FSBR: “Foreclosure Sale by Region” 4-R Program

1. FSBR:“Foreclosure Sale by Region”4-R Program GWRC Affordable Housing Task Force July-August, 2008

2. Housing Affordability Continuum * Range of HUD Income Guidelines for 4 person household in GW Region, see: http://www.vhda.com/MultiFam/hudincome.aspfor complete income guidelines

3. Objectives • To increase the supply of affordable workforce housing by purchasing foreclosed homes at a reduced price, renovate, and resell to low- & moderate-income families using local, state and federal programs for down-payment assistance. • To maintain workforce housing stock and preserve housing affordability for future re-sales. • To stabilize neighborhoods, property values & local government tax base • Increase opportunity for credit, budget and homebuying counseling to increase the pool of eligible homebuyers

4. Stakeholders • GWRC & Local Governments • Non-profit organizations: • Fredericksburg Area Assoc of Realtors (FAAR) • Fredericksburg Area Builders Assoc. (FABA) • Central Virginia Housing Coalition (CHVC) • Greater Fredericksburg Habitat for Humanity (GFHFH) • Fredericksburg Regional Chamber of Commerce (FRCoC) • Fredericksburg Regional Alliance (FRA) • Housing Opportunities Made Economical (HOME) • disAbility Resource Center (dRC) • Faith-based Community(e.g. MICAH) • Business Community • Lowe’s & Home Depot • Major Employers(Mary Washington Hospital, UMW, Germanna Community College, GEICO) • Utilities: Dominion Power & Rappahannock Electric Cooperative • Local Banks • State & Federal Agencies

5. FSBR 4-R Program Components

6. FSBR 4-R Program • Reduction • housing cost/ interest rates • Renovation • Resale • Low- and moderate-income families • (30-80% AMI) • Restock • Preservation of affordable housing stock

7. Partner Roles • Locate REO Foreclosure Housing Stock • GWRC AHTF: CVHC, GFHFH, Banks and FAAR • Financing • Local banks, VHDA, USDA, Major employers, local govts, etc. • Contract to Purchase by CVHC or GFHFH • Renovation • CVHC & GFHFH: staff project managers/ rehab specialists & contractors • Partner with FABA • Locate Qualified Purchasers • CVHC & GFHFH qualify buyers, based on income & other criteria • Pre- & Post Closure Counseling • CVHC & GFHFH run counseling for clients • Contract with Purchaser • CVHC & GFHFH draw up contract with qualified buyer • 2nd Deed of Trust: CVHC & GFHFH execute 2nd Deed of Trust to protect affordable investment • Property Closing

8. Example FSBR Deals: * FSBR investment backed by 2nd deed of trust

9. Regional Distribution of FSBR Foreclosure, FSBO & Bankruptcy Listings(June 2008)

10. Key provisions of U.S. housing rescue bill • Local communities that are burdened with maintenance of abandoned properties: access to $3.92 billion in federal grants to buy and repair those homes. • GW Region Potential Allocation: $13,227,000 • First-time home buyers (April 08-July 09) would be eligible for a tax break worth up to $7,500 • $200 million would be offered to foreclosure-prevention programs: potential up to $675,000 for GW region • Local governments would have authority to issue an additional $11 billion of tax-exempt bonds to refinance shaky loans.

11. Indications are that the federal funds will be distributed through the CDBG program through DHCD, & grant award will be based on competitive merits of applications. The GW Region needs a plan ready to take action when the federal housing bill money is ready to be distributed!

12. Recruiting, Qualifying & Training Potential Buyers • Promotional Campaign: • Potential Program Partners: Local Govts, COC, FAAR, Major Employers, FRA, Military Bases, Faith-based Organizations, newspaper & radio • Media: Newspaper, radio, pay stub insert, flyers • Regional Affordable Housing “Information Fairs” • Sub-regional Buyer Orientation Open House:Program description & Pre-Qualification Survey & Pre-Purchase Counseling to get on “waiting list” • Ranking Criteria: Income, family size, locational preference & housing type requirements

13. Pre-Purchase Counseling: Client is required to attend: VHDA Introduction to Homeownership class • Class conducted at CVHC or alternate site • No cost to client • Client receives certificate- required by VHDA loans & several first time homebuyer programs to receive a reduction in PMI rates • 6 hours of instruction to include: • Personal finance • Credit • Role of realtor • Role of Lender • Role of Home Inspector • Role of Title Company/ Attorney

14. Pre-Qualification Counseling: • Application is completed • Proof of income on all earned/available income • 2 months bank statements from all open sources • Credit report with score dated within 60 days (review of all documentation- does client meet criteria & obtain pre-approval from bank) • Intake Appointment is Set • Review pre-approval with client • Review list of available properties • Review rules & regulations concerning any assistance GWRC may provide- sign disclosures for program rules/regs. (home retention/ payback/ interest rate/ payments/ etc.)

