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HomeMy WebLinkAboutItem 7.2 FirstTimeHomeBuyerProg CITY CLERK File # D[ffi[5J[Q]-~~ AGENDA STATEMENT CITY COUNCIL MEETING DATE: September 20, 200S SUBJECT: Proposcd First Timc Homcbuyer Loan Program Report prepared by: Julia Abdala, Housing Specialist ATTACHMENT: I) State Housing and Community Development Department Mcdian Incomc Limits and Calculations at 120%,140%,160% and 180% Percent of Median Income. RECOMMENDATION: I) /J AtfY 2) /\V· - Receive the StalTReport Provide direction regarding issues relatcd to thc First Timc Homebuyer Loan Program 3) Direct Staffto return with a draÜ of a First Time Homebuyer Loan Program FINANCIAL STATEMENT: There is no flnancial impact in discussing thc various fcaturcs that could be incorporated into a First Timc Homcbuycr Loan Program DESCRIPTION: Thc City Council has been interested in the development of a first time homcbuycr program for several years, The Housing Element adopted on June 3, 2003 contains a policy that the City should provide opportunities for first-timc homcbuycrs to purchasc homcs in Dublin (Policy 11). As a result of this policy and the desire of the City Council to provide a range of housing opportunitics, thc City Council's Goals and Objectives J(Jr 2005-2006 lists the Implementation of a First Time Homebuycr Loan Program (FTHLP) as a high priority. In addition, the City of Dublin budget for 2005-2006 contains $500,000 for usc in a First Time Homebuyer Loan Program. The Godbe Rescarch Housing Needs Study further validated the need for this type of assistance_ This Study, presented to tbe City Council on August 2, 2005, indicated that residents in Dublin believe that a program that would provide financial assistancc for tirst time homebuyers would be valuable. In order to develop an effective First Time Homebuyer Program, Staff has been researching existing programs and lending opportunities: . Staff has discussed First Time Homebuyer Programs provided by other cities (Hayward, San Leandro, Walnut Creek, Fremont, Concord, Livermore, Pleasanton and San Jose) with each respcctivc City Staff. . Staff worked with a small group of lending professionals (Bank of America, Diablo Funding Group, Irwin Home Equity, DIU Mortgage) to review and evaluate the various features that may be beneficial to incorporatc into a Dublin First Time Homebuyer Loan Program (FTHLP), Also ___________________~_~__~___n_____________________________________________~_~______________________________~____~_~~_~_~_______ COPIES TO: FTHLP Advisory Group In House Distribution r7.~ G;\HOUSING\]st time homcbuycrs\StatIRcports\CCSR 82905.doc \Dö\\ ITEM NO. in this group were Housing Staff from the City of Concord and the City of Dublin Housing Consultant, Dan Lopcz. A bcncfit of working with thcsc lending profcssionals was to ensure that any financial assistancc program that the City of Dublin may develop would work well with mortgages being offered in the private sector. As a result of Staff research on existing FTHLP and features that can be incorporated into a program for Dublin, it is now appropriate to bring a list of issues to the City Council for review and direction_ Following this City Council meeting, Staff will implement the City Council's direction and prepare a draft FTHLP. The draft program will then be brought back for City Council review and approvaL Fir.~t Time Homebuyer Program General Background: Due to the high cost of housing throughout the Bay Area, jurisdictions can seldom provide residents with full financing to purchase a residential unit. Citics with first time homebuyer programs almost always provide only partial financing for a homc. This requires thc applicant to scck other financing. Privatc financing is usually the primary flnancing secured in purchasing residential real cstatc. If a prospcctivc buycr gocs to a bank, mortgage brokcr, credit union or uscs a California Housing Financc Agcncy (CaIHF A) product, it is the major debt that the homebuyer incurs. Any First Time HOlllebuyer Program provided by Dublin, of necessity, would provide secondary financing, with the intent to assist in closing the gap between what a buyer could secure in the private market and what amount of financing would be necessary to purchase a home. At the same time, private lenders would not allow a lesscr amount of tlnancing from any jurisdiction to place a lien on the title of mortgagcd property ahead of the private loan_ Due to this industry-wide restriction, thc City of Dublin would come in second, Or with CalHFA produets as low as third or fourth in the chain of title on a mortgaged property_ All jurisdictions contacted and all known City programs function by providing a sccond loan or grant. All tbe cities contacted have indicated that they have not had many problems with borrowers defaulting on their loans; both private loans and City provided loans. It is important to understand that if Dublin