Meeting Agenda State College Borough CDBG Citizens' Advisory Committee October 3, 2017 Room 242 / 12:00 p.m.

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1 I. Call to Order Meeting Agenda State College Borough CDBG Citizens' Advisory Committee Room 242 / 12:00 p.m. II. Roll Call III. Approval of Minutes IV. Chair Report V. VI. Public Hour - Hearing of Citizens Resale/Recapture Policy A. Proposed Revision to Resale/Recapture Policy VII Meeting Calendar A. The proposed 2018 meeting calendar for the CDBG/Citizens Advisory Committee is attached for review and approval. VIII. Adjournment Documents: Complete CDBG Citizens Advisory Committee Agenda pdf

2 Page 1 of 13 Meeting Agenda State College Borough CDBG/Citizens Advisory Committee Room 242 / 12:00 p.m. I. Call to Order II. Roll Call Jay Meashey, Chair Selden Smith, Vice-Chair Shelton Alexander Shawn Bengali Rebecca Misangyi Marcia Patterson Vansh Prabhu III. Approval of Minutes September 5, 2017 IV. Chair Report V. Public Hour - Hearing of Citizens VI. Resale/Recapture Policy A. Proposed Revision to Resale/Recapture Policy Staff recommends one substantial update to the Resale/Recapture Policy, which is to adjust the method of calculating shared equity. The current scale of equity distribution between a homeowner that is selling their home and the Borough, is shown below. Current Shared Equity Proportional Distribution Scale Length of ownership Borough % Homeowner % 1-5 years 90% 10% 6-15 years 75% 25% years 50% 50% years 10% 90% This current method of calculating shared equity is problematic in several ways: 1. The ten-year periods within the scale can be a disincentive to stay in the home since no additional equity is earned until a full ten-year period expires.

3 Page 2 of The scales are complicated for homebuyers and lenders to understand and accept quickly. 3. Buyers and lenders see the scale as punitive considering that homebuyers also owe the Borough,100% of all down payment and closing cost assistance received. The proposed method increases the homeowner s share of equity equally, by 3.33% each year, over the thirty-year life of the mortgage. The purpose of this change is to maintain the incentive for homebuyers to stay in their home in the Borough while making the program easier to explain to lenders and homebuyers. A spreadsheet is attached to illustrate the impact of the proposed change on the share of equity returned to the homebuyer. Other minor edits are proposed to the narrative of the policy to more fully explain how the policy relates to the HOME Program regulations. However, the only significant change proposed is that described above, which modifies the shared equity provision. The CAC is asked to consider recommending the updated version of the Resale/Recapture Policy to Borough Council for action at the November 6, 2017 Council meeting. Attached: Action Needed: - Draft Resale/Recapture Policy - Spreadsheet illustrating impact of current and proposed shared equity policies Consider approval of the updated Resale/Recapture Policy Staff Recommendation: Staff recommends approval of the Resale/Recapture Policy and forwarding to Council with a recommendation for approval. VII Meeting Calendar A. The proposed 2018 meeting calendar for the CDBG/Citizens Advisory Committee is attached for review and approval. Attached: Action Needed: - Draft Calendar Consider approval of the proposed schedule of meetings for 2018 VIII. Adjournment

4 Page 3 of 13 Meeting Minutes State College Borough CDBG/Citizen s Advisory Committee September 5, 2017 The State College Borough Community Development Block Grant/Citizens Advisory Committee (CDBG/CAC) meeting was called to order by Chairman Meashey, on Tuesday, September 5, 2017 at 12:03 p.m. in the Borough Municipal Building, 243 South Allen Street. Members Present Jay Meashey, Chair; Selden Smith, Vice-Chair; Shelton Alexander and Rebecca Misangyi Others Present Ed LeClear, Planning Director; Maureen Safko, Senior Planner; Elizabeth Eirmann, Planner-Housing Specialist; Denise L. Rhoads, Administrative Assistant, and other interested parties Approval of Minutes A motion was made by Ms. Misangyi and seconded by Mr. Smith to approve the July 6, 2017 minutes as submitted. The vote was unanimously in favor. Chair Report Chairman Meashey reported he had not yet presented to Council and was on their schedule for November 18. Public Hour No one was in the audience who wished to discuss items not on the agenda Consolidated Annual Action Plan Mr. LeClear stated staff developed a draft 2018 Consolidated Annual Action Plan (Action Plan). The CAC was asked to develop its recommendation to forward to Council for consideration at their November 6 meeting. Mr. LeClear stated the Senate passed a Housing and Urban Development (HUD) bill that would keep both CDBG and HOME Investment Partnerships Program (HOME) funds stable and the House wanted to cut those budgets and the President wanted to eliminate both programs altogether. Mr. LeClear s presentation included: ~Summary of CDBG budget: Administration and Planning - $97,484.20