15. Rules/ Regulations of Sale • Must be owner-occupied • No investors • No subordination of FSBR-lien • Home retention

16. Post-Purchase Counseling Within first 3 months after closing: • Client must attend a post-purchase class, which covers: • Predatory Lending practices • Basic preventative home maintenance & repair • Going Green & Utility Conservation/Improvements • Insurance issues • Warranty issues • Generational wealth building • Emergency reserves • Client will receive $200-500 reduction in down- payment lien from program after attendance CVHC Certified Comprehensive Housing Counselor is certified in Post Purchase Homeownership Education

17. B. Identifying, Evaluating, Purchasing & Renovating REO Properties • Developing Supply Chain: • Ask FAAR to partner with program to: • Give sales commission concession for supplying waiting list of pre-qualified buyers • Property managers to report complaint calls to identify problem properties • Ask REO managers to provide 1st right of refusal to FSBR Program for most affordable properties based on general program criteria • Mobilizing for quick property inspection, evaluation & acquisition decision • Work with partners to minimize acquisition, renovation & selling costs

18. Locate list of REO properties: • Contact investors for REO list • VHDA • National & Local Banks • HUD/ VA • REDC • Newspapers • Association of Realtors • Work with bank directlyon purchase of REOs in package deal – reduction due to group purchase • Will Bank provide program a LOC for short time purchase? • Interest only/ flexible terms/ no prepayment penalty • If Realtor already has listing: • Each property must be bid on separately • Could LOC from bank still be a viable option? • If purchased in groups from same realtor- possible reduction in realtor cost (i.e. commission concession)

19. Rehab of acquired foreclosure properties • Due to economic slowdown- homes must be in top shape to stand out from crowd • Rehab must include all major mechanicals • Rehab must include updates in top areas: kitchens/ baths • Cosmetic touches must be considered in this market • All rehab/renovations must take into account market price sustainability with improvements

20. C. Governance & Financial, Legal Framework • Governance: • Program implementation through MOU between GWRC & CVHC, GFHFH, FABA, FAAR and others (?) • Program developed through GWRC’s AHTF, which manages Components A & B through partner organizations • GWRC functions as governing board to authorize acquisition, renovation & disposition of properties to pre-qualified buyers • GWRC could apply for any govt. planning grants, acquisition program funds on behalf of the regional affordable housing program

21. Legal Framework: • CVHC & GFHFH would retain 2nd deed of trust to preserve future affordability • Proceeds from sale of renovated REO properties would revert to regional Affordable Housing fund to be re-invested in additional home purchases, renovation costs, down payment & closing cost assistance • Local governments &/or area employers could put up down-payment assistance for eligible workers which could be recovered through employee payroll withholding

22. Sale of Home • Client enters into contract: • Must have pre-approval • Must have certificate from homebuyers ed class • Must have attended intake meeting & have disclosures signed • Closing can be 30-60 days depending on program requirements • No allowance for pre-purchase possession

23. Financial Package: • Negotiate discounts with banks on foreclosure purchase price • Corporate and personal donations, foundation grants & possible fee concessions to reduce acquisition, rehab and resale costs • Down-payment Assistance programs • Closing Cost Assistance programs • VRA low-interest loan money for rehab energy efficiency/conservation measures

24. Corporate, Local Govt & Personal Donations: • Corporate Options: • Retailers: discounts on appliances & bldg supplies • Employers: down-payment assistance programs • Utilities: donate the cost of electrical meter installation & CFL light bulbs • Local Government Options: • Sponsorship of promotional effort with public employees • Waiver of local recording fees • Waive taxes on property during FSBR holding period • Waiver of water hook-up/turn-on fee • Employee down-payment assistance programs • Dedicated revenue stream for FSBR program • Personal/Philanthropic Donations/Grants: • High school car washes for teacher down-payment funds • Benefactor donations • LISC & other foundations

25. Down Payment Assistance • As the fallout from foreclosures increases one effect is an immediate re-evaluation of the current lending guidelines. • Credit score requirements are tightening • Down payment requirements are increasing • No income /stated income loan products are being abolished • Private Mortgage Insurance companies are tightening their guidelines. • Loan products that were available are now gone • (CVHC inquiring to DHCD of possibility of HOME funds being used)

26. Down Payment Assistance (continued) • Program holds 2nd Deed of Trust to assist with down payment: • Small increments 3-5% of sales price • Home retention requirements • Resale/refinance: full pay-back, no forgiven funds • Other entities (Fairfax, etc) are requiring a 1-3% of equity sharing to continue self-funding of program

27. Down Payment Assistance (continued) • Options for loans with low down-payment requirements • FHA: 3% down payment: funds can be gifted • 30 year fixed rate loan • First time homebuyers eligible • Relaxed DTI and credit criteria • Federally backed loan program through HUD, may transition to VHDA? • If home is sold with FHA financing- home must pass FHA appraisal requirements

28. Down Payment Assistance (continued) • Other large national banks have their own special products: (e.g.) • Countrywide - House America Loan for borrowers with alternative credit histories, savings patterns • Bank of America: “No Fee Mortgage PLUS”: no PMI, no closing costs, no application fee • Provident Bank: matching down-payment funds up to $1,500 on their 30 year fixed rate loan

29. Down Payment Assistance (continued) • VHDA 1st-time homebuyer programs: • FHA plus- provides a 2nd loan to assist with d/p and closing costs/ fixed rate payments • RHS- Rural Development loans thru VHDA/ no down payment/ 30 year fixed rate • Conventional loans- standard 30 year fixed rate/ below market VHDA rates

30. Closing Cost Assistance • In a buyers market: • A buyer will gravitate towards homes with closing assistance, to the extent of not viewing homes that do not offer assistance. • As the seller a 2-3% margin can be built in to offer back to the purchaser as closing cost. • FHLBAT offers a closing cost assistance program and this may need to be investigated.

31. Challenges • Creating a regional product: “FSBR” • Regional Cooperation • Establishing Financing program & revenue stream • Covering Administrative Fees • Oversight Board Development • Personnel selection (?) • What will be FSBR BoD responsibilities

32. Questions? Credits: Prepared by Staff of the Central Virginia Housing Coalition, Greater Fredericksburg Habitat for Humanity & the George Washington Regional Commission with input from the members of the GWRC Affordable Housing Task Force