provided a secondary loan and a default on a privatc loan did occur and should the primary lending institution foreclose on the property, the City of Dublin could lose the amount that was loaned out. Thc private lending institution would have the ability to foreclose and recuperate their losses, however the same assurance would not exist for any city or other lender lower in the chain of title. This risk can be reduced somewhat by including an "option to purchase" clause in any loan agreement. The City of Dublin currently has this type of clause in the Resale Agreements in use with tbe Tnclusionary Units. With this option, the City of Dublin would have the option to pay off the first lender, purchase the property and then resell it and rccupcratc thc City's losscs. Issues: Staff has developed the following issues for City Council consideration to assist Staffi¡¡ the development of a First Time Homebuyer Loan Program (FTHLP). I. The target units for which the City would provide loans. 2. The maximum amount of financing that the City could provide in a First Time Homebuyer loan; 3. Maximum sale price allowed for a home to participate in the Dublin program; 4. The maximum income that would be allowed for applicants for a First Time Homebuyer Loan; 5_ Discussion of who would be able to utilize the Dublin First Time Homebuyer Loan; 6. The type of loan that the City could provide; 2 Db" 7. Possibility of equity sharing on repayment of the FTH loan as opposed to simple repayment of the FTH loan; 8. If any interest should be charged and the amount of interest tbat could be charged for a FTH loan at maturity; 9. City preferences in providing FTH loans to applicants; 10. Charging of an administrative fee for providing the loan and servicing the loan; and 11 , Maximum assets that an applicant may own and still qualify for a City of Dublin First Time Homebuyer Loan. Issue No.1. Should the City of Dublin provide loans for Inclusionary Units as wen as market rate housing within thc City? Background/,Raûonale: Financial assistance may be made available for qualified buyers seeking to purchasc Inclusionary Units, both new and Inclusionary Units that become available for resale, as wen as market ratc homes within the City limits, both llsed homes and new homes. Pros: Allowing for financing of both markct ratc and Inelusionary Units would provide the most comprehcnsive of first time homebuyer loan products. It would also give the interested buyer the most frcedom in what type of unit to purcbase. Cons: Restricting the financing to only one type of unit, such as existing market ratc units would limit thc ability of households to purchase housing in Dublin with assistance fi:om the First Time Homebuyer Loan Program. The City of Dublin docs not havc a largc inventory of used homes available for sale. Limiting financial assistance to these units could restrict the number of loans provided through the program. Even, if new market rate homes were considered, the price on these are among the highest in the City and it is doubtful whether many first time homebuyers would be in a position to secure financing for homes at these high prices. Limiting financing to only IncIusionary Units could also limit the number of loans providcd through a First Time Homebuyer Loan Program since the number of IncIusionary Units in the City of Dublin is still rather small. Buyers are also more likely to be able to secure private financing for these units since the sale priccs arc restricted by the City's Affordable Housing Agreements and may, therefore, be less likely to need the City's fivandal assistance. Issue No.2. What is the maximum amount that the City should loan under the FTHLP? BackgroundlRaûonale: Reviewing First Time Homebuyer Programs in other cities indicates that when too small an amount is provided as a loan by the municipality, the program generates very little activity. Based on Staffs research, 10% of the sales price appears to provide a sufficient financial participation to make a difference in the ability oflower-income households to purchase a market rate home. If the Council were interested in funding loans for Inelusionary Units, 15% would be recommended_ Market rate homes are generally more expensive than inclusionary units. Therefore, a smaller percentage is suggested for market rate homes than inclusionary units. Inventory of existing homcs in Dublin is rather limited, so Staff anticipates fewer requests for large loans based on high sale prices. Additionally, since this type of financing would only be available to first time homebuyers, it is anticipated that the majority of activity will be in lower priced homes or condominiums including IncIusionary homes. 