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HomeMy WebLinkAboutSS3 - Lease-to-Purchase ProgramREPORT TO THE MAYOR AND CITY COUNCIL SUBJECT: City participation in a Lease -to- Purchase Program as a member in the Orange County Area Housing and Finance Agency. ISSUE The City has been asked to consider participation in a new joint powers authority (JPA) that would administer a new Lease -to- Purchase Program to facilitate home ownership by moderate- and above moderate - income families. Staff has been discussing the proposal with Chilton & Associates, who have created such a program in other counties, and staff from other Orange County cities and the County for several months. The City Attorney's Office has reviewed the program and associated documents, and staff is asking the City Council to review the program and consider whether Newport Beach should participate in it. Karl Higgins of Chilton & Associates will be at the Study Session to provide additional information to the Council. BACKGROUND The Lease -to- Purchase Program was created to assist potential homebuyers who have not been able to save enough money to accumulate a down payment and closing costs, even though they are credit worthy. The program features a 97 %, thirty year fixed market rate first mortgage loan, a 3% silent second and a gift of up to 4.5% of the purchase price for closing costs subject to lease fulfillment. Maximum combined loan value is limited to $309,750. A higher loan limit is in the works, but not available yet. The maximum house price is also $309,750, and Chilton & Associates has determined that there are homes (mostly condominiums) available at that price in Newport Beach. The program would be administered by a JPA, called the Orange County Area Housing and Finance Agency. It would use Agency issued short-term bonds to fund the purchase of new and existing single- family and condominium homes for qualified families. These potential homebuyers would then lease a home for a three -year period. At the end of three years, the lessees will be able to assume the loan without changing the monthly payment or requiring down payment or closing costs. Further, the lessee receives the appreciation in the property from the date of purchase by the Agency, the amortization of the loan during the lease period and the value of the 4.5% closing costs grant— strong incentives to fulfill their lease obligation to term. The proposed program would provide this assistance to households with income up to 140% of the area median income. For example, under the lease -to- purchase program, a four- person household could have an income as high as $105,860. Orange County Are Housing and Finance Agency September 10, 2002 Page 1 CITY OF NEWPORT BEACH e`EW�Rr COMMUNITY AND ECONOMIC Hearing Date: September 10, 2002 DEVELOPMENT PLANNING DEPARTMENT Study Session Agenda Item No.: SS3 3300 NEWPORT BOULEVARD Staff Person: Daniel R. Trimble NEWPORT BEACH, CA 92658 (949) 644 -3230 (949) 644 -3200; FAX (949) 641 -3229 REPORT TO THE MAYOR AND CITY COUNCIL SUBJECT: City participation in a Lease -to- Purchase Program as a member in the Orange County Area Housing and Finance Agency. ISSUE The City has been asked to consider participation in a new joint powers authority (JPA) that would administer a new Lease -to- Purchase Program to facilitate home ownership by moderate- and above moderate - income families. Staff has been discussing the proposal with Chilton & Associates, who have created such a program in other counties, and staff from other Orange County cities and the County for several months. The City Attorney's Office has reviewed the program and associated documents, and staff is asking the City Council to review the program and consider whether Newport Beach should participate in it. Karl Higgins of Chilton & Associates will be at the Study Session to provide additional information to the Council. BACKGROUND The Lease -to- Purchase Program was created to assist potential homebuyers who have not been able to save enough money to accumulate a down payment and closing costs, even though they are credit worthy. The program features a 97 %, thirty year fixed market rate first mortgage loan, a 3% silent second and a gift of up to 4.5% of the purchase price for closing costs subject to lease fulfillment. Maximum combined loan value is limited to $309,750. A higher loan limit is in the works, but not available yet. The maximum house price is also $309,750, and Chilton & Associates has determined that there are homes (mostly condominiums) available at that price in Newport Beach. The program would be administered by a JPA, called the Orange County Area Housing and Finance Agency. It would use Agency issued short-term bonds to fund the purchase of new and existing single- family and condominium homes for qualified families. These potential homebuyers would then lease a home for a three -year period. At the end of three years, the lessees will be able to assume the loan without changing the monthly payment or requiring down payment or closing costs. Further, the lessee receives the appreciation in the property from the date of purchase by the Agency, the amortization of the loan during the lease period and the value of the 4.5% closing costs