lending funds carries a risk of non-payment and the program changes are designed
to update the lending requirements based on standards that are considered prudent. Many of
the changes are clarifications and non-material in nature; Staff has identified the following
changes as material to the FTHB Loan Program. The attached matrix (Attachment 1) compares
the existing Program to the proposed Program. The following will present a discussion of the
rationale for the proposed revisions.
1. Underwriting
During the development of the FTHB Loan Program, Staff worked with a small group of lending
professionals to review and evaluate the various residential mortgage loan-underwriting
guidelines to incorporate into the FTHB Loan Program. As a result, the following underwriting
guidelines were established in the FTHB Loan Program:
^ A maximum debt to income ratio of fifty percent (50%);
^ A three percent (3.0%) down .payment requirement;
^ The City's Loan may pair up with the following primary loan products:
o a fixed mortgage of 30-years or longer;
o some types of five (5) year fixed and then adjustable rate mortgage (5/1 ARM);
o some products that offer interest-only for a specified time period and then revert
to a fixed mortgage of 30 years or longer or ;
Page2of6
o any CaIHFA product; however, others may be considered on a case-by case
basis;
^ Area Median Income (AMl) Limits up to one hundred forty percent (140%) for market rate
loans; and
^ The debt-to-income ratio and credit score (FICA) requirement of 620.
In the past two years, the residential mortgage industry has turned from relaxed credit
standards to stringent minimum credit standards. Residential mortgage loans insured by the
Federal Housing Administration, commonly referred to as FHA loans, have replaced many of
the past mortgage loan products for first time homebuyers.
FHA loans now require at least a three and one-half percent (3.5%) down payment and a
maximum limit of one hundred fifteen percent (115%) of Area Median Income (AMI). In
addition, mortgage lenders have returned to using a maximum household debt-to-income ratio
of befinreen 35%-45% in qualifying households for mortgage loans. Of the loans provided, the
average debit-to-income ratio is 39%.
The Amendment provides for the FTHB Loan Program to be consistent with the current
residential mortgage underwriting standards. These changes include:
^ 30-year mortgages are permissible, and variable-rate, no-down payment, and negative
amortizing loans are impermissible (Exhibit A to Attachment 1, p.3 );
^ Acea Median Income (AMI) Limits up to one hundred twenty percent (120%) for loans
paired with conventional mortgage {oan (Exhibit A p.3 );
^ Area Median Income (AMI) Limits up to one fifteen percent (115%) for loans paired with
a mortgage loan that is insured by the Federal Housing Administration (FHA loans)
(Exhibit A p.3 );
^ A three and one-half percent (3.5%} down payment requirement (Exhibit A p. 4);
^ A maximum debt to income ratio of forty-five percent (45%) (Exhibit A p.6 ); and
^ The debt-to-income ratio and credit score requirement (620) may be changed from time
to time. The City endeavors to maintain debt-to-income ratio and credit score consistent
with those used by the California Housing Finance Authority (Cal HFA) or its successor
(Exhibit A p.6).
2. Maximum Loan Amounts.
The following maximum loan amounts for the FTHB Loan Program were established based on a
percentage of the sale price of the unit and did not contain a fixed maximum loan amounfi:
^ Below Market Rate unit applicants were eligible to borrow up to fifteen percent (15%) of
the sale price of the unit.
^ Market Rate unit applicants were eligible to borrow up to ten percent (10%) of the sale
price of the unit.
Since the inception of the Program, the City's average loan amount has been $35,000 for both
Market Rate and Below Market Rate loans. Staff recommends establishing a slightly higher
maximum loan amount than the average loan amount, to provide for a contingency for
increases in the price of housing over time. Staff believes that providing a maximum loan
amount will reduce the City's risk exposure from concentrating a very large balance on a single
loan.
Page 3 of 6
The Amendment provides the following changes to the FTHB Loan Program regarding the
maximum loan amounts:
^ Below Market Rate unit applicants are eligible to borrow up to fifteen percent (15°Io) of
the sale price of the unit with a$40,000 maximum loan amount (Exhibit A p.1 ); and
^ Market Rate unit applicants are eligible to borrow up to ten percent (10%) of the sale
price of the unit with a$40,000 maximum loan amount (Exhibit A p.2).