3 ~\\ Discussio/liPros & Cons: Pros: A ten percent loan for market rate homes and 15 % for Inclusionary homes will generate interest and applications in the first year of the program. Cons: If the mcdian sales price in Dublin is currently $848,000 (Bay East Association of Realtors in July, 2005), a 10% loan may be up to $84,800, if the underwriting warrants this amount. This is a substantial amount of money compared to what is available overall for the program. If many requests come in for loans of this magnitudc, the City will not bc ablc to providc many loans with thc $500,000 amount budgeted in Fiscal Year 2005-2006. Alternatives: At this time Staff does not have any alternatives that would be recommended for consideration by City Council. Issue No.3. Should the maximum home price a buyer may purchase with linancing from the City of Dublin be set at the latest median price as established by Bay East Association of Realtors (BEAR)? BackgroundlRaûonak: Sincc the FTHLP is intended for first time homebuyers, it is assumed that the Program is for those buyers starting out in the real estate market and not for buyers interested in purchasing the higher end homes. The homes sold in the City of Dublin havc a broad range and can be very expensive. It is thereforc suggcstcd that there should be a limit to the prices 0 I' bomes that could be financed through the City's FTHLP. The Bay East Association of Realtors (BEAR) provides monthly median price listings for single-family homcs and condominiums for most of the cities in the region on thc Internet. BEAR is focuscd on those cities in the eastern portion of the East Bay. The membcr realtors overwhelmingly work in the Tri Valley Area. The statistics collected by BEAR would bc uscd to establish a top sales price for homes that the City would finance. Using BEAR statistics, thc maximum home price would be set at the median, The median price for a home in the City of Dublin in July 2005 (the latest month provided) was $848,000 and the median price for a condominium in the City of Dublin in July 2005 was $577,500. Discu.~sion/Pr(Js & Cons: Pros: Sctting the maximum sale price at the monthly median amounts as published by BEAR allows the home prices of homes financed to adjust and keep pace with the market rate price of homes in Dublin. This option also provides a standard measurement that is always accessible for Staff to review and obtain for any prospective borrower. Cons: Limiting the price of homes that may be financed through the City of Dublin program may eliminate some interested homcbuycrs. Alternatives: The City CounciJ may opt to not have a maximum on home prices that may be financed or may suggest some other maximum price. 4 Cb\\ Issue No.4. Should loans be made available to qualifying households with incomes up to 140 % of the County of Alameda median income? Background/Rationale: Currcnt sale prices of homes in the City of Dublin require a household to have over 200 % oflhe area median income (AMI) to be able to afford purchasing a home at the median price, using the City accepted ratio of35 % of total income may go toward housing expenses. Due to the price of homes more and more workforcc households arc bcing priced out of the markct. Many of these workforcc households earn shghlly above 120 % of the area median_ This is particularly the case if the household is a two wage earner household. Examples of households that tend to be just above 120 % ofthe area median income are households with a teacher or police officer as one of the wage earners. Di.ycus.YÎ(mIPros & Cons: Pros: Staff is suggesting that the FTHLP includes loans that are available to quahfying households with incomes up to 140 % of the area median income. By accommodating this higher income category more workforce households may be served. There is a substantial gap betwccn 120 % of AMI as uscd by many programs including the City of Dublin Inclusionary Ordinancc, and the 200 % AMI nceded to purchasc a mcdian priccd home in Dublin. Setting the maximum income of a qualifying household up to 140 % of thc (AMI) servcs to providc assistance to more individuals who are slightly above the "moderate-income category" or 120%, and yet cannot afford to purchase in Dublin. (See Attachment 1, State Income Guidehnes for 2005), There would still remain a gap in affordability for households with incomes above 140 % of AMI; however, the City of Dublin will need to set the limit at some realistic number, since there is not sufficient financing to assist all houscholds needing financial assistance all the way up to 200 % of AMI. Scveral programs that Staff researched use 140 % of AMI as a maximum houschold incomc, including the Silicon Valley Trust Fund and the Home Source Lease-Purchase Program. Cons: No cons identified at this time. Alternatives: The City Council may choosc to limit the household incomc maximum at a percentage other than 140% AMI. Issue No.5. Should the City of Dublin offer First Time Homebuyer Loans to nonresidents as well as Dublin residents? BackgroundlRaûonaw: This issue addresses who should be served by this program; existing Dublin residents or a broader audience including those would desire to live in Dublin, but do not live here currently. Discussion/Pros & Cons: Pros: It is possible that many who would seek housing in Dublin and financing assistance may be employed in Dublin. Assisting thesc households to move to Dublin may thercforc reduce traffic commutes and assist in dccrcasing congestion on local freeways. 