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<br />1fttJ <br /> <br />making the loan interest-free for a period of years - usually at least five (5) - the FTHB <br />loan has what is referred to as 'grant-like' qualities which means the first lender will not <br />consider the FTHB loan when underwriting the first. <br /> <br />Recommendation: Structure the program as a silent second, with no interest for <br />the first five years, with principal and interest payments starting in year six and <br />amortized over a period of twenty-five (25) years. <br /> <br />2. Loan Amount - A lot of the programs reviewed had purchase price caps (e.g. the <br />programs would only lend on houses that cost up to, say, $300,000). In this fast- <br />escalating market the Committee felt that price caps made no sense. They did feel that <br />the FTHB subsidy should be 'progressive', providing proportionally greater assistance <br />the lower the income of the household. <br /> <br />Recommendation: Provide a subsidy of 40% of the purchase price, but in no <br />event more than $100,000 per household. As the following chart illustrates, this <br />recommendation provides a larger proportional subsidy the lower the home price. <br /> <br />Purchase Price Maximum % $ Subsidy Subsidy as % of Price <br /> Subsidy <br />$150,000 40% $60,000 40% <br />$200,000 40% $80,000 40% <br />$250,000 40% $100,000 40% <br />$300,000 40% $100,000 33% <br />$350,000 40% $100,000 29% <br />$400,000 40% $100,000 25% <br />$450,000 40% $100,000 22% <br /> <br />3. Interest Rate - The Committee discussed the competing objectives of providing low- <br />interest financing to make housing more affordable and the desire to have money <br />recycle to the program to eventually make more loans. The Committee felt that the <br />lower interest rate was of greater importance. In addition, they had other mechanisms <br />to recapture funds, specifically equity share provisions, discussed following. <br /> <br />Recommendation: Establish a fixed interest rate of 4%, starting in year six.~ <br /> <br />4. Equity Participation - The Committee's interests with regard to targeted and non- <br />targeted households were very different. The Committee recognized that there was no <br /> <br />4 There can be no pre-payment or penalty provisions in the Agency note. The first lenders ,and the <br />federal agencies governing them (FannieMae and FreddieMac) would have to consider the Agency loan <br />in their underwriting if this were the case. <br /> <br />4 <br />