5 Page 4 of 13 Human/Public Services - $73,113 Public Facilities and Improvements - $243, Housing Put all funds into First-time Homebuyer program (FTHB) for this year - $73, No contingency Mr. LeClear stated with the 2018 CDBG allocation of $487,421. and the 2016 reprogrammed funds of $ total revenues were $487, ~Summary of HOME Budget Administration - $32, Housing - $272, was divided between the State College Community Land Trust (SCCLT) and Temporary Housing Foundation, Inc. (THF) Total revenues were - $320,531. Committees comments included: Chairman Meashey asked if THF was more beneficial than SCCLT. Mr. LeClear stated the land trust model could be more beneficial. Ms. Eirmann stated with SCCLT homes, an applicant would not need a down payment. A motion to recommend approval of those funds was made by Vice-Chairman Smith and seconded by Ms. Misangyi. The vote was unanimously in favor. Citizen Participation Plan Mr. LeClear reported there were some minor updates to the Citizen Participation Plan (CPP) which provided a procedure for reconciling estimated and actual grant allocation amounts. He noted staff recommended approval of this draft. Mr. LeClear s presentation included: He stated every entitlement community was required to have a CPP. Mr. LeClear noted, by making these edits, if the budget was amended by HUD the process to approve would only require an informal approval process instead of a substantial approval process (approved by Council). He noted proposed edits were: 1) Would like to add a second exception: reconciling estimated and actual allocation amounts changes made to reconcile estimated amounts used prior to the announcement of the funding year s actual allocation amounts would not require an amendment as long as the Action Plan included language that estimated amounts used and contingency language on how the plan would be adjusted to match actual allocation amounts once announced. 2) Also, revised the word citizen to resident to make this consistent with HUD guidance. A motion to recommend approval of the CPP to Council was made by Mr. Alexander and seconded by Ms. Misangyi. The vote was unanimously in favor.

6 Page 5 of 13 Staff reports: Mr. LeClear shared staff had two upcoming projects. A community workshop on September 25 at 7 p.m. with a joint Planning Commission (PC) and Council meeting at 5:30 p.m. regarding the zoning revision project. He stated the second project was for an Historical and Architectural Review Board (HARB). Mr. LeClear noted there were maps of College Heights and Holmes- Foster/Highlands neighborhoods and a notice regarding a September 14 community workshop at 7 p.m. on our website. Chairman Meashey asked about affordable housing for the Rise project. Mr. LeClear stated the units would be throughout the building and when occupied, our office would monitor those units. Adjournment With no further business to discuss, the meeting was adjourned at 12:37 p.m. by Ms. Misangyi and seconded by Mr. Alexander. Respectfully submitted, Denise L. Rhoads, Administrative Assistant