5 ~\\ Cons: Providing loans to non-residents would broadcn the pool of possible borrowers. If many applicants apply, it may be more difficult for Dublin residents to securc a sccondary loan from the City of Dublin. Alternatives: The City Council could consider providing FTHLP assistance only to Dublin rcsidcnts. However, restricting loan funds to Dublin residents could TUn the risk of not attracting enough qualified candidates for loans. The universe of existing residents seeking and qualifying for this type of City financing may be too small to provide for a succcssful FTHLP. Issue No.6. Should the City of Dublin provide loans with payment deferred until the home is sold or refinanced? Background/Rationale: This issue addresses when a loan should be paid in full. Generally, there are two methods for loaning money: (I) An amortizcd loan would require that the amount loaned by thc City bc repaid at somc consistent interval, like monthly. The City of Dublin does not have the Staff or financial structures in placc to rcccivc monthly loan payments from borrowers similar to a bank. This would neccssitate somc log in system, posting of payments, reminders when payments are late and some method to collect from delinquencies among other tasks. (2) A deferred loan postpones the payment ofthe loan and requires payment with the lull amount due at a later date. Requiring a loan to be due, in full, at some future defined date is commonly referred to as a balloon payment. However, another method of deferring a repayment is to defer the payment until the sale ofthc property or until the property is refinanced. Staff is suggesting that the FTHLP include a deferred loan program witb tbe full payment due at thc sale or refinancing of the home, Di.~cussion/Pros & Cons: Pros: Providing deferred loans allows lower-income buyers to take advantage of a loan sourcc that would not require payment as the buyers are struggling to pay back the primary mortgage, as first time homebuyers. Loans deferred until resale also work well with most private loan products becausc a primary lender will not count a secondary deferred loan in underwriting to establish the amount of financing for which a prospective borrower may qualifY. Cons: Providing deferred financing takes City funds and makes them unavailable for a longer and uncertain period oftime since Staff cannot know when a buyer intends to sell or refinance the home. Alternatives: There are several other alternatives that the City Council may consider including: I Amortizing the City of Dublin FTHLP, requiring monthly payments. This requires additional Staff 2. Forgive the loan after a given amount oftime; or 6 "b \\ 3. Defer the loan initially for somc pcriod of time (such as five years) and then rcquire monthly loan payments to begin. The loan payments would again, require additional Staff. Requiring paymcnts on a First Time Homebuyer Loan replenishes the pool of money allocated tor the program morc quickly. Thc money would then be available for other uses to be developed by the City Council, or lor other first time homebuyers, however would require additional Staff. As an alternative, the City could contract out for loan servicing, if amortized loans were the preferred method of having loans repaid. Contracting out may be cumbersome sincc some monitoring and supervision is still required of the procured entity. Additionally, there are very few agencies that provide this type of activity, limiting both the choice and possibly the quality of work provided by the contractor. Finally, bccausc thc City of Dublin does not have a large portfolio of loans nor is it anticipated that the numbcrs of loans would reach any considerable size, it may bc ditIicuIt to attract loan-servicing contractors to provide this scrvice for the City of DubJin. Forgiving the loan entirely may eliminate any type (1f collecting activity on qualifying loans and is usually considered when a municipality is seeking to encourage a specific type of response from borrowers, For example, to encourage long-term residency, the City Council might decide to put forward a program that forgave a loan aftcr 15 years. This aItcrnativc would reduce the amount of long-term funds that the City would have for housing activities. Issue No.7. Should the City of Dublin First Time Homebuyer loan be repaid with principal and a share in the equity earned on the City financed home? This option relates only to market rate units. BackgroundlRaûonak: The terms ofthc loan could provide for the City of Dublin to share in the equity with the participant in the FTHLP, Equity sharing is one method