grant— strong incentives to fulfill their lease obligation to term. The proposed program would provide this assistance to households with income up to 140% of the area median income. For example, under the lease -to- purchase program, a four- person household could have an income as high as $105,860. Orange County Are Housing and Finance Agency September 10, 2002 Page 1 DISCUSSION Membership in the Agency would require no City funds and the City would incur no debt or obligation for the bond issues or the purchasing and leasing of the homes. Also, the City has the ability to terminate its membership and program participation with 30 days notice, unless bonds remain outstanding in which the City participated. Chilton & Associates will serve as investment banker to the Agency. The Agency also will hire a professional administrator who will be paid with bond proceeds. The administrator will organize advertising and outreach to the community: lenders' meetings, real estate broker meetings, and homebuyer education. Most of the existing JPA's are run with a minimal number of staff persons. Formation of the Agency is anticipated to occur in the next 60 days, depending on action by the County Board and City Councils. Chilton & Associates have been discussing the program with other Orange County cities; so far, three have indicated through Council action that they would like to participate (Placentia, Buena Park, and Irvine) and another six are interested (Garden Grove, Cypress, Mission Viejo, Lake Forest, Santa Ana, and Fullerton) in addition to the County. Operations would start within 30 days of formation and funding. There are currently six similar joint powers authorities in California, with 131 participating cities and four counties. Next month there will be a seventh JPA in the Bay Area that will encompass all nine Bay Area Counties, bringing the number of counties to thirteen. The New Mexico state housing agency has also agreed to setup a state wide JPA. There are currently 251 homes being lease- purchased as of July 2002. LEGAL AND FISCAL IMPACT The City Attorney's Office has reviewed the participation, liability, obligation and other legal issues related to the City's membership in the Agency. They found no issues that would prevent the City from participating. There is no fiscal impact to this program, because it will be funded by the private sector. There are no funds needed, and no current year or annual costs. This action will not require the addition of any staff, although some staff time will be needed to participate on the Agency Board. PROGRA,yBENEFITS Staff believes the Lease -to- Purchase Program offers a good opportunity for the City to promote home ownership in an income category (moderate and above moderate), which cannot be served by other programs administered by the City or County, but identified as a need in the City's RHNA numbers and the Housing Element. This income category includes young professional adults who work in Newport Beach. Due to high market rents, the lack of vacant land, and high land costs, it is becoming increasingly difficult to provide housing that is affordable to households in this category. Most of the City's earlier affordable housing efforts used Community Development Block Grant funds and were aimed at lower income rentals, and our current efforts are directed to low- income senior citizens. Page 2 Following is a summary of program features. Benefits • The program provides home ownership opportunities and thereby will help increase the homeownership ratio in our City. Homes must be owner occupied. • The program can be used in conjunction with other programs to enhance existing programs or act independently to broaden city efforts. • The program is available to a broad range of individuals and families earning up to 140% of median income. • The program provides an opportunity for people employed in Newport Beach to live here. Costs and City Involvement • There is no indebtedness or cost to the City. Bonds issued by the Orange County Area Housing & Finance Agency will be repaid solely from insured lease revenues. • The Agency is obligated to follow any directions, guidelines, or restrictions the City may require. The City will have access to all documents, books, and records in order to facilitate any review of the program. Administration • The Agency will set aside funds for administration, and hire professional administrators. • The administrator will organize advertising and outreach to the community: lenders' meetings, real estate broker meetings, and homebuyer education. Orange County Area Housing & Finance Agency • The Agency will be a joint powers authority comprised of Members from each participating jurisdiction. • Members send a council member or staff member to participate in quarterly Agency meetings and regularly review the performance of the program. • The City's allocationwill be based on demand expressed by lenders. Fees • Legal fees, bond issuance costs, insurance fees, and other costs will be paid by the private sector, not by any Agency member city. Submitted by: Prepared by: SHARON Z. WOOD DANIEL TRIMBLE Assistant City Manager Program Administrator FI USERSIPLNW amd1I CIT YCVL120021091011easePunhaseJPACCPPTss .do Page 3