7 Page 6 of 13 c. Resale/Recapture Provisions In accordance with 24 CFR as amended by the 2013 HOME Final Rule, to ensure affordability, the Borough must impose either resale or recapture requirements during the HOME period of affordability. The Borough s First Time Home Buyer Programs (Low- and Middle-Income) and the Transitional Housing Foundation First Time Home Buyer Program (THF FTHB) use recapture requirements. Resale provisions apply to the State College Community Land Trust First Time Home Buyer Program (SCCLT FTHB). The following table outlines the required HOME Program minimum affordability periods. If the total HOME investment (resale) or direct subsidy (recapture) in the unit is: Under $15,000 Between $15,000 and $40,000 Over $40,000 The period of affordability is: 5 years 10 years 15 years At its option, the Borough chose to impose extended periods of affordability for various components of this Resale/Recapture Provisions policy. For example, the FTHB Programs of State College Borough and THF apply shared equity requirements for a 30-year period. The SCCLT FTHB Program employs a 99-year ground lease to enforce continued affordability. However, all HOME Program Resale/Recapture requirements are terminated at the end of the minimum HOME periods of affordability as outlined above. HOME resale/recapture regulations only apply to SCB and THF FTHB Programs during the HOME 5, 10 and 15-year periods of affordability per HOME regulations. The following guidelines are used in completing the FTHB Mortgage Satisfaction Process worksheet. Recapture Guidelines for FTHB Programs of Borough of State College & THF The Borough of State College uses HOME funds to assist First Time Home Buyers with down payment and closing cost assistance. Through recapture provisions, program participants are required at the Maturity Date (defined below) to pay 100% of the FTHB assistance to the Borough. The following describes the recapture requirement used for the Borough s FTHB Programs and the THF FTHB Program. Monthly principal and interest payments are not required. Payment of the full principal which, if not sooner paid, shall be due and payable on the Maturity Date, being the earlier of: (A) the date when title, or any interest in the property, is transferred by deed, article of agreement, or lease; (B) the date when the first mortgage upon the property is refinanced; (C) the date when the first mortgage upon the property is paid in full; (D) the date when the property is no longer the Borrower's primary residence; (E) the date when either the first mortgage upon the property or the Borough s subordinate mortgage, or this note, is in default.

8 Page 7 of 13 In the event the property is sold and the net proceeds (the gross sales price minus the loan payoff of the superior debt and customary and reasonable closing costs incurred by owner to sell the property) are not sufficient to repay the CDBG (or HOME) subsidy due at the time of sale and the owner's down payment and any capital improvement investment made by the owner since purchase, the net proceeds shall be divided proportionally as set forth in the following mathematical formulas: CDBG (or HOME) subsidy CDBG (or HOME) subsidy + owner investment owner investment CDBG (or HOME) subsidy + owner investment X net proceeds = Amount to Borough X net proceeds = Amount to Owner Example Calculation Sale Price of Home $158, Less Loan Pay-Off of the Superior Debt 110, Less Estimated Closing Costs 7, Net Proceeds $ 40, Owner Original Investment $ 5, Plus Borough Subsidy 51, Combined Investment $ 56, ,621 56,621 5,000 56,621 X 40,100 = $36, = Amount to Borough X 40,100 = $3, = Amount to owner Shared Equity Guidelines for FTHB Programs of Borough of State College & THF As of January 1, 2005, both the Borough s FTHB Program and the THF CHDO Homebuyer Programs use a shared equity formula. If the property appreciates in value, upon the sale of the house, the proceeds (sales price, less first mortgage payoff, less transaction costs, less owner original investment, less Borough original subsidy, and less homeowner s approved capital improvement investments) are divided between the homeowner and the Borough based on a proportional scale. The longer the homeowner remains in the home and continues to pay the principal on the primary loan balance, and is not in default of any of the conditions of the primary or secondary loan, the larger the share of proceeds the homeowner receives at the time of sale. If the Homeowner sells the home prior to the first anniversary of the Borough FTHB assistance loan then 100% of all equity earned in the home at the time of sale is received by the Borough. The homeowner is not entitled to any equity earned in the home prior to the first anniversary of the Borough s loan to the homeowner. Upon each subsequent anniversary date of the loan, the homeowner retains an additional 3.33% of the equity earned in the property. If the homebuyer remains the owner and principal resident of the property for thirty (30) years, the Borough is no longer entitled to any share of the equity earned in the property.

