No General Funds are involved. Funds will come from the 2008 Federal Housing and Economic Recovery Act. This program has the potential to increase property tax revenues within the affected neighborhoods over time. CFDA # 14.256
Background
The Neighborhood Stabilization Program (“NSP”) is part of the Federal Housing and Economic Recovery Act of 2008 and is intended to assist communities devastated by foreclosures. NSP provides targeted emergency assistance to state and local governments to (i) acquire and redevelop abandoned and foreclosed residential properties that might otherwise become sources of blight within our communities, and (ii) establish financing mechanisms for the purchase of such properties, including soft-seconds and shared equity loans for low- and moderate-income homebuyers. Contra Costa County, as the Urban County lead agency, has been allocated $6,019,051 in NSP funds.
On November 18, 2008, the Board of Supervisors approved the FY 2008/09 Action Plan NSP Substantial Amendment (the “Substantial Amendment”). The U.S. Department of Housing and Urban Development (HUD) has reviewed and approved the Substantial Amendment.
The Substantial Amendment identifies seven program areas and funds the following four programs:
• Purchase and Rehabilitation Program, ($3,412,383) (Activity #1)
• Purchase and Self Help Rehabilitation ($1,504,763) (Activity #2)
• Down payment Assistance/Shared Appreciation Loan Program ($500,000) (Activity #3)
• County Administration ($601,905)
The unfunded programs included in the NSP Substantial Amendment are Low Income Rental, Demolition and Land Banking, and Homebuyer Pre-purchase Counseling.
The funded programs are described below. Program Specifications that permit the Deputy Director – Redevelopment to carry out each program are attached.
In order to effect the purchase and rehabilitation components of Activity #1 and Activity #2, County staff issued a request for proposal to developers. The County received eight developer responses. Staff recommendations are based on the proposals received. The developers recommended by Staff were selected based on their experience in rehabilitation projects, their ability to leverage funds for acquisition, and their ability to meet the low income targets.
Summary of Funded Programs
1. Purchase and Rehabilitation Program (Activity #1)
Under the program, approved developers that enter into a Project Agreement with the County (“Developers”) will purchase and rehabilitate vacant, foreclosed houses that have been approved by the County for inclusion in the program. Staff recommends that the Board approve the following three California nonprofit corporations as potential Developers:
1. BRIDGE Housing
2. Community Housing Development Corporation of North Richmond
3. Heart and Hands of Compassion
Houses included in this program must be in the high priority areas of Bay Point, Oakley, Montalvin Manor/Tara Hills/Bayview, Rollingwood, North Richmond, Rodeo or San Pablo. The County, through its Deputy Director of Redevelopment, will make NSP funds available in the form of zero-interest loans to Developers. Each loan will relate to a specific house and will be secured by that house.
Once rehabilitated, the houses will be sold to low, moderate, or middle income (LMMI) households that satisfy income parameters established by NSP (“Eligible Purchasers”). Under this program, rehabilitated houses may be sold to households earning up to 120 percent AMI (Middle Income). Properties will be sold for an amount equal to or less than the total development cost. The goal will be to have the loan repaid in full when the renovated house is sold to an Eligible Purchaser. Funds that are repaid will continue to be available under the program.
If for any reason, the proceeds from the sale of the house are insufficient to repay the NSP funds in full, or if the Eligible Purchaser needs down payment assistance, the County may make a loan to the Eligible Purchaser in the amount of the shortfall. The loan to the Eligible Purchaser would be a silent second loan that is applied to the down payment on the purchase of the renovated house. The silent second loan would be repaid upon a sale of the house by the Eligible Purchaser.
In the event the sale of a renovated house is not possible within a reasonable amount of time at a price that permits a sufficient repayment of the NSP loan, Staff may recommend to the Board that the developer be allowed to rent the home to a low income tenant rather than leave the house vacant and boarded (and subject, again, to blight). Authority for such action is not included in this Board Order.
Implementation of this program will be effected pursuant to the Program Specifications attached to this board order.
2. Purchase and Self Help Rehabilitation Program (Activity #2)
Under the Purchase and Rehabilitation Self Help Program, the approved Developer will purchase and rehabilitate vacant, foreclosed houses that the County, through its Deputy Director of Redevelopment, has approved for inclusion in the program. Staff recommends that the Board approve Habitat for Humanity, East Bay as the potential Developer.
Houses included in this program must be in the high priority areas of Bay Point, Oakley, Montalvin Manor/Tara Hills/Bayview, Rollingwood, North Richmond, Rodeo or San Pablo. The County will make NSP funds available to Habitat in the form of loans. Each loan will relate to a specific house and will be secured by that house.
Under this project, the Developer will use home buyer sweat equity (self help) and volunteer labor to rehabilitate the houses. The houses will then be sold to low income households that satisfy income parameters established by NSP (“Eligible Purchasers”).
It is anticipated that the full NSP loan to the Developer will not be repaid at the time the house is sold to an Eligible Purchaser. Instead, a portion of the loan to the Developer will be forgiven and a the remaining amount of the NSP loan to Habitat will be made available to the Eligible Purchaser as a silent second that is applied to the down payment. The soft second loan will be (i) junior to the first mortgage, (ii) a shared appreciation loan, and (iii) due upon the Eligible Purchaser’s sale of the house.
The Developer will provide the first mortgage loan to the Eligible Purchaser. The first mortgage will have zero interest and a 30-year term. The amount of the first mortgage will be based on the Eligible Purchaser’s ability to pay. The Eligible Purchaser’s ability to pay will be based on a formula that caps housing costs at 30% of the household income. In connection with the first mortgage, the Eligible Purchaser must agree to a 30-year resale restriction.
If the Eligible Purchaser sells the house, depending on the timing of the sale, both the Developer and the County may receive a share of any increase in the value of the house.
Implementation of this program will be effected pursuant to the Program Specifications attached to this board order.
3. Down payment Assistance/Shared Appreciation Loans Program (Activity #3)
Under this program, the County, through its Deputy Director of Redevelopment, will provide a silent second loan to Eligible Purchasers who are buying a vacant, foreclosed house in the high priority areas of Bay Point, Oakley, Montalvin Manor/Tara Hills/Bayview, Rollingwood, North Richmond, Rodeo or San Pablo as well as Brentwood, and limited portions of Pinole. The loan may be for up to 15% of the purchase price. In addition, the purchase price must be at least 15 percent below the appraised value of the house.
No payments are due under the loan as long as the house remains owner-occupied by the Eligible Purchaser. The loan principal plus a proportionate share of the appreciation is due on sale or transfer of the house. The manner in which equity is shared is set forth in the Substantial Amendment.
The Down Payment Assistance Program does not involve houses renovated under the Purchase and Rehabilitation Programs.
Implementation of this program will be effected pursuant to the Program Specifications attached to this board order.