PURPOSE

The purpose of this memorandum is to request the City Council authorization to apply for funds under the CalHome Program Building Equity and Growth in Neighborhoods Program (BEGIN Program) to provide first-time homebuyer[1] financing for the Village Walk and the proposed Lance Site projects (Exhibit A).  

BACKGROUND

The California Department of Housing and Community Development (HCD) recently released a Notice of Funding Availability (NOFA) for approximately $24 million[2] to provide funding statewide to local jurisdictions for moderate-income first-time homebuyer mortgage assistance (Exhibit B).  BEGIN is a homeownership program designed to make grants to qualifying jurisdictions that provide incentives to reduce or remove regulatory barriers for housing developments, as set forth in the BEGIN Guidelines.  These grants serve as down payment assistance in the form of a loan to assist qualifying moderate-income first-time homebuyers purchase newly constructed homes in a BEGIN project.

Application for these funds is consistent with the City�s housing strategy to support homeownership.  The Blue Ribbon Task Force (�Task Force�) on Affordable Housing identified as one of their objectives the expansion of homeownership opportunities, noting in their report to Council that:

One of the primary goals of the City�s Housing Element and the Agency's Implementation Plan is to maintain and encourage homeownership for all income levels.  The Redevelopment Agency plays an active role in fostering homeownership both through new construction, and provision of mortgage assistance to income qualified purchasers.

The Task Force went on to state that �Through site assembly and other assistance, the Agency is currently assisting in development of several mixed- income ownership developments,� including the proposed Lance Site (33 townhomes/10 moderate income) and the Burbank Village Walk (140 condos/14 moderate income).

Later, the Task Force pointed out the value of the Agency�s homebuyer program (that now would be augmented with additional funding from the BEGIN Program):

The Agency currently provides homeownership assistance through its Mortgage Assistance Program (MAP), designed to assist moderate- income families with the monies necessary to bridge the gap between the mortgage amount a homebuyer can qualify for and the actual purchase price of a single-family detached home, townhouse, or condominium in Burbank. 

BEGIN PROGRAM GUIDELINES

The BEGIN Program�s primary purpose is to encourage the reduction or removal of regulatory barriers that significantly increase the cost and viability of housing development.  In return, BEGIN offers a funding incentive for jurisdictions that have instituted mitigation measures or that will be implementing steps to ensure the building of affordable housing. Under the BEGIN Program, a jurisdiction would receive a program grant from which to make deferred-payment second mortgage loans (soft or silent second) to qualified buyers of new homes, in projects with affordability enhanced by local regulatory incentives or barrier reductions.

Separate City applications have been prepared (Exhibit A) for the BEGIN Program, one extending first-time homebuyer mortgage financing to 14 moderate-income units for the 141-unit mixed-income Village Walk Project and the other extending first-time homebuyer mortgage financing to ten BEGIN units at the proposed mixed-income Lance Site. The Olson Company is anticipated to develop both projects. 

The Burbank Redevelopment Agency funds the Mortgage Assistance Program (MAP), which also has underwritten junior loans to make for-sale units affordable to moderate-income buyers.  However, escalating home prices have outpaced the Agency�s MAP loan guidelines.  The MAP, consequently, has been temporarily suspended, so that underwriting criteria can be revised.  The BEGIN Program will allow the Agency to use its MAP to fill any additional gap needed to qualify eligible buyers.

q     Maximum and Minimum Application Amounts

The City�s application is a product of the number of units proposed for qualifying first-time, moderate-income homebuyers per BEGIN project.

Village Walk              $420,000 (14 restricted units times $30,000 loan limit per unit); and

The Lance Site          $300,000 (10 restricted units times $30,000 loan limit per unit).

q     Eligible Grant Recipients

Intended to promote partnerships between local jurisdictions and housing developers to increase the supply of affordable new units for low-and moderate-income homebuyers, the BEGIN Program stipulates that the local jurisdiction, as the grant applicant, is to �offer specific forms of regulatory relief, development incentive or project enhancements to identified BEGIN projects which reduce the per-unit cost of the housing.�   In other words, the City�s applications must demonstrate the actions taken to alleviate barriers to affordable housing for each of the projects, Village Walk and the proposed Lance Site.   HCD defines actions as a change in an existing development standard that reduces barriers to or the cost of residential development.  A complete listing of actions to alleviate restrictive or regulatory standards that enhance projects is included in Exhibit A, (each application) and Exhibit B, (the HCD NOFA).