3. Simple Interest Rate
When the FTHB Loan Program was adopted, the simple interest rate was set as "interest at a
percentage equal to the average of the City's pooled investments for the previous year." On
June 19, 2007, the City Council adopted a Resolution that modified the FTHB Loan Program's
interest rate to three and one-half percent (3.5%) to be more competitive with the surrounding
jurisdictions and to reduce Staff time in implementing the FTHB Loan Program.
The Amendment would change the FTHB Loan Program so that the simple interest rate would
be consistent with that established by the California Housing Finance Authority (CaIHFA) down
payment assistance program, California Homebuyers' . Down Payment Assistance Program °
(CHDAP). The simple interest rate would have an interest rate floor of one percent (1 %) and an
interest rate ceiling of five percent (5%) (Exhibit A p.2).
Should CaIHFA lower interest rates to below one percent, the interest rate floor can help protect
the City from receiving less than one percent (1 %); respectively, should CaIHFA raise their
interest rate above five percent (5%), the interest rate ceiling can help protect borrowers from
higher rates and keep the City's interest rate competitive.
4. Waiting Period for Applicants with Past Delinquencies
The FTHB Loan Program does not currently limit buyers with past foreclosures on their credit
records. The Amendment provides that: all applicants with deeds-in-lieu of foreclosure, and
}udicial and non-judicial forms of foreclosure have a seven-year waiting period to regain
eligibility for participation in the FTHB Loan Program (Exhibit A p.4).
5. New Preference Point for Purchasing a Foreclosed Home
Borrowers with Preference Points are given priority for review and approval of their application
over other FTHB Loan Program borrowers. Preference Points include those who live and/or
work in Dublin; public service employees; seniors and disabled applicants; applicants who do
not live in Dublin, yet have an immediate family member living in Dublin; and applicants who
must relocate due to demolition of existing housing or of condominium conversion.
The Amendment would add a new preference point for those applicants who are purchasing a
foreclosed home. The purchase would assist with the reduction of the foreclosed housing
inventory (Exhibit A p.4).
6. Removal of the Requirement to Provide a Check for One Percent (1 %) of the Home Price
Page 4 of 6
The FTHB Loan Program requires the applicant to provide a check for one percent (1 %) of the
home price to the. City of Dublin. This check is held until loan closing. If the loan closes, Staff
sends the check to the escrow company as part of the three percent (3%) required down
payment.
The intent of the percent (1 %) check was to provide a reserve to pay City incurred expenses in
securing documents needed to qualify the loan (title report, appraisal, termite report, etc.).
However, since the inception of the FTHB Loan Program, the City has not incurred any of the
expenses listed above; the primary lender of the applicant has shared all the necessary
documents to qualify the applicant's loan request.
The proposed Amendment would remove this requirement and require the Applicant's full down
payment requirement of three percent and half (3.5%) to be deposited into the applicant's
escrow account at the designated title company (Exhibit A p.6). Should the City incur fees for
services such as an appraisal, termite report, etc., the cost of the services would be paid by the
applicant before services are performed.
7. Appraisal Requirement
The FTHB Loan Program's current requirement specifies that an appraisal is unnecessary on ~a
Below Market Rate unit. At the time the FT~HB Loan Program was developed, a majority of the
Below Market Rate Units were brand-new and being sold directly by the developer. The City is
now seeing the resale of Below Market Rate units. Therefore, the Amendment provides that an
appraisal on a resale Below Market Rate unit must be provided (Exhibit A p.7).
The appraisal will assist in verifying that the Below Market Rate unit is valued per the Resale
Restriction Agreement (RRA). The RRA er~sures the affordability of the unit by restricting the
value of the unit. In addition the appraisal is used verify the physical condition of the unit and
details of the property that may affect its value.