9 Page 8 of 13 Example Calculation: Low income homeowner sold in year 6 Sale Price of Home $158, Less First Mortgage Pay-Off 77, Less Estimated Closing Costs 7, Net Proceeds $ 72, Owner Original Investment $ 5, Plus Borough Subsidy 51, Combined Investment $ 56, Net Proceeds $ 72, Less Combined Investment 56, Proceeds $ 16, Based on the above scale for 6 years of ownership the proceeds would be distributed at $3, to the Homeowner (3.33% X 6 years = 19.98% of equity) ($16,226 x.1998 = $3,241.76) and $12, to the Borough (100% % = 80.02%) ($16,225 x.8002 = $12,983.24). In addition to the shared equity proportional distribution, the Borough and the homeowner will receive their original investments. After 30 years of ownership, the Shared Equity provision is eliminated. SCCLT s FTHB Program Following is a description of the resale provisions covering the SCCLT s FTHB Program. Affordability Two separate affordability periods apply to the programs: 1. The HOME affordability period, based on the total amount of HOME funds used to assist the property, with the following requirements: a. Adherence to all HOME Investment Partnership Program regulations, including monitoring and federal cross cutting regulations. b. All requirements in the Ground Lease. 2. Extended Period of Affordability, extending the affordability period to 99 years once the HOME affordability ends, with the following requirements: a. All requirements in the Ground Lease. The homeowner may sell only to SCCLT or another income eligible homebuyer (income not to exceed 80% of AMI.) In the event the resale price (which provides a fair return to the original homebuyer) is not affordable to the next income-eligible homebuyer, non-home funding would be used for down payment assistance. Enforcement The SCCLT uses resale provisions which are included in and enforced through a 99-year ground lease executed between the SCCLT and the homebuyer. A memorandum of the ground lease is recorded and the deed reflects that there is a ground lease.

10 Page 9 of 13 Purchase Option Price The Purchase Option Price is the maximum allowable resale price of the Improvements and is equal to the lower of 1 or 2 below: Or 1. The Formula Price, which is defined as: a. the Homeowner s Base Price plus interest at a rate of 2.00% compounded annually; b. plus any applicable Credit for Qualified Capital Improvements (see below for definition;) c. less any Excessive Damage Charges. Excessive Damage Charge is the charge for repairs, replacements, or maintenance, not completed by the homeowner, due to failure to maintain the property in good, safe, habitable, and workable condition. 2. If SCCLT believes that the value of the Homeowner s Ownership Interest at Resale might be less than the Formula price, an appraisal will be commissioned to determine the Appraised Value of Homeowner s Ownership Interest at Resale, which is defined as: a. The appraised value of the Leased Land and Home at time of resale multiplied by the Ratio of Base Price to Initial Value (equals the Homeowner s Base Price divided by the appraised value of the Leased Land and Home at time of purchase;) b. plus any applicable Credit for Qualified Capital Improvements (see below for definition;) c. less any Excessive Damage Charges. Excessive Damage Charge is the charge for repairs, replacements, or maintenance, not completed by the homeowner, due to failure to maintain the property in good, safe, habitable, and workable condition. Fair Return on Investment The Purchase Option Price should provide a fair return to the homeowner based on the homeowner s original investment in the property and the increase in market value attributable to capital improvements to the property. Homeowner s Investment: A fair return on the homeowner s original investment equals the amount of the investment plus the amount of investment multiplied by the percentage increase of the appropriate standard (i.e., 2.00% compounded annually or Ratio of Base Price to Initial Value.) Capital Improvements: A fair return on the homeowner s capital improvements equals the cost of the capital improvement plus the cost of the capital improvement multiplied by the percentage increase of the appropriate standard (i.e., 2.00% compounded annually or Ratio of Base Price to Initial Value.) A Qualified Capital Improvement is limited to the following construction or alterations: a. the addition of a bedroom; b. the addition of a bathroom; c. an addition or modification that increases accessibility or utility for persons with a disability; and/or d. upgrades that increase the energy efficiency.