to increase and replenish affordable housing funds for the future. In this Option payback of thc loan would include thc full principal loaned as well as somc amount of the equity thc borrowcr has acquired on the financcd property. Since the borrowcr would not have been able to purchase the home without the City of Dublin FTHLP, the City of Dublin could rationali>:e that the City should share in the appreciation of the propcrty. The percentage of equity that would come to the City when the loan is repaid could be the samc ratio as the City loan to the total sales price. For example, on a 10 percent loan, if the original sale price was $500,000 and the City providcd a loan of $50,000, then when the loan was paid back, the City would rcccive $50,000 plus 10 percent of any appreciation on the property financed. Staff is not recommending as an option to share equity on IncIusionary Units where the buyers received a First Time Homcbuyer loan because of tbe resale agreements these propertics havc on title. These units appreciate much more slowly and offer less equity to the owners. Discussion/Pros & Cons: Pros: One advantage of equity sharing is that it does not limit the future sale price of the home through a resale agreement. Equity sharing uses the real estate market to give control and opportunity to the owner. It provides the owner a vehicIc to rcccivc thc bcnefit of the appreciation on the property and at the same time allows the City the ability to receive additional affordable bousing funds. The City of Dublin has In Lieu fee funds, collected from developers to use for affordable housing. However, the In Lieu fees that will be received over time may begin to diminish, as the City gets 7 OVI\ closer to build out and less land is availablc for development. Finding new sources to generate affordable housing funds could be useful in the future_ Cons: Equity sharing does reduce the amount of equity that a buyer receives for the property that was purchased_ If housing values cease to escalate, or homes began depreciating in value, equity sharing does not work well since there is less or no equity to share. Alternatives: The City Council may also consider simply requiring the loan paid back with some amount of intcrest. Borrowers would probably view paying the loan paid back with some amount of interest more favorably since the borrower would be able to keep the equity earned on the property. Additionally, if the loan wcrc paid back with somc amount of intcrcst, rathcr than sharing equity, the outcome may not provide as much money lor the City to use for affordable housing purposcs. Issue No.8 Should the City of Dublin FTHLP require loans received to be paid hack in full, including interest in the amount of the average rate of return earned by the City'? . Background/Rationale: Inclusionary Units are tied to resale restrictions and the equity received by the homcowncr selling thcir unit may be minimal. Requiring repayment of the First Time Homebuyer loan with intcrest, instcad of equity sharing is a practical manner to address the special circumstancc of thc resale restriction on the price. Requiring loans on Inclusionary Units to bc paid back with intcrcst would return money to the City of Dublin that was loaned along with the interest that the City would have earned if this money had bccn invested instead of used to provide a FTHLP loan. Di."cussion/Pros & Cons: Pros: If the City of Dublin were to charge interest on the loan, then the City could be paid back in an amount similar to what the City would have earned if the money had been invested. Cons: Owners of Inclusionary Units will accumulate limited equity on the property they have purchased. This is bccause the Resale Agreement that was entered into under thc City's Inelusionary Ordinance restricts the price the unit may be sold at for 55 years. If the owners remain in the samc unit for longer periods of time more equity may accrue. If the owner moves out within the first fcw ycars, however, the equity received may be nonexistent or minimal depending on the sale price that is based on the increase in the Income Limits. If this is the full extent of the equity earned and the owner must pay back a loan along with intcrcst, it is conccivablc that the household may be required to pay back morc than what will be received on sale of the house and, therefore, leave with less moncy than thcy originally invested. Alternatives: The City Council could consider forgiving the loans entirely for Inclusionary Unit buyers, or alIow for loans to be made with 0 percent interest. Both forgiving the loan and making loans witb 0 perccnt interest would alleviate the possibility that an Inclusionary Unit buyer may need to pay more than the loan itself, at resale. 