Staff is recommending that the City Council adopt the proposed resolution (Attachment 2)
approving the Proposed Second Amendment to the First Time Homebuyer Loan Program. The
Program's guidelines are attached as (Exhibit A to Attachment 2).
Research the Option to Offer Fixed Monthly Payments
Since the inception of the FTHB Loan Program, applicants have requested the option of a
repayment schedule. Currently the FTHB Loan Program's repayment term is as follows:
Market Rate Units
^ Payable in one lump sum upon which is the earliest to occur of:
o The thirtieth (30th) anniversary of the date of the Note;
o The safe, transfer, fease or encumbrance of all or any interest in the Property;
o The refinancing or repayment in full of any senior mortgage secured by the
Property; or
o The occurrence of an Event of Default.
Below Market Rate Unit
^ Payable in one lump sum upon which is the earliest to occur of:
o The thirtieth (30th) anniversary of the date of the Note;
o The sale, transfer, lease or encumbrance of all or any interest in the Property;
Page 5 of 6
o The refinancing of any senior mortgage secured by the Property or the
encumbrance of the Property with }unior financing whieh results in "cash out" to
Borrower in excess of the cost of Eligible Capital Improvements approved by City
in accordance with the Resale Restriction Agreement; or
o The occurrence of an Event of Default.
If the City Council would like Staff to study the feasibility of offering borrowers the ability to
repay their loans monthly with fixed principal and interest payments, Staff would return to the
City Council at a future meeting with an analysis of this issue.
In the feasibility study, Staff's research would include: the impact on Staff's workflow and cost of
providing loan portfolio management services such as loan set-up, payment posting, customer
service, payoffs, and reporting requirements. Staff would also research the option of using a
third party vendor such a financial institution or loan serving company to provide loan portfolio
management services.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
On January 26, 2011, Staff met with members of the Bay East Association of Realtors to go
over the proposed Amendment to the First Time Fiome Buyer Loan Program. All attendees
.' expressed support of the proposed'`Amendment. ~~ •
ATTACHMENTS: 1. Program Matrix with proposed changes ~
2. Resolution approving the Second Amendment to the
City of Dublin First Time Homebuyer Loan Program,
with the Amended Program attached as Exhibit A.
1592056.1
Page 6 of 6
Proposed Changes to the First Time Homebuyer Loan Program ~~, D~
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Section and Current Program Page
Topic from Staff Requirement Proposed Amendment to Program Number
*
Report
1 Underwriting
Acceptable Fixed & 30 year Page 3
Mortgage Adjustable Fixed Mortgages
Products Mort a es
140°lo for Market AMI Limits up to 120% for loans paired with conventional
Area Median Rate Loan a conventional mortgage loan.
Income (AMI)
AMI Limits up to 115% for loans paired with a mortgage Page 3
Limits 120 °lo for Below ~oan that is insured by the Federal Housing Authority
Market Loan (FHA .
Down Payment 3% 3.5% Page 4
Back End Page 6
Debit to Income 50°l0 45°l0
Ratio
2 Ma~cimum Loan
Amounts Up to 15% of
sales price for . Up to 15% of sales price for a Below Market Rate Unit Page 1
Below Market with a$40,000 maximum loen amount
Rate Units
Up to 10°l0 of Up to 10% of sales price for a Market Rate Unit with a Page 2
sales price for $40,000 maximum loan amount
Market Rate Units
3 Simple Interest Set annually by the City within the range used by the
Rate 3
5% California Housing Finance Agency. The simple interest Page 2
. rate will have an interest rate floor of 1% and an interest
rate ceilin of 5% ercent.
4 Waiting Period Establishes a 7 year waiting period for applicants that
Page 4
for Applicants N/A have deeds-in-lieu of foreclosure, as well as judicial
with Past and non-judicia{ forms of foreclosure
Delinquencies
5 New Preference -
Point for
N~
°` Would add a preference point for those applicants who Page 4
Purchasing a ' are purchasing a foreclosed home
Foreclosed
Home
6 Removal of the Applicant
Requirement to provides a check Applicant's full down payment requirement of 3.5°fo to be
' Pa e 6
g
Provide a Check for 1% of the s escrow account and
deposited into the applicant
for 1% of the home price to the applicant pays for services (appraisal etc.) performed
Home Price City of Dublin ~
7 praisal
Ap Appraisal
.
