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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

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HOME Homebuyer Program – Resale vs. Recapture

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  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

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