Loading...
HomeMy WebLinkAboutRDA 7 MTG CREDIT CTF 08-16-93,.,ATE: AUGUST 16, 1993 RDA NO. 7 8-16-93 Inter-Oom TO: WILLIAM A. HUSTON, CITY MANAGER AND EXECUTIVE DIRECTOR FROB: COMMUNITY DEVELOPMENT DEPARTMENT SUBJECT: APPLICATION FOR ALLOCATION OF MORTGAGE CREDIT CERTIFICATES RECOMMENDATION It is recommended that the City Council: . Authorize the Community Development Department to prepare and submit to the County an application to the California Debt Limit Advisory Committee; ' . Adopt the attached Resolution No. 93-92 adopting a Mortgage Credit Certificate Program in cooperation with the County of Orange; and . Authorize the execution of a cooperative, agreement between the County of Orange and the City of Tustin to undertake the Mortgage Credit Certificate Program, which is an Exhibit to Resolution No. 93-92. o Adopt Resolution No. 93-94 finding that the Mortgage Credit Certificate Program will benefit both the Town Center and South Central Project Areas; It is recommended that the Redevelopment Agency: o Adopt Resolution No. RDA 93-11 finding that the Mortgage Credit Certificate Program will benefit both the Town Center and South Central Project Areas; and .. Appropriate the following Town Center Project Area and South' Central Project Area Housing Set-aside funds as part of the 1993-94 budget: a o $3,000 in administrative costs for the Mortgage Credit Certificate Program to be assigned to the Town Center Project and $3,000 to be assigned to the South Central Project Area; b o $30,000 in potential penalty charges to be assigned to the Town Center Project Area and $30,000 to be assigned to the South Central Project Area. Pursuant to the requirements of the California Debt Redevelopment Agency Report Application for Allocation of Mortgage Credit Certificates August 16, 1993 Page 2 Limit Advisory Committee (CDLAC), the Finance Director shall deposit said amounts in a trust/security account. FISCAL IMPACT Cost to the Community Redevelopment Agency for the administration of the two-year program through the County of Orange is estimated at $6,000. The Redevelopment Agency also is required to encumber 1% of the requested allocation, or $60,000, as a potential penalty if the entire allocation is not used. Ail costs will be allocated from accumulated Housing Set-aside Funds for th~o~Town Center and South Central Project Areas. BACKGROUND __ The Mortgage Credit Certificate Program was originally authorized by Congress in the Tax Reform Act of 1984. The Congress intended the program to assist first time homebuyers is qualifying for the purchase of their home. Cities in Orange County, along with the County, first participated in the program in 1990. Tustin was not among those who participated. The citieSwhich did participate were Anaheim, Buena Park, Garden Grove and Santa Ana, along with the County itself representing the unincorporated areas. The County is now preparing an application for a new allocation. Under the Mortgage Credit Certificate, first time homebuyers who qualify by income and by the price of the unit they purchase, receive a certificate authorizing them to receive a tax credit of 20% of their annual principal and interest payment. This is in addition to the standard deduction for home mortgage interest rates. They receive this 20% tax credit each year that they have the original mortgage and live in the unit they purchased. The Federal Government allocates a set amount of mortgage amounts for each state. The States, in turn, sub-allocate this authority to local jurisdictions. The application, which the County is filing, is to the California Debt Limit Advisory Committee (CDLAC), who has the authority in California to allocate this State's share of mortgage amounts to local agencies. Redevelopment Agency Report Application for Allocation of Mortgage Credit Certificates August 16, 1993 Page 3 The application is a combined application submitted by the County on behalf of itself and the participating cities. The City of Tustin does not' submit a separate application. The other cities whose Councils have approved participation in this round of allocation are Anaheim, Brea, Buena Park, Fullerton, Garden Grove, Santa Ana, Yorba Linda and the County of Orange. There are many first time homebuyers in the Tustin market. While it is difficult to determine the number of first time homebuyers in the resale market, the'Staff has talked to the developers in East Tustin to determine the extent of first time buyers. A & M Homes indicate that 30% of the homes they have sold are to first time buyers. RGC Development has sold 56% of their homes to first time buyers, and Akins Development has sold 95% of their homes to first time buyers. AMOUNT OF ALLOCATION The City Staff is proposing an application for an allocation of $6,000,000 from the California Debt Limit Advisory Committee (CDLAC). This represents the value of the mortgages, not the amount of tax credit. The County states the previous history with the program indicates that an average of 1.75 applications a month can be expected per jurisdiction. Over a two year period, this represents 42 applications. The County also states the average mortgage that was processed in the past was $131,666. This would represent a request for Tustin of $5,529,972. The. Staff has rounded this up to $6,000,000 to offset any upturn in the market which may occur in the next two years. PROGRAM ADMINISTRATION The program is administered entirely by the County of Orange. The City's participation is minimal, and outlined below. The County has contracted with Urban Futures