Requirement unnecessary on a
Below Market Secure an appraisal for a Below Market Rate Unit Page 7
Rate Unit
*Reference to Program Document Exhibit A, Attachment 2) ~,f-~~ ~~ I~-~ ~ I~~
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ATTACHMENT 1
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RESOLUTION NO. XX - 11
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
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SECOND AMENDMENT TO THE CITY OF DUBLIN FIRST TIME HOMEBUYER LOAN
PROGRAM
WHEREAS, the City Council included the establishment of a First Time Homebuyer Loan
Program as a high priority in its 2005-2006 goals and objectives; and
WHEREAS, on March 21, 2006, the City Council approved a First Time Homebuyer Loan
Program (the Program); and
WHEREAS, material changes to the Program can be made by the City Council as stated
in the Material Changes and Interpretations section of the Program; and
WHEREAS, on June 19, 2007, the City Council approved a First Amendment to the
Program, setting a fixed interest rate at 3.5 percent to be more competitive with the surrounding
jurisdictions and to reduce Staff time in implementing the Program; and
WHEREAS, due to economic changes and changes in the financial and banking markets
that have turned from relaxed credit standards to stringent credit standards, it is necessary to
revise the Program to be consistent with those standards to insure that the Program is practical
and utilized; and
WHEREAS, changes have been proposed to the Program to include a different applicant
deposit requirement, maximum loan amounts for Market Rate Loans and Below-Market Rate
Loans, Area Median Income (AMI) limits, and other requirements as further described therein
and detailed in the proposed Program, attached hereto as Exhibit A; and
WHEREAS, the City Council has reviewed the proposed Program, including the changes
described in the Staff Report, and determined that they are warranted.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin does
hereby approve the Second Amendment to the First Time Homebuyer Loan Program attached
as Exhibit A and authorizes the City Manager or designee to make non-material changes to and
interpretations of the same.
ATTACHMENT 2
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PASSED, APPROVED AND ADOPTED this 1St day of ~March, 2011 by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
Mayor
ATTEST:
City Clerk ~
1592048.1
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CITY OF DUBLIN
FIRST TIME HOMEBUYER LOAN PROGRAM
GUIDELINES
Goal of Program:
The goal of the First Time Homebuyer Loan Program ("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 concurrerit~y with their
publication by HCD.
"Below-Market Rate Loan" shall mean a real estate' loan secured by a housing unit that has a
resale deed restriction. The maximum loan amount is up to fifteen percent (15%) of the sales
price not to exceed $40,000.
"City" shall mean the City of Dublin, California.
"Conditional Approval Letter" shall mean a letter sent by the City to the applicant stating
that the applicant's application includes a ratified purchase contract and is otherwise complete,
that Staff and the Loan Committee have determined the applicant is eligible for the Program, and
that funds are reserved for sixty (60) days from the date of the letter.
"County" shall mean the County of Alameda, California.
"Eligible Household" shall mean a household that meets the eligibility criteria set forth in these
Guidelines.
"First Time Homebuyer" shall mean a purchaser who has not previously owned a home,
condominium or mobile home, whether as sole owner, tenant-in-common, joint tenant or in other
form of ownership within the past three (3) years. The City, at its discretion, may consider
displaced persons or other hardship cases to be within this definition.
"Gross Household Income" shall mean all income, from whatever source derived, of all adult
household members (18 years of age and older), whether or not such income is exempt from
Federal Income Tax. Such income includes, but is not limited to, the following:
1. Wages and salaries including overtime pay;
2. Cbmpensation for services, including fees, commissions, tips and bonuses;
3. Net income derived from business;
- 1 ~ EXHIBIT A TO
ATTACHMENT 2
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4. Gains derived from dealings in property;
5. Interest;
6. Rents;
7. Royalties;
8. Dividends;
9. Alimony;
10. Child Support;
11. 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, SSI, 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 real estate loan for a housing unit that does not have a resale
deed restriction. The maximum loan amount is up to ten percent (10%) of the sales price, not to
exceed $40,000.
