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HOME Homebuyer Program – Resale vs. Recapture. NCDA Winter Meeting 1/23/08. Newton Background. Newton: Pop. 83,800; 31,857 Total Units High Housing Cost City in High Housing Cost Area $750,000 Median SFH Newton; $350,000 in Boston Area 11 times- 80% AMI; 5 times-80% AMI

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HOME Homebuyer Program – Resale vs. Recapture

NCDA Winter Meeting

1/23/08


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Newton Background

  • Newton: Pop. 83,800; 31,857 Total Units

  • High Housing Cost City in High Housing Cost Area

    • $750,000 Median SFH Newton; $350,000 in Boston Area

      • 11 times- 80% AMI; 5 times-80% AMI

    • In Consortium: $327,000 average TDC per unit

  • State has 10% goal for affordable housing

  • Newton at 7.7% (796 units to go)


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WestMetro Consortium

  • Newton is Lead City in 12 member HOME (“WestMetro”) Consortium

  • Members range from:

    • Framingham - $349,900 Median

    • Waltham - $400,500

    • Brookline - $1,037,500


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Barriers to Affordable Housing

  • Cost of land

  • Pretty much built out

  • Cost of existing housing

  • Zoning is overly restrictive

    • Home Rule

    • Difficult to change

  • NIMBY


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Newton’s Housing Goals & Programs

  • Permanently protect units for affordable housing

  • Provide funds for new affordable housing

  • Provide funds for acquisition & rehabilitation

  • Provide funds for ownership programs

  • Support developers (esp. non-profits) negotiate regulatory process


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Affordable Housing Development in Newton (& Massachusetts)

  • Virtually all multi-family developments with affordable units have deed restrictions from other programs (often in perpetuity)

    • Comprehensive Permits (20-25% of units affordable)

    • Inclusionary Zoning (15% affordable)

    • Other sources of funding – state, federal & local

    • Resale price typically set based on changes in AMI (provides fair return while limiting price w/out additional subsidy)

  • For homebuyers, large amounts of assistance are required to allow them to buy a home (Consortium $50,000-$125,000 Cost Buydown)


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HOME Program Choices: Resale

  • Most of Newton’s Homebuyer Assistance and Developer Assistance Programs use resale restrictions

    • Advantages:

      • Protects units for the long-term

      • Cash from recapture erodes over time

      • More compatible with other state/local programs that already have resale requirements

      • State has standardized documents to cover HOME requirements (MassDocs)

    • Disadvantages:

      • Repayment required if affordability period not met

        • Massachusets Universal Deed Rider – Survives foreclosure


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Newton’s Resale Basics

  • HOME Resale requirement - Newton’s Program:

    • Home must be affordable to a reasonable range of low-income buyers - Priced for 70% AMI

    • New buyer must be low-income – Less than 80% AMI

    • New buyer must occupy house as principal residence – indeed restriction

    • Original buyer must receive a “fair return” – Resale price set by change in AMI

    • Remaining resale restrictions apply to new buyer – in deed restriction


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HOME Program Choices: Recapture

  • Recapture (used in WestMetro Consortium’s ADDI Program and individual member’s DPA programs)

    • Advantages:

      • Simpler

      • Easier to explain

      • If no net proceeds, no repayment issues

    • Disadvantages (& why not used in other programs):

      • Where resale price is restricted; may decrease or eliminate fair return on investment (if used for other than downpayment assistance)

      • Difficult to use when providing assistance to developer to develop and sell unit below market as direct subsidy to homebuyer


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WestMetro Consortium: Recapture

  • Recapture

    • ADDI

      • $10,000 Max. - Usually Recapture with Consortium collecting first out of net proceeds

      • If have a DPA program – ADDI consistent with Program

    • Brookline

      • Recapture – Buildings < 20 Units – Shared Appreciation - Consortium collecting first

      • Resale – Buildings =>20 units

    • Waltham

      • Recapture - Consortium collecting first


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Recapture Issue: Assistance to Developer – But Direct Subsidy to Homebuyer

  • HOME Rules allow recapture when there is a direct subsidy to the Homebuyer, defined as:

    • Financial Assistance that reduces purchase price for homebuyer below market or otherwise subsidizes the homebuyer, including:

      • Downpayment loan

      • Closing cost assistance

      • Purchase financing

      • Assistance to developer to develop and sell below market


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Certification Course Example – Direct Subsidy to Homebuyer

  • $60,000 HOME development assistance to CHDO

    • Of this, $10,000 left in deal to write sale price below market

  • $10,000 HOME downpayment assistance to homebuyer

  • Total direct subsidy: $20,000

  • Total Development Subsidy: $50,000

  • Affordability period: 10 years


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Recapture Issue: Assistance to Developer – But Direct Subsidy to Homebuyer

  • HOME investment subject to recapture (M.L. Franke):

    • Based on the amount of HOME assistance that enabled the homebuyer to buy the dwelling:

      • Including any HOME assistance that reduced the purchase price from fair market value to an affordable price,

      • Excluding amount between the cost of producing the unit and the market value of the property (i.e., the development subsidy – not subject to recapture), if cost exceeds market value.


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Assistance to Developer – Direct Subsidy to Homebuyer

  • MLF: Any HOME funds that enabled a developer to discount the effective price to the buyer below fair market value (or development cost, if lower) must be captured in the homebuyer subsidy note/mortgage.

    • Otherwise you are writing off HOME dollars that helped the buyer


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Real Life Example – Direct Subsidy to Homebuyer

  • St. Aidan’s – Brookline

    • TDC/Unit - $470,000

    • Est. Market Value/Unit - $400,000

    • Affordable Price/Unit- $177,000

      • Diff. Market – Affordable- $223,000

    • HOME Assistance/unit- $165,000 (Have to mortgage full $165,000?)

  • If using recapture, buyer on the hook for $165,000 of $177,000 purchase price


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Real Life Example – Direct Subsidy to Homebuyer – Issues

  • Buyer on the hook for $165,000 of $177,000 purchase price

    • Likely to have difficulty getting primary financing

    • HOME recapture is in conflict with other subsidies’ required resale price. Would require substantial additional HOME subsidy to continue affordability

    • Strong Incentive: Recapture protects PJ in case project goes under – Like to figure out how to make it work

      • HUD: Provide Additional Guidance


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Recapture vs. Resale

  • WestMetro Consortium uses both

  • Choice depends on goals of program and local housing situation:

    • Protect Units – Resale

    • Simpler Program, Potential Cash back, and Protection from Repayment Liability - Recapture


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