Inc. to process the applications, qualify lending institutions and certify the applicants for the program. The underwriting of the applicants is done by lending institutions. These institutions are certified by the County for participation in the program. There are currently twelve lending institutions who Redevelopment Agency Report Application for Allocation of Mortgage Credit Certificates August 16, 1993 Page 4 have been certified. The County will be issuing a request for qualificatio~s for additional lending institutions in the next few weeks. The applicant for the mortgage credit certificate is not required to use these lending institutions for their mortgages. They may receive a mortgage from any source they desire. Mortgage Credit Certificates, however, can only be used with fixed rate mortgages and cannot be used for mortgages financed through tax exempt mortgage revenue bonds. The program has a maximum income level of between $56,500 for a one person household and $64,975 for a household of three or more persons. The maximum allowable home purchase price is approximately $240,000. During the past three years, the average mortgage the County has issued certificates for is $131,666. This is approximately a $165,000 purchase price for a home, assuming as 20% down payment. The following is an outline of the application process: o The applicant receives a preapplication from the City, completes it and returns it to the City. . The City Staff makes a preliminary review of the pre- application. If based on the information provided, it appears the applicant meets the basic qualifying criteria, the staff refers the applicant to the list of participating lending institutions. The staff does not have to verify the information. . The lending institution works with the applicant to complete the formal application for the MCC and then forwards it to Urban Futures, the County's contractor for the program. o Urban Futures reserves a credit certificate for the applicant. o Urban Futures reviews and approves the application and then issues an MCC commitment. o The primary mortgage lender submits the escrow closing documents to Urban Futures. Redevelopment Agency Report Application for Allocation of Mortgage Credit Certificates August 16, 1993 Page 5 7. Urban Futures gives final approval for the MCC. o The escrow is closed on the home and the necessary documents are recorded. o Urban Futures issues the Mortgage Credit Certificate to the homebuyer. Since there is a limited allocanion in the County, the County wants · to ensure that all of the al'ocation is used over the two year period. To accomplish this, they reserve each city's allocation to that city for the first year. A- the beginning of the second year, all of the unused allocations from all of the cities are pooled. The MCC's are then issued to ap~iicants from any participating city on a first come, first served basis. In this way, a city that has a greater need than anticipated can use the allocation from a'city where the demand is less than expected; ensuring that the total allocation is used. CITY OBLIGATIONS Financial · · · . As part of the overall County Program, the City is responsible for its proportionate share of the administrative costs. The County estimates the City's share will.be $6,000. The actual amount will be based on the percentage of actual mortgages processed in the City cf Tustin to the total amount processed through the County and other participating cities. The County does not request payment of these funds until after the program term ends, in approximately two years. The CDLAC has, in the past, ~een faced with issuing allocations and then finding that the city which received the allocation does not use it. Since there is a limited statewide allocation, a city that could have used the atiocanion may not have a chance to do so, because the allocation was issued to a city that did not use it. To forestall This, CDLAC requires applicants to set aside, in an account with a financial instinution, an amount equal to 1% of the allocation requested. If CDLAC determines that the allocation has not been used, it can require nke forfeiture of all or a portion cf these funds to the State. His%orically, CDLAC has not sought a forfeiture if there has been 5 good faith effort to utilize the allocation. Further, because of the method the County uses to Eedevelopment Agency Report Application for Allocation of ~<ortgage Credit Certificates August 16, 1993 ~age 6 reallocate allocations after the first of the year, the total allocation for Tustin will likely be used somewhere in the County, ~f this City is unable to use it. Therefore, the possibility of -hese funds being forfeited is significantly reduced. The funds are "recaptured" by the City when CDLAC authorizes their release. Finally, the City needs to provide staffing to process the initial applications and to do the initial pre-screening of the pre- applications. The City currently has a consultant providing ~rocessing assistance for the housing rehabilitation program. The Snaff believes he will be able to handle this program also at no additional cost. Proqrammatic in order to participate in the program, the City is required to -aka the following actions: o Preparation and submittal to the County its portion of the application to CDLAC. o Approval by the City Council of a resolution adopting a Mortgage Credit Certificate Program in cooperation with the County of Orange, attached, with this report. . Execution of a cooperation agreement with the County of Orange, attached as an exhibit to the