Title
Homebuyer Assistance Program Policies & Procedures Amendments
Recommended Action
I move that Council approve the proposed changes to the Homebuyer Assistance Program Policies and Procedures.
County Manager's Recommendation
The County Manager recommends that Council approve the proposed changes to the Policies and Procedures
Body
The Homebuyer Assistance Program is authorized under County Municipal Code Chapter 14, Article VII, Division 3, which allows the County to fund and implement a Homebuyer Assistance Program for low income homeowners (households with incomes below 80% of the true Los Alamos County Area Median Income). The program purpose is to assist income eligible households to purchase a home in Los Alamos County by providing non-amortizing deferred down payment loans. County Council approved the program policies and procedures at the September 5, 2017 Council meeting. Los Alamos Housing Partnership, Inc. (LAHP) has been contracted to administer the program on behalf of the County under General Services Agreement AGR18-702 as approved at the July 25 Council public meeting.
The Homebuyer Assistance Program Policies and Procedures were developed by LAHP and County staff. The Policies and Procedures provide a framework for program activities and outline the various roles and responsibilities for County staff and any entities involved in implementing the program. As stipulated on page 1 of the Policies and Procedures document, periodic updates are required as program, community, and lending sector conditions change or situations arise. A draft of the program policies and procedures has been provided with this staff report which highlights the proposed changes described herein.
Staff are proposing two policy changes to lending and underwriting criteria for the program. The proposed policy changes are:
1. Increasing the permitted Cumulative Loan to Value (CLTV) to 105% (with value being determined by purchase price) from the current program limit of 100% CLTV; and
2. Allow for applicants to borrow under Adjustable Rate Mortgages (ARMs) with a 30-year amortization term and a fixed rate for a minimum period of 15 years after which time the interest rate can be adjusted only once with a maximum rate increase of 5%. Currently, the program allows only 30-year fixed rate mortgages.
The 105% CLTV limit is currently used by New Mexico Mortgage Finance Authority (MFA) and Fannie Mae, and also by Homewise which administers down payment assistance programs for the City of Santa Fe and Santa Fe County. Bernalillo County’s down payment assistance program also administers a CLTV limit of 105%. The three lenders which have participated with the Los Alamos County homebuyer program to date have been Del Norte Credit Union, Gateway Mortgage and Academy Mortgage. All three mortgage lenders have used CLTV limits of 105%.
A 105% CLTV limit allows qualifying households with limited savings to purchase a home by using the additional loan amount “ceiling” above 100% CLTV to help pay for closing costs. Closing costs in the program have ranged up to 4.7% of purchase price and include prorations, loan charges, prepaids, title insurance, survey cost, settlement charges and upfront payment for private mortgage insurance. The Program currently requires the homeowner to contribute a minimum $1,500 to closing which is three times the MFA down payment program minimum requirement of $500. Many potential applicants either do not have much money saved or they use some of the money that they did have to reduce debt which would make them mortgage-ready by increasing credit scores and lowering debt to income ratio. As a result, the household does not have sufficient funds to pay out of pocket for all closing costs and as such they want the option of rolling closing costs into the loan, not to exceed 105% CLTV.
The proposed policy change regarding Adjustable Rate Mortgages (ARMs) has two programmatic and local market benefits. From a local market perspective, Del Norte and Zia both offer ARMs with a 30-year amortization term and a fixed rate for a minimum period of 15 and 10 years respectively. These products have been instrumental in the purchase of condos, including Quads, in the Los Alamos market, which recently have seen fewer entities willing to lend on them. From a borrower perspective, monthly payments under these ARM loans as described are lower because private mortgage insurance is not required and the interest rate is typically lower. The lower monthly payments allow a household to qualify for a mortgage loan who might not otherwise qualify. For the purposes of this HAP program, staff is only proposing that the program consider a 15 year ARM with a 30 year amortization, that adjusts only once for a maximum of 5%.
Alternatives
Council could choose not to approve these proposed changes to the Homebuyer Assistance Program Policies and Procedures.
Attachments
A - HAP_Policies Procedures with draft changes