q     Eligible Projects

The City is eligible to receive funding even though one of the projects is in a pre-construction phase and the other is pending approval.  Each of the City�s proposed projects conform to the requirements that they are housing developments with newly constructed homeownership units, and that each project will designate BEGIN units being  sold to BEGIN eligible households with BEGIN program mortgage assistance.  Each BEGIN project must be under common ownership.  A BEGIN project must have a minimum of four BEGIN homeownership units. The BEGIN project is defined as the BEGIN assisted units.  Under BEGIN guidelines, all funds must be disbursed within 36 months of the execution of a standard agreement between the City and HCD.  The Village Walk project and if approved, the proposed Lance Site project would both meet this criteria.

q     City�s Role

Under the BEGIN Program, the City�s role would be threefold:

�      Provide information and assistance to first-time homebuyers on obtaining maximum amount of first mortgage financing;

�      Originating, underwriting, packaging and closing BEGIN Program loans in accordance with program requirements; and

�      Servicing the loans.

In addition, the City is to develop a reuse account, where all loan repayments are deposited.  Funds in the reuse account may be used for several purposes, including paying for activity delivery costs, first-time homebuyer down payment assistance, home rehabilitation, home acquisition and rehabilitation and homebuyer counseling. 

q     Eligible Uses of Funds

BEGIN grant funds may only be used as down payment assistance loans wherein the maximum loan amount is up to $30,000 predicted upon the jurisdiction�s mortgage assistance underwriting guidelines (e.g., criteria for determining credit worthiness of borrower, front and back-end ratios). BEGIN loan requirements include:

�      The BEGIN Program loan may be bearing simple interest of one to three percent per annum, and may allow forgiveness of all or a portion of the accrued interest as part of its local program design. Loan principal, though, is not forgiven.  Alternatively, recipients may opt to charge a contingent deferred interest in the form of shared net appreciation in lieu of making loans bear a fixed rate of interest.   (The maximum portion of the net appreciation that may be claimed by the local jurisdiction is equal to the percentage of the value of the residence financed by the BEGIN Program loan).

�      BEGIN Program loans shall be secured by the property or leasehold interest.

�      The lien securing repayment of the BEGIN Program loan will be subject only to liens and encumbrances approved by the local jurisdiction underwriting the BEGIN Program loan.

�      The combined indebtedness (all loans) secured for a BEGIN assisted unit would not exceed 100 percent of the sales price plus up to five percent of the sales price to cover actual closing costs.

�      BEGIN Program loans include these terms and conditions:

• Principal and interest payments are deferred for the term of the BEGIN Program loan;

• BEGIN Program loans are accelerated and become due if the borrower ceases to be owner-occupied in the first five years after recording the deed of trust securing the BEGIN loan; 

• BEGIN Program loans will be repaid on the maturity date of 30 years, unless the local jurisdiction determines that repayment of the BEGIN Program loan causes a hardship to the borrower in which case the note and deed of trust may be amended extending principal and accrued interest for up another 30 years at zero interest or converting the principal and accrued interest into a 15-year amortized loan at zero interest;  

• Another moderate-income homebuyer may assume the loan after five years from the recordation of the deed of trust securing the BEGIN loan date; 

• Under certain conditions, a BEGIN Program loan may be transferred without triggering repayment provisions, such as transfer to a surviving joint tenant by devise, descent, or operation of law on the death of a joint tenant or a transfer where the spouse becomes an owner of the property; and  

• There is no prepayment penalty if a borrower may prepay the BEGIN Program loan amount, in part or in whole, at any time without penalty.

FISCAL IMPACT

The BEGIN Program would have no financial effect on the General Fund but  would augment/reduce the amount of Agency housing funds needed for the two projects, thereby making those funds available for other projects and programs.  Grant funds would be advanced for funding loans and the Redevelopment Agency would absorb costs associated with administering and marketing the Program with funds budgeted and available in the Low-Mod Housing Set-Aside budget for the Mortgage Assistance Program (account 305.CD23A.62285.0001).

RECOMMENDATION

Staff recommends that the City Council approve:  (1) a resolution authorizing submittal of an application to HCD for funding under the BEGIN Program for the Village Walk project; and (2) a resolution for authorizing submittal of an application to HCD for funding under the BEGIN Program for the proposed Lance Site project.  Staff further recommends that the Redevelopment Agency Board approve:  (1) a resolution authorizing acceptance of BEGIN funding for the Village Walk project; and (2) a resolution authorizing acceptance of BEGIN  funding for the proposed Lance Site project.  

EXHIBIT:

A         Applications for BEGIN Funds

B         Notice of Funding Availability (NOFA)

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