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RM.JM BM EA \WPfIles\Staffrpt\Staffrpt\Torca2 rpt Santa Monica, Cahforma JAN 2 8 1997
Council Meeting January 28, 1997
To. Mayor and City Council
From City Staff
Subject. ModdicatlOn of Shared AppreCiaTIOn Loan Program Gwdelines
INTRODUCTION
The purpose of this report IS to recommend that the City Council approve a modIfication to the
Shared AppreCiatIOn Loan Program Gwdelines funded by the Tenant Ownership Rights Charter
Amendment (TORCA) The proposed modification IS recommended so that a more eqUitable
illstribution of subsidy can be aclneved In addiTIon, this report wIll inform the Council of several
procedural changes winch are expected to increase program stability, improve efficiency, and
provide applicants WIth a WIder range of financmg opTIons.
BACKGROUND
The Tenant Ownership RIghts Charter Amendment (TORCA), adopted June, 1984, required that the
City rmplement an ownerslnp assistance program for low and moderate income households
purchasmg their uruts as condomrmums under TORCA. A1I1horization to commence a program was
amended m June, 1992 when Proposlt1on K was adopted The program provided for eligible
households to receive City financmg through a 'shared appreciation approach' whereby the City
would receIVe a share of the appreciated value at umt resale
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Durmg the next twelve months Program GUidelines for operation of the program were developed
and III September, 1993, they were adopted by City Council Soon thereafter FIrst Federal Bank was
selected by the City to underwrite and process loan applIcatIOns for the program. All tenants of
TORCA properties that had completed or were close to completing the TORCA process were
notified of the new program III December, 1993 and First Federal began accepting loan applications.
Since then, periodiC program maIlmgs and commuruty onentatlon meetings have been organized to
mform the public about the program
The program started slowly, but loan actIVity eventually picked up m 1996. Wlule only 5-6 loans
per year were funded dunng calendar years 1994 and 1995, calendar year 1996 loan approvals have
already reached 17 of winch 12 have been funded A number of factors including llllproved market
conditIOns can be attributed to this Jump III actiVity. However, the most sigmficant factor is the
November 1995 modification of Program eligibility requirements that allows current tenants to buy
their units rather thanJusl PartICipating Tenants as defined III the Tenant Ownership Rights Charter
Amendment As of September 30. 1996, the City has funded $1,224,010 toward the purchase of 22
TORCA units; tins equates to an average loan of about $55,000 per umt. The balance of available
funds under the program IS $2,850,673
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Although loan volwne IS up, a pOSItIve progranl trend, Staff has determmed that selected program
mollifications and/or procedural changes ""111 strengthen program operatIOns, Improve efficiency,
and provIde apphcants WIth a wider range of financmg options
DISCUSSION
The proposed new WlderwntIng cnteria IS sununarized below WIth a brief explanation regarding the
purpose and benefiCIal program Impact
1. Current Criteria: MaxImum loan amoWlt IS hased on the number of bedrooms In a unit
Modified Criteria MaXImum loan amount should be based on both the number of
bedrooms m a umt and household size as displayed below
Mmunum Maxunum
Umt SIze City SubSidy Hsehold Size,,2 Hsehold SIZe'
Studio or efficiency. $50,000 1 2
One bedroom urut $60,000 1 3
Two bedroom urut. $75,000 2 4
Three bedroom urut $75,000 2 6
Four bedroom urut. $75,000 2 8
'Household size lumtation would not apply to Long Term Tenants defined as tenants living
in bUIldings as of November 27, 1995 or earlier
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2A smgle. elderly, disabled. or handicapped loan applicant supported by a live-in attendant
(provldmg at least 8 hours of care dally) who IS determined to be essential to the applicant' s
care or well bemg qualIfies as a two person household
3The maxImum household SIze per urnt IS consIstent with the standards of the City of Santa
Momca Housmg Authonty The City may waIve the maJC1mum household SIZe cntena for
good cause based on adrnimstranve discretIOn
Puroose. By IInkmg the number of bedrooms and household size, a more equitable
dIstnbunon of subSidy can be aclueved 'Over housmg' of a smaller household mto a larger
umt at the City's expense (for example, $60,000 vs $75,000 subSidy) winch IS pemutted
under current GUidelines can now be avoided
To aVOid displacement of those Long Term T errants (renting smce November 27, 1995) who
happen to reside in a larger urnt, the modified cnteria will not be applicable. Additionally,
those smgle loan applicants that reqUire live-m care are considered to be a two person
household and therefore qualify for the higher subSidy m the event a two-bedroom umt IS
purchased.