"New Home" 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 First Time Homebuyer to purchase a home, including a Below-Market Rate Loan and a
Market Rate Loan. ~
"Pre-Approval Letter" shall mean a letter sent by the City to the applicant stating that the
applicant has met the First Time Homebuyer Loan Program guidelines. The letter shall not be
binding because approval shall be subject to other conditions such as identification. of the
property that will be used as collateral.
"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 that is situated within
the City. ~
"Simple Interest Rate" shall mean the simple interest accrued on the outstanding principal
balance of the Loan, to be set annually by the City within the range used by the California
Housing Finance Agency (CaIHFA) or its successor. The Simple Interest Rate will have an
interest rate floor of one percent (1%) and an interest rate ceiling of five percent (5%).
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Loan Terms•
Market Rate Loan. When the property is sold, the City will receive not only the amount
of its original Loan amount but also the greater of: (1) simple interest accrued 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 $375,000 and the Loan amount is $37,500, the percentage would be ten
percent (10%).
Below-Market Rate Loan. When the property is sold, the City will have a right of first
refusal to purchase the property, and the property may not be sold at a price beyond a defined
maximum affordable sales price. The City wiYl also receive the original loan amourit " and the
simple interest accrued. The City will not receive a percentage of the increased equity.
With respect to both Market Rate and Below Market Rate units, 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. , ~
The Loan may be coupled with a private fixed mortgage of up to 30 years or any CaIHFA
products. The specifics of the primary loan products will be reviewed on a case-by-case basis to
determine if the overall financing provides the City with adequate security to support a City
Loan, and meets City criteria. Layered financing may also be acceptable, provided that the
other loans do not reduce the security of the City's funds. Examples of such layered financing
are down payment loans along with primary loans provided by CaIHFA.
The Loan shall contain no co-signatories, and only the purchaser's/s riame/s may be on the Deed.
Qualifying Criteria:
A household is eligible for a Loan if it meets the following criteria:
1. First Time Homebu~: Meets the definitions of First Time Homebuyer described in the
Definitions section of the Program Guidelines.
2. Income: The total Gross Household Income must be no more than 120% of the Area
Median Income for a Below-Market Rate Loan or Market Rate Loan paired with a conventional ~
mortgage loan. The total Gross Household Income must be no more than 115% of the Area
Median Income for a Below-Market Rate Loan or a Market Rate loan paired with a mortgage
loan that is insured by the Federal Housing Administration (FHA Loan). The Area Median
Income is based upon the numbers established annually by the California Department of Housing
and Community Development ("HCD"), and is adjusted for household size.
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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.
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4. Owner Occupancv: 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.
5. US Citizenship/Legal Residency: Applicants and all household members must be a
citizen or other national of the United States or a qualified alien as defined by the Federal
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ("PRWORA")
6. Down Payment: Applicants must be able to provide and. deposit three and one-half
percent (3.5%) of the sales price of the home into escrow.
7. Waitin~ Period for Borrowers with Past Delinquencies and Defaults: Applicants with
deeds-in-lieu of foreclosure, as well as judicial and non judicial forms of foreclosure, shall have
a seven-year waiting period to regain eligibility for the Program.
Preferences:
The Program contains preferences for certain individuals (described below). The preferences are
determined 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 if one of its members meets any of the following
criteria:
Lives in the City 3 points
Works in the City 3 points
Public 5ervice Employee 1 point
Senior (62 years +) 1 point
Permanently Disabled 1 point
Immediate relative of a City resident 1 point
Demolition or condominium conversion 1 point
Purchase of a.Foreclosed Home 1 point
Application Submittal Requirements:
Application - Review for Completion
A completed application packet must contain the following:
l. Identification: Drivers license, birth certificate, or other form of legal
photographic identification for all adult household members;
2. Mortga~e Materials: Pre-approval letter with description of loan type and
completed mortgage application.
