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HomeMy WebLinkAbout2000-07-20 - AGENDA REPORTS - HOME OWNERSHIP LEASE/PURCH FIN (2)CITY OF SANTA CLARITA AGENDA REPORT City Manager Approval: Item to be presented bA- Steve Stark UNFINISHED BUSINESS DATE: July 20, 2000 SUBJECT: HOME OWNERSHIP LEASE PURCHASE FINANCING DEPARTMENT: Administrative Services RECOMMENDED ACTION The City Council adopt a resolution to join the California Cities Home Ownership Authority (CCHOA) and the California Communities Housing and Finance Agency (CCHFA), and direct the City Manager to execute the necessary participating documents to join CCHOA and CCHFA. 2. Select a member of the Santa Clarita City Council to represent the City as a voting board member to CCHOA and CCHFA. Select an alternative City representative to both CCHOA and CCHFA. (A City staff member may be an alternate to CCHFA.) 3. Appropriate $3,400 from Council Contingency, Account No. 1240-7401. BACKGROUND The investment banking firm, Chilton & Associates, has approached the City to participate in two Joint Powers Authorities (JPA!s), the California Cities Home Ownership Authority (CCHOA) and the California Communities Housing and Finance Agency (CCHFA), to participate in two programs providing home ownership opportunities through a 38 -month -to -purchase plan. Lease -Purchase Program Chilton & Associates and the two JPA!s have developed flexible and innovative home buyers' programs aimed at helping home buyers purchase homes. Through the assistance of the Federal Home Loan Mortgage Corporation (Freddie Mac), Sun West Mortgage, Inc., First Nationwide Mortgage, Commonwealth Mortgage Assurance Company (CMAC), and JX. Chilton & Associates, CCHOA and CCHFA have tailored these program to empower renters who would not otherwise be able to own a home. HOME OWNERSHIP LEASE PURCHASE FINANCING July 20, 2000 — Page 2 People who have limited or no savings, yet have sufficient income to make mortgage payments, as well as reasonable credit, can become homeowners through a lease -purchase program created through a public-private initiative. Chilton and Associates has already helped form four other joint powers authorities with over thirty cities in California. This includes the 7.4% interest offered under CCHOA. CCHFA is the newest JPA, developing a new "pool" of cities. Currently, South Gate, Lawndale, Commerce, San Dimas, and Paramount are voting members of this new Joint Powers Authority. Additional cities may also join in the future at any time. Since the lease -purchase program is largely self -financed, it increases City resources for home ownership. By signing up for the program, the City will partner with other cities throughout the state to sell bonds, currently estimated to be $10 million. The amount of the bonds will depend on the number of member cities involved. CCHFA will request bonds to be issued for this program serving the new pool cities. Chilton anticipates issuance in the Fall of 2000. Use of the bond proceeds will be on a first-come, first-served basis. The program will operate for five years. Program DescriRtion The California Communities Housing and Finance Agency program has some key differences from other similar programs: 1. The program can assist households with annual income of up to 140% of the County median income or $72,940 per year for a family of four. 2. The program is not restricted to first-time home buyers only. 3. The program has a $270,000 "cap" on the value of the home to be purchased. 4. New and used homes are eligible. Both CCHOA and CCHFA use the proceeds of the bonds to purchase homes on behalf of the home purchaser. Participating households pay a one-time fee of one percent of the home purchase price to CCHOA or CCHFA at the initial leasing. The home purchaser pays a monthly lease payment for a period of 38 months. This monthly lease payment is equivalent to the mortgage payment, plus the CCHOA/CCHFA administration fee of approidinately $35 per month. During this period, the home purchaser must remain income qualified. After three years, the lease -to -own conversion takes place, and the 38 lease payments made are applied to the mortgage, thereby reducing the 30 -year mortgage to 26 -years and 10 -months. The mortgage payments remaining are equal to the original lease payments, minus the administrative fee. After 38 months of leasing, the lease -purchaser will be able to purchase the home by assuming the remaining balance of the mortgage. The program represents a new way to subsidize the homeowner's down payment. The lease period also provides time in which the future homeowner can establish or reestablish good credit to HOME OWNERSHIP LEASE PURCHASE FINANCING July 20, 2000 — Page 3 qualify for a mortgage. In addition, the program allows a higher than normal level of total indebtedness to qualify more prospective purchasers. The future owner is helped in the following manner: 1. No initial lump sum down payment is required. The savings gained through the tax exempt financing results in the down payment and closing costs being covered by the program. 2. Homeownership classes may be required for all participants, as is credit counseling for households with poor credit. 3. The tenant pays a one-time program participation fee of approximately 1% of the purchase price (half can be paid by the seller or funded through a gift), rather than the customary down payment and closing costs of up to 7%. 4. Houses are inspected by a JPA inspector and a private inspector and are purchased with three-year home protection plans which cover all major systems. 5. The mortgage payments are equal to the lease payments, less the program expenses (approximately $35 per month), at the time of the lease -to -own conversion. PI, TI, and HOA fees must be included as well. 6. The new home owner benefits from all appreciated value of property at the time of lease -to -own conversion. 7. The lessor may also choose not to purchase the home. Implementation and administration of the program will be done by the CCHOA/CCHFA!s program administrator. The CCHOA/CCHFA will set aside funds for administration and contract with a property management and administrative services. Individuals purchasing a home through the Lease -to -Own Program will pay approximately $35 per month during the three-year lease period to provide additional funds for administration. Advertising and outreach to the community will be organized by the administrator including: lender's meetings, real estate broker/agents meetings, and home buyer education. City Role and Resources As a participating member within the CCHOA and CCHFA, the City's responsibilities will include attendance at quarterly board meetings by one City Council representative or a designated staff member. As a member City, Santa Clarita will have one vote on the CCHOA and the CCHFA Boards. Although the financing of the program incorporates the use of tax-exempt bonds, there is no fiscal obligation and no indebtedness on the part of City incurred as a result of bond issuance. Bonds issued by CCHOA and CCHFA will be repaid from lease revenues. There is no legal or financial liability for the City to pay off bonds. In a worst-case scenario in which there are no participants, or all participants fail to HOME OWNERSHIP LEASE PURCHASE FINANCING July 20, 2000 — Page 4 meet their obligations, the program will remain solvent, and the bond holders will receive interest and principal. Legal fees, bond insurance cost, insurance fees, and other costs will be paid by the private sector, not by any CCHFA member city. However, to the extent that the CCHOA and CCHFA do not have sufficient funds available to maintain such fees, the cost hereof shall be borne equally by the members. ALTERNATIVE ACTIONS 1. Modify the attached Resolution, and join only one of the aforementioned JPA!s. 2. Not adopt the attached Resolution, and direct staff to investigate and report back on August 22, 2000, at the regular City Council meeting. FISCAL IMPACT In both JPA!s, the City will incur costs. As a member City, the City will be responsible for its prorated share of insurance and possible financial audit costs. Costs are determined by the total number of pool cities in each JPA. Based on discussions with Chilton & Associates, staff estimates the cost to be $1,700 for each JPA. ATTACHMENTS Participating Cities Resolution CCHOA Agreement CCHFA Agreement DEL:hds .61\purch�2 California Cities Home Ownership Authority Members: Pasadena Rancho Cucamonga Upland Artesia Bell Gardens Compton'/ Cudahy Hawaiian GardensV Huntington Park Maywood Covina v County of San Bernardino (and each city in the County) California Communities Housing & Finance Agency Members: South Gatev Paramount V Commerce Lawndale San Dimas Covina Monrovia \,r