8 CD\\ However, both forgiving the loan and charging no interest on a loan would result in the City of Dublin receiving money back with less value than when initially loaned or may result in the City receiving no money back, in thc casc of forgiving thc loan. Issne No.9. Should the City preferences used in the IncInsionary Zoning Ordinance be applied to the First Time Homebuyer Program as well? BackgroundlRadonale: The City of Dublin Inclusionary Zoning Ordinance sets forth certain preferences for purchasing lnclusionary Units. This option would utilize the same preferences as those established for the Inclusionary Housing Program. These preferences include those who lived and/or work in Dublin, public scrvicc cmployccs, ineluding tcachcrs, scnior and disabled applicants as well as applicants who do not livc in Dublin but havc an immcdiatc family mcmbcr living in Dublin and applicants that must rclocatc due to demolition of existing housing or of condo convcrsion of existing housing. The application of this option would result in a ranking system for applications. If an application that was consistent with the preferences were to submit a complete application for the FTHLP and there were others ahcad of this houschold; Staff could move the applicant with City preferences ahead of others waiting for rcvicw and approval. Dj.~cus~·jonlPros & Cons: Pros: As noted under Issue No.5, if this program assisted non-residents, then it may bc morc difficult for residents to obtain financing. Allowing for a preference system would address this concern. If Dublin rcsidcnts applied, tbe application would be taken next, not in thc order received. Cons: Requiring City prefcrcnccs for the FTHLP would make the administration of the program slightly more complicatcd, sincc vcrification of any claimcd preference must be ascertained prior to procccding with the applicant. Alternatives: Staff did not idcntify any altcrnatives othcr than not choosing this option. Issne No.1 o. Should the City of Dublin charge an administrative fee, to be determined, for the administration and servicing of these First Time Homebnyer Loans? BackgroundlRadonale: The Affordable Housing In lieu fee funds the Housing Division at this timc. The purpose of the fee is to assist with the development of affordable housing, While these FTH loans do assist in making housing morc affordable, thcy do not guaranty long-term affordability to a home. At the same time, as mentioned earlier, it is estimated that as the City builds out the amount of in lieu fees collected will diminish. Collecting an administrative fee helps to pay for the services of the Housing Staff to administer this program. Sincc the FTHLP wiIl allow the buyer of a market rate homc to resell at market rates, the buyer may earn appreciation from this purchase. At the same time, this type of program is labor intensive. It requires Staff time to work with applicants. Additionally, the program requires underwriting and communication with lenders, realtors and escrow companies. A reasonable fee added to the close of sale is a possible way to extend housing dollars, The amount charged would directly relate to the time and effort that is typically required by Housing Staff to process the loan. 9 ~\\ Discus.~¡')nIPr()s & Cons: Pros: Charging a reasonable administrative fee to service the loan would assist the City of Duhlin in recuperating the funds that are spent by the City to administer the program and each loan. The fee could be a reasonable amount and collected by the escrow company at close of the loan, along with all the fees of financing and purchasing rcal cstatc. Cons: A fec would add a minimal amount to the cost of thc homc. Thc buyer will need to pay this fee along with mortgage, interest, points and everything else from appraisals to inspection fees. Alternatives: The City Council could consider not adding an administrative fee to each loan given_ If the City Council dctermined not to charge this fee, the cost of the house would be slightly less; however, the amount would bc ncgligib1c. This dccision would reduce one fee from the purchase of a homc. If the administrative fee were not charged Staff would continuc to utilizc the in lieu fee for Staff time to administer tl1e FTHLP. If in lieu fees become insufficient in the future, the General Fund would need to be used to maintain and service existing loans, whether or not the program were to continue through future fiscal years. Issue No. 11. What would be the maximum amount in assets that a household may have and still qualify for a First Time Homebuyer Loan'! BackgroundïRaûonale: Primary lenders usually require a reserve in savings when these agencies underwrite loans for applicants_ These lenders want to make sure that a borrower has money in the bank to pay for homeowners insurance, property taxes and other housing associated expenses. The amounts requircd in reserves vary, but average about $5,000. In discussing an asset cap with lending professionals, City Staff was encouraged to allow borrowers to maintain an amount somcwhat largcr than required reserves in savings. The lenders seemed