11 Page 10 of 13 To receive a Credit for Qualified Capital Improvement for the cost of the capital improvement, the homeowner must obtain prior written approval from SCCLT. Example Calculation In 2014 an income eligible homebuyer purchases a home from SCCLT for $126,000 (Homeowner s Base Price). The homebuyer contributes a down payment of $3,780 (3%, which equals the Homeowner s Investment) and is provided $6,300 in closing cost assistance in the form of a no-interest loan to be repaid at time of resale. In 2018, the homeowner receives a $5.000 Credit for Qualified Capital Improvement for the approved installation of a new bathroom. In 2019, the homeowner decides to sell the home. No Excessive Damage Charges were required. Following is the calculation of the Purchase Option Price using the Formula Price option: Homeowner s Base Price $126,000 Plus 2% compounded annually over 5 years $ 13,115 Plus Credit for Qualified Capital Improvement $ 5,000 Minus Excessive Damage Charges $ 0 Purchase Option Price $144,115 Following is the calculation for a Fair Return on Investment: Homeowner s Investment $ 3,780 Plus 2% compounded annually over 5 years $ 394 Plus Credit for Qualified Capital Improvement $ 5,000 Plus 2% compounded annually over 1 year $ 100 Fair Return on Investment $ 9,274 Actual Homeowner s Return on Investment: Purchase Option Price $144,115 Minus repayment of mortgage balance $121,000 Minus repayment of closing cost assistance $ 5,250 Minus costs to sell house $ 3,000 Actual Homeowner s Return on Investment $ 14,865

12 Page 11 of 13 Is this where the FTHB Mortgage Satisfaction Process worksheet (J:\PLANNING\CDBG\HOUSING PROGRAMS (FTHB-KEMMERER- BELLAIRE)\FTHB\Satisfaction & Refinance\0-Policies & Procedures\FTHB MORTGAGE SATISFACTION Procedures-2014.docx) should be referenced? Liz and I think it would make sense to reference this worksheet in the provisions and added a brief sentence early in the document to add a mention of this. Should this be in the official Resale/Recapture provisions? Not sure what the other option would be. Is there another resale/recapture provisions statement somewhere? If not, then I would have to be our official provisions.

13 Comparison of Distribution of Net Proceeds Under Current and Proposed Shared Equity Calculation Methods If the property appreciates, upon the sale of the house, the net proceeds (sales price less first mortgage payoff, less transaction costs, and less certain home improvement investments ) are divided between the homeowner and State College Borough based on a proportional scale. The longer the homeowner remains in the home and continues to pay the principal on the loan balance, the larger the share of proceeds the homeowner receives at the time of sale. CDBG/Citizens' Advisory Committee Agenda Page 12 of 13 CURRENT - Shared Equity Proportional Distribution Scale Length of Ownership Borough % Homeowner % 1-5 years 90% 10% 6-15 years 75% 25% years 50% 50% years 10% 90% PROPOSED - Shared Equity Proportional Distribution Scale Homeowner's share of equity increases by 3.33% annually on the anniversary date of the mortgage. Comparison of Distribution of Equity by Current and Proposed Methods (Assuming a constant hypothetical Net Proceeds of $40,000) Years of Ownership Current Method Boro's Share Current Method Owner's Share Proposed Method Boro's Share Proposed Method Owner's Share 1 $36, $4, $38, $1, $36, $4, $37, $2, $36, $4, $36, $3, $36, $4, $34, $5, $36, $4, $33, $6, $30, $10, $32, $7, $30, $10, $30, $9, $30, $10, $29, $10, $30, $10, $28, $11, $30, $10, $26, $13, $30, $10, $25, $14, $30, $10, $24, $15, $30, $10, $22, $17, $30, $10, $21, $18, $30, $10, $20, $19, $20, $20, $18, $21, $20, $20, $17, $22, $20, $20, $16, $23, $20, $20, $14, $25, $20, $20, $13, $26, $20, $20, $12, $27, $20, $20, $10, $29, $20, $20, $9, $30, $20, $20, $8, $31, $20, $20, $6, $33, $4, $36, $5, $34, $4, $36, $4, $35, $4, $36, $2, $37, $4, $36, $1, $38, $4, $36, $40.00 $39,960.00

14 Page 13 of CDBG/Citizens Advisory Committee-Draft JANUARY FEBRUARY MARCH S M T W T F S S M T W T F S S M T W T F S New Years/MLK Holiday President's Day PSU Spring Break APRIL MAY JUNE S M T W T F S S M T W T F S S M T W T F S Memorial Day JULY AUGUST SEPTEMBER S M T W T F S S M T W T F S S M T W T F S Independence Day/ Arts Fest Labor Day OCTOBER NOVEMBER DECEMBER S M T W T F S S M T W T F S S M T W T F S Veteran's Day/Thanksgiving Winter Holiday - Holiday - Arts Fest Noon CAC PSU Spring Break