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HOME Homebuyer Program – Resale vs. Recapture

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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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newton background
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)
westmetro consortium
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
barriers to affordable housing
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
newton s housing goals programs
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
affordable housing development in newton massachusetts
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)
home program choices resale
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
newton s resale basics
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
home program choices recapture
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
westmetro consortium recapture
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
recapture issue assistance to developer but direct subsidy to homebuyer
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
certification course example direct subsidy to homebuyer
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
recapture issue assistance to developer but direct subsidy to homebuyer13
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.
assistance to developer direct subsidy to homebuyer
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
real life example direct subsidy to homebuyer
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
real life example direct subsidy to homebuyer issues
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
recapture vs resale
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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