to be conccmcd that first time homcbuyers may TUn across unanticipated expenses and would not be able to cover them without some amount in savings_ Furthermore, discussion suggcstcd that thosc assets that cannot be turned into cash without substantial penalty (401K, IRA) not be included in the asset cap. In addition to the reserve that most lenders require of loan applicants, it may be beneficial to allow borrowers to have some amount of money in savings to cover an unforeseen emergency. In underwriting the City of Dublin's FTH loans, Staff would review a number of factors, including wages or actual income of a qualifying household. For example, if an applicant household is a young family with two wage earners and this household has assets of $250,000; then Staff would be able to make the detern1ination that some of this money should be used to purchase tbe home, rathcr than a City of Dublin loan. On thc othcr hand, if the applicant is a retired person with a pension (income) of $16,000 and has savings of $150,000, then it may he reasonable to assume that this individual lives off of the pension and augments all needs from the savings. This household may be able to qualifY. These are decisions that are usually made when underwriting the loan. Dublin Housing Staff has spoken with Staff from several cities; San Leandro, Hayward, Concord and Walnut Creek and all cities havc flexibility in dctcrmining the amount of assets that an applicant may posses and still qualify for a loan. With the exception of Concord, none of these cities had a hard and fast asset limit. 10 ðb\\ As an overall cap, Staff would suggest that no household with assets over $250,000 qualify for a City of Dublin First Timc Homcbuyer loan. As statcd, thc actual situation may vary on a case-by-case basis and is reviewed and evaluated along with the entire financial status of the household in thc underwriting process. Discussion/Pros & Cons: Pros: Allowing for some assets would allow the qualifying household to respond to unanticipated circumstances with the money in savings. If there were ari emergency and the borrower had insufficient savings, one option the household may have to explorc to sccurc cash could bc to refinance the home loan and take out money. However, the City of Dublin requires the City loan to be paid back when this occurs. Refinancing and repaying a loan that could be in the magnitude of $20,000 - $60,000 could cause a substantial burden. Additionally, it may be that the refinancing institution is not able to provide the borrower with sufficient funds to resolve the household fiscal emergency and pay back the City. This typc of scenario would require the City of Dublin to rcvicw the applicant's personal situation closely and make a special determination whetber the City loan may remain intact with the individual refinancing the first home mortgage and taking out money. It may be preferable to allow a cushion for the household for any potential emergency when first evaluating the applicant for a FTH loan rather than later make discretionary determinations regarding repayment at a later date. Cons: Providing loans to applicants with assets up to $250,000 may rcducc available loan funding to households with less income. Alternatives: The City Council could consider not allowing borrowers to have any assets above primary lender required reserves when applying for a Dublin FTH loan or could consider allowing qualifying applicants to possess smaller amount of assets. Rcquiring first time homebuyers to use personal assets if thcrc arc any, rather than City funds would stretch the City of Dublin first time homebuyer money further. Not allowing applicants to have some assets when applying for a City of Dublin loan could cause the problem in refinancing outlined above. Allowing for a smaller amount as an asset cap would require setting the cap at somc othcr arbitrary number since the jurisdictions polled do not have asset caps. RECOMMENDATION: Staff recommends that thc City Council rcccivc the Staff Report; provide direction regarding the issues rclatcd to the the First Time Homebuyer Loan Program; and direct Staff to return with a draft of a First Time Homebuyer Loan Program. 11 ~\\ '" 8 N Q:: o LL (f) UJ Z :; UJ CJ 5 (!) UJ ::¡; o ü ~ UJ ~ :5 :5 ~ :5 0 0 I,() N CD M ex:> CX) 0 ..... M I,() 0 M I,() f"- 0> ..... ..... ..... ..... ..... ~ ~ ~ ~ ~ :g ~ 0 0 0 M N ... (J) f"- ..... I,() f"- ..... N N M <:"Î 0 ..... .... CD CX) ..... ..... ..... ..... ..... ~ ~ ~ ~ ~ 0 0 0 0 0 I,() I,() (J) CD en en ....- co_ M 0 CD M .... 0 ~ OJ (J) ... M CO ..... ..... ..... ..... ~ ~ <I'} ~ <It 0 0 0 0 ~ 0 I,() N CX) OJ I,() M 0 I,() ø CO .... rJ ~ CX) 0 N ..... ..... ..... ..... ~ ~ <I'} <I'} <I'} 0 0 0 0 0 0 I,() CX) N CD N CO 0_ III (J) .... ¡;f ~ I,() ... !;¡ ..... M ..... ..... ..... <It <It ~ <It <It g g 0 0 0 0 0 0 0_ CX) co_ .... N M t! CX) M CX) .., ex:> 0 ..... 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