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<br />the purchase price, we would get 45% of any profit on-sale (30% x 1.5). Commencing <br />in year six the equity share would decline to a floor of 66.66% over fifteen years. <br /> <br />Fannie Mae's change accepts our arrangement during the first five years but would, in <br />year six, drop the Agency's equity share to one times its investment for the remaining <br />life of the loan. <br /> <br />The net effect of these changes is to increase the amount of money the Agency is likely <br />to receive back through equity participation but to reduce the amount of principal and <br />interest payments. Staff considers the changes acceptable. <br /> <br />B. Non-Targeted Households (Anyone who is not a teacher or City employee. They would <br />still have to be of moderate-income and live or work in Redwood City). <br /> <br />1. Principal Forgiveness <br />No change. The Agency proposed no principal forgiveness for this group and Fannie <br />Mae makes no change. The borrower would make principal and interest payments to <br />amortize the loan. <br /> <br />2. Equity Participation <br />This was to have been equal to the Agency's investment in the house in the first five <br />years (if our note equaled 30% of the purchase price, we would get 30% of any profit <br />on sale). In year six the equity share would have increased to 1.5 times our share of <br />the purchase price. <br /> <br />Fannie Mae proposes to start the equity participation at 1.5 times, until year six. In year <br />six we would cease to receive an equity participation if the owner sold to another <br />household who income qualified. If they did not sell to an income-qualified purchaser <br />they would owe the Agency a share of the sale profit equal to our original share of the <br />house purchase price 1. <br /> <br />C. Other Possible Changes <br /> <br />In the course of the next week there may be further program changes requested by <br />Fannie Mae. Since they are one of two major regulatory agencies governing all <br />mortgage lending we may have no option but to accede to their changes. Staff <br />therefore recommends that the Board authorize staff to make whatever changes are <br />necessary to gain approval for the program. If you agree, we would only bring the <br />documents back to you if the changes were so detrimental to the program objectives <br /> <br />1 The Agency's consultant advises that in the current market, neither of the regulatory agencies (Fannie Mae or <br />Freddie Mac) will accept our original proposal to increase the equity participation in year six. <br /> <br />2 <br />