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HomeMy WebLinkAboutMemo - Mail Packet - 12/14/2021 - Memorandum From Sue Beck-Ferkiss Re: Follow Up Regarding Down Payment Assistance Social Sustainability 321 W. Maple Street PO Box 580 Fort Collins, CO 80522 970.221.6758 MEMORANDUM DATE: November 30, 2021 TO: Mayor Arndt and City Councilmembers THRU: Kelly DiMartino, Interim City Manager Kyle Stannert, Deputy City Manager Jackie Kozak-Thiel, Chief Sustainability Officer Meaghan Overton, Housing Manager FROM: Sue Beck-Ferkiss, Social Policy and Housing Programs Manager RE: Follow-up regarding Down Payment Assistance _______________________________________________________________________ At the November 2, 2021, City Council meeting, staff was asked to provide additional information about how City residents can use down payment assistance (DPA) loans and/or grants to access home ownership. Bottom Line: Down Payment Assistance (DPA) programs are currently available to assist residents, especially middle-income earners, in buying a home. Middle-income earners more often have the requisite income to qualify for mortgages for homes available for sale in market. DPA can also benefit low-wage earners if they can find homes in the market that are affordable to them currently under $350,000 for 4-person household or $280,000 for a 2 -person household. Because the City can rely on several external DPA programs, City funding and programs can focus on increasing supply of affordable housing. Background: DPA has long been a tool used to help residents achieve home ownership. From 1995 until 2020, the City offered DPA to first-time home buyers through its own program. Currently there are a range of DPA programs available to City residents through non-profit agencies and financial institutions, and the City supports home ownership by partnering with developers and community land trusts, using the Land Bank Program and providing development subsidies to increase the inventory of homes with affordable sales prices. City Program History: The Home Buyer Assistance Program (HBA) was initially established in 1995 as a DPA program to help low- to moderate-income renter households (earning below 80% Area Median Income) stabilize their housing costs through affordable ownership. The target population were households that were: financially ready to purchase their first home, qualified for a mortgage with affordable monthly payments, but lacked the additional out-of-pocket funding necessary to cover the down payment and closing costs required to close the purchase. From 1995 2000, DPA was provided in the form of a grant that was forgiven after 5 years of owner occupancy. In 2000, the Community Development Block Grant (CDBG) Commission recommended that transfer of the property, or if they refinanced to cash out their equity. In 2014, the maximum amount of assistance was increased from $10,000 to $15,000 to address the higher purchase prices and related increases in down-payment and closing costs. Performance: From 1995-2020, over 1,100 households moved from rental housing to affordable homeownership with assistance from the program. In 2020 when the program stopped approving new loans, there were 188 households with active loans totaling $1.8 million that will be repaid to the City upon sale or transfer. The repaid funding will be returned to the HUD line of credit and allocated to future affordable housing of steadily declining program usage and because there were several other DPA providers in the region that could leverage funds more effectively in the Program usage had been steadily declining since 2012, with only one loan issued in 2019. This was for a condominium purchased by a 1-person household for $175,000. See figure below for history of loans provided since 2012. The rogram targeted low-wage earners and worked well when there were homes for sale at affordable prices to buyers making 80% or less of Area Median Income (AMI). As prices have outpaced earnings, however, the program is no longer able to achieve the same results because low-wage buyers are no longer qualifying for mortgages or finding affordable properties to purchase. In rapidly appreciating markets, DPA helps the first buyer and creates wealth building opportunity for that buyer, but then the unit appreciates, and the home leaves the affordable inventory with the next sale. In 2020, and added the metroDPA program, which is a regional to the other DPA programs available to City residents. Participation in this program is at no cost to the City and is in the form of a 3 year forgivable loan to the buyer. See Agenda Item Summary for February 2, 2021 Council Resolution authorizing City participation in the Metro Mortgage Assistance Plus Program which is #10 at: https://citydocs.fcgov.com/?cmd=show_related&vid=72&dt=SUMMARY+AGENDA&rid=February+2%2C +2021. City funds that previously went to DPA can now be distributed through the annual Spring Competitive Process. Current trends: everal other DPA programs are available residents. The Colorado Housing and Finance Authority (https://www.chfainfo.com/homeownership/down-payment-assistance) has long had a DPA program that serves a wide range of incomes. Impact Development Fund (https://impactdf.org) , a non-profit partner, currently has a grant funded by the Division of Housing to provide up to $25,000 for households earning no more than 80% area median income (AMI). As mentioned, the City also became a member of metroDPA (http://www.metrodpa.org) in 2020. They serve households earning up to $150,000 with up to 6% of a home sales price. Since joining metroDPA in February of this year, they have issued 29 loans in the City of Fort Collins with an average sales price of $377,256. This is in sharp contrast to the 1 loan the City provided in 2019 for a $175,000 purchase. In October of this year, metroDPA assisted 6 Fort Collins home buyers for homes averaging a sales price of about $427,000 (well above the $270,000 - $350,000 target for affordable homeownership). This illustrates how market prices continue to rise. Conclusion: DPA Programs are available to Fort Collins residents who can qualify for a mortgage for a home they wish to buy. The City can support affordable home ownership without directly providing DPA. Federal HUD and City Affordable Housing Funds can support homeownership through partnerships that help with development and/or acquisition of housing restricted to low-income ownership such as Habitat for Humanity, and Elevation Community Land Trus partners achieve affordable purchase prices, since income-eligible buyers can utilize other available programs for down-payment assistance. In this market it often takes both subsidies to reduce the cost of homes and DPA to help residents, especially low wage earners, achieve home ownership.