INFORMATIONAL REPORT

Transcription

1 INFORMATIONAL REPORT DATE ISSUED: July 3, 2014 REPORT NO: HCR ATTENTION: SUBJECT: Chair and Members of the San Diego Housing Commission For the Agenda of August 1, 2014 Proposed Revisions to the First-Time Homebuyer Program COUNCIL DISTRICT: Citywide NO ACTION IS REQUIRED ON THE PART OF THE HOUSING COMMISSION SUMMARY The San Diego Housing Commission (Housing Commission) has operated a First-Time Homebuyer (FTHB) Program since 1992 to help low- and moderate-income San Diegans achieve home ownership. Currently, the Housing Commission s FTHB loan portfolio consists of approximately 1,370 loans totaling more than $47 million. Over the years the program terms and guidelines have been revised to respond to market changes and to ensure continued effectiveness. Recent changes in the lending industry and regulatory environment create the need to update and revise our loan and grant programs and procedures. After reviewing current practices and guidelines, staff is implementing the following revisions to the FTHB Program: 1) Modify the existing Closing Cost Assistance Grant (CCAG) Program to a Homeownership Grant Program offering eligible buyers earning up to 100 percent of Area Median Income (AMI) down payment and closing cost assistance of up to 6 percent of the purchase price, not to exceed $20,000. Under the existing CCAG program, the grant funds are used for payment of closing costs only. It is a two-tiered program: a) for households at 80 percent or below AMI, the grant is up to $15,000 or 4 percent of the purchase price, whichever is less; and b) for households at 81 to 100 percent of AMI, the grant is up to $10,000 or 4 percent of the purchase price, whichever is less. The revised Homeownership Grant amount for all eligible buyers will be increased to 6 percent of the purchase price or $20,000 maximum, whichever is less. The 6 percent assistance will be composed of up to 2 percent for the down payment and up to 4 percent for closing costs. Buyers still will be required to have a minimum investment in the property of 3 percent from their personal funds. The Housing Commission s additional 2 percent contribution toward the down payment will allow the borrower to meet the new Fannie Mae conventional financing requirement, limiting the combined loan-to-value (LTV) ratio to 95 percent (reduced from 97 percent). The 2 percent will only be provided by the Housing Commission to make up what is needed to meet the 5 percent down payment requirement.

2 July 3, 2014 Proposed Revisions to the First Time Homebuyer Program Page 2 The balance of the Homeownership Grant assistance can be used for payment of closing costs. In no case can the funds for the closing costs exceed 4 percent or $15,000; whichever is less, even if no funds are needed for the down payment. 2) Modify the terms of the Closing Cost Assistance Recoverable Grant Program (CCAG) to become a Non-Recoverable Homeownership Grant, forgiven at escrow closing. Under the existing CCAG program, the grant is recoverable if the property is sold, transferred, refinanced or not owner- occupied during the first six years of ownership; after six years, the grant is forgiven. The Homeownership Grant funds for down payment and closing cost assistance will be nonrecoverable and forgiven at escrow closing. This change will eliminate the Housing Commission use of a Promissory Note and Deed of Trust to secure the CCAG, which will result in lower LTV ratios by participating lenders. Current practice is resulting in combined LTV ratios of 101 percent which does not meet the new Fannie Mae conventional financing requirement. Due to federal affordability requirements, the Homeownership Grant would only be funded in conjunction with the Housing Commission s deferred loan program; stand-alone grants would be removed as an option from the FTHB Program. A Grant Agreement will be executed by the buyer to acknowledge receipt of the funds; however this document will not be recorded. This revision also will eliminate the need to service the grant documents during the six- year recoverable period as required under the existing CCAG Program. 3) Revise the Homeownership Grant program guidelines to allow lenders to charge up to 2.5 percent of the first trust deed amount for loan origination and discount points combined; loan origination to be capped at 1.5 percent. Under the existing CCAG Program, guidelines lenders are allowed up to 1.5 percent of the first trust deed amount to be used solely toward the lender s loan origination fee and up to 1 percent of the first trust deed amount exclusively for discount points to reduce the interest rate. As interest rates and housing prices increase, buyers may find it more challenging to qualify for the financing needed to purchase their first home. Current FTHB guidelines allow specific loan origination and discount points. In some cases, there are lower or no loan origination fees charged by the lenders; therefore, combining both resources could allow the buyer to take advantage of a better interest rate with up to 2.5 points available to them. If discount points are not charged to lower the interest rate, the maximum allowed for loan origination will remain capped at 1.5 percent of the first trust deed loan. 4) Modify the FTHB Program to allow the up-front mortgage insurance premium (UFMIP) for FHA loans and the funding fee for VA loans to be financed by the first trust deed loan resulting in a LTV ratio exceeding 97 percent of the purchase price or appraised value, whichever is less.

3 July 3, 2014 Proposed Revisions to the First Time Homebuyer Program Page 3 Under the existing FTHB Program, the maximum LTV ratio allowed is 97 percent of the purchase price or appraised value, whichever is less. Since existing program guidelines restrict the LTV ratio to 97 percent, the UFMIP and VA funding fee cannot be financed by the first trust deed loan as is the typical industry practice. The Housing Commission requires the UFMIP and VA funding fee to be paid at escrow closing and allows them to be paid through the CCAG. Currently the UFMIP requirement is 1.75 percent of the first trust deed loan and the VA funding fee is 2.25 percent of the first trust deed loan. By requiring these premiums to be paid at closing, the amount available to pay other closing costs is greatly reduced. The buyers will still be required to have a minimum investment in the property of 3 percent from their personal funds. Staff is requesting an exception, permitting the LTV ratio to exceed 97 percent by allowing the UFMIP and VA funding fee to be financed by the first trust deed loan. Attachment 1 lists the previous San Diego City Council and/or Committee actions. Respectfully submitted, Vicki Monce Vicki Monce Loan Services Manager Real Estate Division Approved by, Deborah N. Ruane Deborah N. Ruane Senior Vice President Real Estate Division Attachments: 1) Previous San Diego City Council and/or Committee Action Hard copies are available for review during business hours in the main lobby of the San Diego Housing Commission offices at 1122 Broadway, San Diego, CA and at the Office of the San Diego City Clerk, 202 C Street, San Diego, CA You may also review complete docket materials on the San Diego Housing Commission website at

4 Attachment 1 PREVIOUS COUNCIL and/or COMMITTEE ACTION / FIRST TIME HOMEBUYER PROGRAM TIMELINE April 6, 1992 (HCR ) Silent second trust deed loans were created under a Home Buyer s Program to help low-income households (80 percent or less of AMI) qualify for homeownership using HOME funds. No payments were required until the loan became due. The amount of the loan represented the difference between the market rate loan that the buyer qualified for, plus the buyer s down payment, and the appraised value of the home. The silent second trust deed loan could not exceed $20,000. Continued affordability would be ensured for 15 years for existing homes, and for 20 years for new homes. Forgiveness of the loan would occur after 15 or 20 years, whichever was applicable. (No loans were funded under this program description) June 15, 1992 (HCR ) Shared appreciation loans for buyers earning 80 percent or less of AMI was approved using Housing Trust Funds. The maximum loan amount was $25,000. The silent second loan was at zero interest but the mortgage principal increased as the value of the home increased. When the buyer sold the home, the principal of the loan was to be computed based on the sales price. (No loans were funded under this program description) A Recoverable Grant Program was developed to assist buyers up to 100 percent of AMI using Housing Trust Funds. Grant amounts were limited to 2 percent of the purchase price up to $5,000. The grant would be recovered if the family sells the home within six years. July 20, 1992 (HCR ) Shared equity component was added to the terms of the silent second trust deed loan program. The buyer s share of the equity started out at 20 percent in year one, with 80 percent to the Housing Commission. Beginning in year two, the buyer s equity increased, as the Commission s decreased, by one percent per year. (No loans were funded under this program description) February 22, 1993 (HCR ) Shared equity provision was amended to a 50 %-50% split. The buyer s equity share increased every year to benefit the homeowner. In addition, the shared equity provision was forgiven if the homebuyer occupied the residence for 15 years. The maximum loan amount was 20 percent of the purchase price or $25,000, whichever was less. June 1, 2001 (HCR ) Shared equity loan amount was increased to 25 percent of the purchase price or $40,000, whichever was less. Down Payment Assistance Grants were increased to the lesser of $5,000 or 4 percent of the purchase price. November 15, 2002 (HCR ) Shared equity loan amount was amended to 25 percent of the purchase price. A specific dollar amount was eliminated.

5 Down Payment/Closing Cost Assistance Grant was increased to the lesser of $7,500 or 4 percent of the purchase price. May 14, 2004 (HCR 04-40) Shared equity loan program was created to assist tenants affected by condominium conversions. The loan terms for buyers at or below 80 percent AMI mirrored the existing silent second loan program. A new program was added to assist buyers up to 100 percent AMI with the loan not to exceed $15,000. May 6, 2005 (HCR 05-34) Shared Equity Loan Program and Condominium Conversion 80 percent AMI Loan Program were revised to a 30-year shared appreciation loan program. The down payment/closing cost assistance grant was modified into a two-tiered program: a) for households in the 100 percent AMI category, the lesser of $10,000 or 4 percent of the purchase price; and b) for household at or below 80 percent AMI the lesser of $15,000 or 4 percent of the purchase price. During this meeting the Chair requested the guidelines be revised to cap the loan origination fee at 1.5 points. March 3, 2006 (HCR 06-21) A two-tiered, 3 percent interest deferred payment loan program was created to assist buyers purchasing affordability restricted units. The first tier assists buyers earning 80 percent or less AMI with a second trust deed loan not to exceed 25 percent of the purchase price. The second tier helps buyers earning up to 100 percent AMI with a second trust deed loan up to 15 percent of the purchase price. In addition, the Condominium Conversion 100 percent AMI Loan Program was revised to a maximum loan amount of 15 percent of the purchase price and the shared appreciation provision was extended to 30 years. August 8, 2006 (HAR 06-21) Housing Authority delegated authority to Housing Commission Board to make future revisions to the First Time Homebuyer Programs. June 6, 2008 (HCR ) Loan terms were modified from shared appreciation to a 3 percent interest deferred payment loan. March 20, 2009 Workshop - Neighborhood Stabilization Program First Time Homebuyer Program. Direction was given to amend citywide first time homebuyer loan terms from 3 percent interest deferred payments to shared appreciation and reduce loan amount from 25 percent to 17 percent of the purchase price. September 16, 2011 (HCR ) Guidelines for Closing Cost Assistance Grant was revised to allow up to one discount point to be paid by the buyer to lower the interest rate on the first trust deed loan.