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HomeMy WebLinkAbout1999-02-23 - AGENDA REPORTS - MORTGAGE PGM INDEPENDENT CITY (2)AGENDA REPORT City Manager Approv Item to be presented by: Dennis Luppens CONSENT CALENDAR DATE: February 23, 1999 SUBJECT: INDEPENDENT CITIES LEASE FINANCE AUTHORITY FRESH RATE HOME MORTGAGE PROGRAM Resolution No. 99-21 DEPARTMENT: Administrative Services RECOMMENDED ACTION Adopt Resolution No. 99-21, and direct the City Manager to enter into an agreement with the Independent Cities Lease Finance Authority (ICLFA), a JPA, to become an associate member and participate in the Home Mortgage Finance Program as described in the attached agreement. Adopting Resolution No. 99-21 makes the City an associate (non-voting) member of the ICLFA and an eligible jurisdiction wherein eligible home buyers could receive 101% home mortgage financing. For example, a person who earns no more than $63,120 and qualifies under FHA underwriting standards could purchase a home not exceeding $208,800 for an out-of-pocket cost of approximately one months' mortgage payment. Recent real estate data shows nearly 500 listings for single-family units selling at $200,000 or below in the Santa Clarita Valley. Currently, 40 cities participate, and of these jurisdictions 38 FreshRate loans have been made in 14 jurisdictions. The City of Los Angeles leads with 14 loans. Below you will find a list of pros and cons for the program. Pros • 101% financing for moderate income home buyers. • Augment City's affordable home ownership goals established in our General Plan Housing Element, Five -Year Consolidated Plan for HUD, and the City's Standard Management Procedures on Affordable Housing. • Alternative to the City's mortgage credit certificate (MCC) program as the demand for this high and quickly exceed supply. • Essentially for one month's mortgage payment a home buyer can get into a home. Cc Ics�u�d T1: - r 3 � � . � ends ftlem�_.... RESOLUTION NO. 99-21 February 23, 1999 — Page 2 • Uses 97% FHA financing and underwriting standards, layered with a 4% soft second, which is forgivable over time. Cons • Home owners have zero equity and makes it easier to "walk away from their mortgage." • Participants pay a higher interest rate, approximately 1/2 percent higher than the going rates. ALTERNATIVE ACTION 1. Not adopt No. Resolution 99-21, and defer action until after the May 1999 City Council Study Session on Housing. 2. The City Council could choose to not adopt Resolution No. 99-21, and decide not to participate in the program. I W: .Y1W.V"6t'7:W No direct cost. Minimal indirect costs associated with staff time for initial coordination, and introduce the program to the community. SUMMARY With no financial risk to the City by adopting staffs recommendation, the City Council would make these loans accessible to moderate -income home buyers in Santa Clarita. ATTACHMENTS Resolution No. 99-21 Associate Member Agreement Program Summary DEL:hds wun©I\re99-21 INDEPENDENT CITIES LEASE FINANCE AUTHORITY SUMMARY OF FRESHRATETM PROGRAM The Independent Cities Lease Finance Authority (ICLFA) is pleased to offer to your city its "FreshRateTm" Taxable GNMA Mortgage Bond Down Payment Assistance Program, which provides a unique home ownership opportunity for low and moderate income home buyers. While a detailed description of the program is available, the key aspects are summarized as follows: The purpose of the program is to provide assistance to a large but under -served segment of the prospective home buyer population --those families and individuals who, for whatever reason, have not been able to save all of the mortgage loan down payment and closing costs, but can qualify and make the payment for a market rate loan. 2. The program delivers 4% down payment and closing cost assistance for low and moderate income home buyers. In conventional home financing, the minimum down payment is 3% while closing costs average an additional 4%. Consequently, the cash required at closing is reduced by over one-half by the FreshRateTT4 program. Participating cities will be required to be a member of ICLFA but will not pay any fees or incur any liability or costs and will not be required to expend any staff resources. The program costs of 1% will be paid by the originating lenders and loan servicer. Marketing will be performed by the originating lenders and ICLFA. 4. Eligible properties include new or existing single-family detached or attached homes, manufactured housing, condominiums and town homes which are owner occupied and located within the jurisdiction of any ICLFA member city. 5. The taxable bond issue will receive a "AAA" (GNMA Securities) rating from Standard & Poor's. 6. The home mortgage interest rates will be fixed for thirty years. The actual interest rate for the mortgages is set at the time mortgages are originated. Consequently, the program remains competitive in the market, regardless of market conditions at the time the bonds are issued. Home buyers will be qualified under FHA and VA underwriting standards. 8. Home sale prices may not exceed FHA or VA mortgage loan limits. Home buyer income may not exceed 120% of the State or County wide area median (the current Statewide area median income is $52,600). 10. No State of California bond allocation is required as the mortgage bonds will be taxable. 11-98