1 / 17

HOME Homebuyer Program – Resale vs. Recapture

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

oshin
Download Presentation

HOME Homebuyer Program – Resale vs. Recapture

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. HOME Homebuyer Program – Resale vs. Recapture NCDA Winter Meeting 1/23/08

  2. 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)

  3. 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

  4. 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

  5. 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

  6. 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)

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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.

  14. 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

  15. 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

  16. 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

  17. 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

More Related