resolution. ° As noted above, appropriate adequate administrative costs ($6,000) and deposit $60,000 into an account with a financial institution. Redevelopment housing set-aside funds can be used for this purpose since the MCC income requirements are within the limits of low to moderate income households as defined in State Redevelopment Law. in addition, the City must make the pre-screening application 5vailable to prospective participants. l[eisher the City r~or the Agency is required to market the program. But, staff will market the program by informing residential real estate brokers and agents as well as the residential developers in nhe City about the availability of the program. Already, after iiscussing the program with some of the developers in East Tustin Redevelopment Agency Report Application for Allocation of Mortgage Credit Certificates August 16, 1993 Page 7 to determine the number c= first ti~,e home buyers, these developers have expressed a great deal of interest in participating. RECOMMENDATION The staff believes that participation in this program will help promote home ownership in the City, and within each Project Area, which has been a goal of the City Council. Therefore, it is recommended the City Council authorize the submittal of an application for a $6,~00,000 allocation of Mortgage Credit Certificate authority, approve the attached Resolution No. 93-92 and authorize the execution of the cooperation agreement with the County of Orange. It is also recommended 5hat the City Council and Redevelopment Agency adopt a resolution finding that the use of housing set-aside funds outside of the Town Center and South Central Project Area for the Mortgage Credit Cer5ificate Program is a benefit to the two project areas,.appropriane $6,000 for administrative costs for the program and authorize tke deposit of $60,000 in housing set-aside funds into an account pursuant to the requirements of the CDLAC. ~R~ehvae~ldo~~ogram Manager Christine A: Sh~gleton Assistant City Manager rz immer~mcccounc, rz RESOLUTION NO. RDA 93-11 . A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF TUSTIN, CALIFORNIA, FINDING THAT THE USE OF TAXES ALLOCATED FROM THE SOUTH CENTRAL PROJECT AREA AND FROM THE TOWN CENTER PROJECT AREA FOR THE MORTGAGE CREDIT CERTIFICATE PROGRAM OUTSIDE THE PROJECT AREAS WILL BE OF BENEFIT TO BOTH PROJECT AREAS The Redevelopment Agency of the City of Tustin does hereby resolve as follows: WHEREAS, the Community Redevelopment Agency of the City of Tustin (the "Agency") has adopted a Redevelopment Plan (the "Redevelopment Plan") for the South Central Project Area and has also adopted a Redevelopment Plan for the Town Center Project Area; and WHEREAS, both Redevelopment Plans provide for the allocation of taxes from their respective Project Areas; and WHEREAS, Section 33334.2 of the California Community Redevelopment Law (Health and Safety Code Section 33000 et seq.) requires that not less than twenty percent (20%) of all taxes so allocated be used for the purpose of increasing, improving and preserving the community's supply of low and moderate income housing available at affordable housing cost; and WHEREAS, Section 33334.2(g) of the Health and Safety Code provides that such funds may be used outside of a project area if a finding is made by resolution of the Agency and the City Council that such use will 'be of benefit to the Project; and WHEREAS, the Project Areas comprise only a limited portion of the low to moderate income housing supply in the City of Tustin and the overall low to moderate income housing supply is dispersed throughout the City; and WHEREAS, City of Tustin is proposing to establish a Mortgage Credit Certificate Program to assist low to moderate income first time homebuyers throughout the City; and WHEREAS, the use of tax increment funds for implementation of the City's Mortgage Credit Certificate Program oul. side of the Project Area will directly promote the incr,, se, improvement and preservation of the community'n supply of low to moderate income housing available at affordable prices both inside and outside the South Central and Town Center Project Areas. Resolution No. RDA 93-11 Page 2 NOW, THEREFORE, the Community Redevelopment Agency of the city of TuStin does hereby find and resolve as follows: Section 1: The Agency hereby finds that the use of taxes allocated from the South Central Project Area and from the Town Center Project Area for the purpose of increasing, improving and preserving the community's supply of low and moderate income housing available at affordable housing cost outside the Project Areas and within the City of Tustin will be of benefit to both the South Central and. Town Center Project Areas. Section 2: The Agency finds that the use of these funds is of primary benefit to both the South Central and Town Center Project Areas, and constitutes redevelopment activity as described in Sections 33020 and 33021 of the Health and Safety Code. Jim Ports Redevelopment Chairperson Mary E. Wynn City Clerk STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF TUSTIN ) SS CERTIFICATION FOR RDA RESOLUTION NO. 93-11 MARY E. WYNN, City Clerk and ex-officio Clerk of the Redevelopment Agency of the City of Tustin, California does hereby certify that the whole number of the numbers of the Redevelopment Agenc3 of the City of Tustin is 5; that the above and foregoing RDA Resclution No. 93-11 was duly and regularly introduced, passed and adopted at a regular meeting of the Redevelopmen% Agency held on the 16th day of August, 1993, by the fc21owing vote: