AgdaPkt 2000-08-28 - Laserfiche WebLink

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Program Structure These Program Objectives drive the specific program design for the FTHB. 1. Loan structure - The form of loan is considered to be a "silent second". This means a note and deed of trust that is subordinate to the main loan on the house. It is 'silent' because no interest is charged for a period of years. First lenders obviously control access to the housing market and so the form of the loan used by the FTHB must be acceptable to the first lender. By making the loan interest-free for a period of years - usually at least five (5) - the FTHB loan has what is referred to as 'grant-like' qualities which means the first lender will not consider the FTHB loan when underwriting the first. Loans, therefore will require no interest for the first five years, with principal and interest payments starting in year six and amortized over a period of twenty-five (25) years. 2. Loan Amount - The FTHB subsidy should be 'progressive', providing proportionally greater assistance the lower the income of the household. The maximum subsidy is 40% of the purchase price, but in no event more than $100,000 per household: As the following chart illustrates, this design provides a larger proportional subsidy the lower the home price. Purchase Price Maximum % Subsidy $ Subsidy Subsidy as % of Price $150,000 40% $60,000 40% $200,000 40% $80,000 40% $250,000 40% $100,000 40% $300,000 40% $100,000 33% $350,000 40% $100,000 29% $400,000 40% $100,000 25% $450,000 40% $100,000 22% 3. Interest Rate - The FTHB will offer a fixed interest rate of 4%, starting in year six.3 4. Eqùity Participation - The City's interests with regard to targeted and non-targeted households are reflected in a different standard of assistance for targeted vs. non-targeted. There is no way to prevent a targeted employee from changing employers. For example, if a loan was made to a qualified teacher and two years later they moved to a different school district, the program design provides strong disincentives to paying off the second loan during the first five years', and also strong incentives to keep the second in place as long as possible. Targeted Households: That if the buyer sells during the first five years, they will owe 1.5 x the , subsidy as % of price' with a cap of 60% of the total equity. Examples: A $250,000 house would qualify for a $100,000 subsidy or 40% of the price. If they sold in year 3 they would owe the principal and 60% (1.5 x 40% = 60%) of the equity. A $300,000 house would qualify for a subsidy of $100,000 or 33% of the price. If they sold in year 3 they would owe the principal of $100,000 plus 49.5% (33% x 1.5 = 49.5%) of the equity. A $450,000 house would still only qualify for a subsidy of $100,000, or 22.22% of the 3 There can be no pre-payment or penalty provisions in the Agency note. The first lenders and the federal agencies governing them (Fannie Mae and FreddieMac) would have to consider the Agency loan in their underwriting if this were the case. , . "-r"'-""-""'"