CC - Item 2C - City's Mortgage Assistance Program•
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' ROSEMEAD CITY COUNCIL
STAFF REPORT
TO:
FROM
DATE
THE HONORABLE MAYOR AND CITY COUN IL
ANDREW C. LAZZARETTO,
JULY 11, 2006
CITY MANAGE(
SUBJECT: APPROVAL OF CHANGES TO CITY'S MORTGAGE ASSISTANCE
PROGRAM
SUMMARY
Real estate prices in the City have escalated dramatically since the City's adoption of
the Mortgage Assistance Program (MAP) in 2001. Based on current prices, staff
proposes to increase the amount of funds available for downpayment assistance,
lengthen the period of affordability and impose an equity share provision in the case of
property appreciation.
Staff Recommendation
Staff recommends that the City Council approve and adopt the proposed changes to the
City's Mortgage Assistance Program Guidelines.
ANALYSIS
The City adopted its Mortgage Assistance Program (MAP) on November 20, 2001. The
program was created because an analysis of the City's Redevelopment-funded Home
Purchase Program (HPP) showed that 47% of program applicants approved to
participate in the HPP were below 80% of the median income and that only 11 % of
loans were approved.
At the time the program was adopted, the average priced home was $156,000. With a
3% downpayment, a family of four (4) earning $43,000 per year needed at least
$31,200 to make the house payment affordable. The MAP program was approved as a
downpayment assistance program offering a maximum of $40,000 as a second trust
deed for qualified households.
Since that time, property values have escalated, with the result that it is much more
difficult for a family to qualify for homeownership using the current amount of
downpayment assistance. The City was unable to close a single loan under the MAP
program in FY 2005-2006.
APPROVED FOR CITY COUNCIL AGENDA: ITEM NUMBER:
! •
City Council Meeting
July 11, 2006
Page 2 of 4
The HOME-funded MAP program has an upper limit set at 95% of the FHA limit for the
area, or HUD-approved local standard. 95% of the current FHA limit is $344,650.
However, based on a review of sales through the Los Angeles Times and discussions
with local realtors, prices in the City currently average approximately $486,000. Smaller
units and condominium units may cost less than the average and prices may remain
stable or drop slightly as the market has slowed recently.
Today, a family of four (4) at 80% of median income can earn no more than $55,450 per
year. Assuming a purchase price of $344,650, a family would require the following In
order to purchase a home in Rosemead:
Item
2001-2002
2005-2006
Purchase Price
156,000
344,650
3% Down (personal)
4,680
10,340
Closing Costs estimated
4,680
4,386
Total Personal Down and Closing
Costs:
9,360
14,726
Total Needed to Finance
151,320*
334,310*
Total to make loan affordable
26,520
72,660
Total personal, assistance, closing
31,200
87,386
Total monthly payment (29% of gross
in 2001, 37% of gross in 2005
1,039
1,741
*In 2001-2002, a household at 80% of median income could afford to finance $129,480 without assistance. In 2005-2006, a
household at 80% median income can afford to finance $164.970 without assistance. This assumes an interest rate of 7% in 2001-
2002 and in 2005-2006.
Proposed Changes to Program
Any proposed changes to the program must take into consideration the public use of
funds and, therefore, its return on investment in order to assist other low-to-moderate
income households; the period in which the City will require the unit to remain
affordable; and the ability to maintain the City's loan portfolio even if the market falls.
After analysis, staff proposes to raise the total amount of downpayment assistance,
increase the period of affordability (in accordance with federal regulations) and require
an equity share in addition to the 5% interest rate. Under the following scenario, the
City's investment should be protected even if there were a 20% drop in property values.
Staff proposes to update the Mortgage Assistance Program as follows:
■ Increase the amount of downpayment assistance from $40,000 to a maximum of
$75,000;
■ Increase the affordability period from ten (10) years to fifteen (15) years;
■ Maintain the 5% interest rate and require an equity share on profit derived from
City Council Meeting
July 11, 2006
Page 3 of 4
sale. Equity share to be prorata apportioned between the homebuyer and City
based on percentage of initial investment, less cost of documented upgrades to
the property by homebuyer.
SIDE BY SIDE COMPARISON
Item
Proposed Changes
Current Program
Applicant eligibility
No changes
80% of median income
Eligible properties
No changes
Homes or Condominiums
Maximum liquid assets
No changes
Sum of personal
downpayment + closing
costs + amt. equal to 6
mos. Payments of
principal/interest + $10,000
Affordability
No changes
Based on individual
earnings
Occupancy Standards
No changes
Principal occupancy; 2
ersons per bedroom + 1
Covenants
No changes except
Maintenance, criminal
increasing length of
activity, affordability,
affordability period from 10
overcrowding restriction
to 15 ears
Equity Share
Prorata equity share less
None
costs of improvements
Financing
No changes
Must qualify for a First Trust
Deed through a qualified
lender
Amount of Assistance
Lesser of $75,000 or
Lesser of $40,000 or
amount to make purchase
amount to make purchase
affordable
affordable
Interest Rate
5% - declines by .33% per
5% - declines by .5% per
year over life of loan to 0%
year over live of loan to 0%
after 15 years. Equity share
after 10 years
remains
Loan to Value
No changes
Total encumbrances not to
exceed 97% of purchase
rice
Use of Proceeds
No changes
Down Payment Assistance
and closing costs
Home Ownership
No changes
Required of each home
Education
buyer. City provides list of
ualified agencies
n
E
City Council Meeting
July 11, 2006
Page 4 of 4
FINANCIAL REVIEW
There is no impact to the City's General Fund. The City has sufficient HOME funds
available to the program.
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process.
Submitted by:
Lisa A. Baker
Housing and Grants Administrator