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3. Account Statements: 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. Em l~oyment Income Verification: Verification must specify the amount and type
of pay (i.e. wages, overtime wages, commissions, and bonuses), frequency of pay, and year-to-
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
bonus income, if necessary, these forms of income may be estimated using prior year income
history.
5. Other Income 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. Verification of Divorce or Se~aration Status: Signed and filed court document, if
applicable.
8. Authorization .to Obtain Credit Reports: Each adult household member shall
authorize the City to obtain his or her credit report.
~plication Processing
At this time the applicant may request either the issuance of a Conditional Approval Letter if the
applicant submits a ratified purchase contract or a Pre-Approval Letter without the submission of
a ratified purchase contact. Once an application packet is received by the Staff, the
qualifications of the applicant will be evaluated. Staff will determine income, credit score, total
debt, and preferential status by reviewing the application material.
1. Identification:. Staff will confirm the identity of each applicant. ,... ___
2. Mortgage Materials: Staff will confirm that applicant has been pre-approved for a
type of primary loan accepted under the Program.
3. Account Statements: Staff will analyze accounts to determine that the household
does not have more than $250,000 in assets, excluding pensions and federally approved pre-tax
savings accounts.
4. Em~loyment Income Verification: Staff will analyze most current documentation
to establish whether Gross Household Income exceeds the Program's Area Median Income
limits.
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5. Other Income Verification: Staff will analyze most current documentation to
establish whether Gross Household Income exceeds the Program's Area Median Income limits.
6. Tax Returns: Staff will analyze tax returns to determine the assets and income of
the applicants, as well as their first time homebuyer status.
7. Verification of Divorce or Separation Status: Staff will review applicable court
documents as necessary to determine how applicant will take legal ownership of the home.
8. Authorization to Obtain Credit ReUOrts: 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 forty-five percent (45%). The FICA credit score and debt-to-income ratio may
change from time to time. The City endeavors to maintain credit score and debt-to income ratio
consistent with those used by the California Housing Finance Agency (CaIHFA) or its successor.
When Staff determines that all the information that has been provided for a Conditional
Approval Letter is complete, and the applicant is qualified; Staff shall forward the application
package to the Loan Committee for review. Should the Loan Committee confirm the applicant
eligible for the Loan, a Conditional Approval Letter will be sent to the applicant. Should the
applicant instead qualify for a Pre-Approval Letter, Staff will issue the letter.
Loan Committee Review
After Staff determines the applicant is qualif ed for the Loan, the applicant's information packets
will be delivered to the Loan Committee (a three (3) person loan approval committee as
determined by the City Manager or designee from time to time). Within five (5) business days,
the members of the Loan Committee will review the application and upon a two-thirds vote
confirm, contingent on specific information or criteria, or deny the eligibility for a Loan. After
the applicant is Conditionally Approved by the Loan Committee, the applicant must deposit three
and one-half percent (3.5%) of sales price of the home into escrow.
Completin~ the Loan Process
1. After the applicant receives a Pre-Approval Letter, the applicant can 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 for review.
2. Staff will secure .a lender's title report on the property to establish the ownership on the
property as well as any clouds on or conditions to the title to the property that may merit
consideration.
3. The Staff will secure a termite report from the applicant or termite firm to determine that
the structure is sound 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 termite infestation is found in
the report, the seller must comply with the recommendations. If any work is determined.
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to be necessary the seller must complete the work before the City will enter into a Loan
with an applicant for the property. This step is unnecessary for a New Home.
4. The Staff will secure an appraisal of the home to assure that the asking price is within the
Program Guidelines.
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. Should
the City incur fees for services such as an appraisal, termite report, etc., the cost of the services
will be paid by the applicant before.services are performed.
Disbursement ofLoan Funds to Escrow Company
Once the City receives approval from the Loan Committee, the applicant has located a home, and
all due diligence on the 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
Staff will 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. Staff will provide applicants with locations of such classes. .
Material Changes and Interpretations
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.
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