ADMlNlSTRA nON
In order to strengthen the TORCA Shared AppreCIatIOn Loan Program, staff has decIded to place
renewed emphasis on conventional lender fixed rate financmg Program GUIdelines clearly support
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this approach The beneficial Impact IS that household financial stabtlity IS facdllated With a
predictable debt service level wlnle City loan quality IS nnproved Because the City'S pnmary lender
and designated underwnter. Frrst Federal. could not offer a fixed rate product, some operatIOnal
changes were made so that additIOnal lenders could partiCipate m the program
The most slgmficant operatIOnal changes mvolved decentralizmg commumty outreach, application
processing, underwntmg, and documental1on preparatIOn activll1es Maintammg these tasks With
a smgle lender that could not deliver first trust deed loans on a fixed rate basiS was not realistic
Instead. it was deternuned that the new City approved first trust deed lenders were sufficiently
mol1vated and expenenced to effecl1vely market the program while processmg application materials.
With mull1ple lenders, it was deterrmned that the City underwril1ng function should be handled m-
house to ensure consistency and umforrmty Housing staff will perform this role with the support
of Nancy Lewis ASSOCiates who has been workmg closely With the City to underwnte and process
loan applications since incepl10n of the program Fmally, a City deSignated escrow company will
be selected through a Request for Qualifications process (selecl1on anticipated mid-January, 1997)
to consolidate and handle documentatIOn preparation as well as Joint lender and City loan closmg.
The above procedural changes are expected to allow a greater number of lendmg msl1tul1ons to
partiCipate m the Clty's program thereby promol1ng competil1on, improving efficiency, and giving
loan apphcants a wider range of chOices To date, four new lenders have been reviewed and
approved by the ,City. Each of the lenders (Sanwa, Sumitomo, GMAC Mortgage, and Coast
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Savmgs) is committed to commuruty development lendmg and has worked closely WIth a \vIde
variety of public sector entitles
FINANCIALIBUDGETARY IMPACT
It IS antIcipated that the proposed modificatIon Will allow for greater utIlization of eXIStmg loan
program funds through mcreased leveragmg of CIty dollars In addItIon, repayment risk to the CIty
15 IIlJtIgated by allowmg loan apphcants to obtain conventIOnal fixed rather than vanable financmg
No other fmanclal or budgetary Impacts are expected
CONCLlJSION
It IS recommended that the CIty CouncIl
(1) Approve the modified ehglbtlity cntena to mclude household SIze such that a more eqwtable
distnbutIon of subSIdy can be aclueved
Prepared by: Jeff Mathieu, DlIector of Resource Management
Bob Moncrief, Housmg Manager
Ellen Alderman Comls, Semor AdmimstratIve Analyst
Attachment TORCA 1997 informatIon Package
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TORCA SHARED APPRECIATION LOAN PROGRAM
1997 Information Package
The City of Santa MOnica IS currently accepting applications for loans under ItS new,
Improved TORCA Shared ApprecIation Loan Program Under thiS Program, the City may
make Shared ApprecIation Loans to low and moderate Income households, to assIst them
to buy condominiums In bUildings which have been converted under TORCA (Tenant
Ownership Rights Charter Amendment).
Loans are available for up to $75,000, depending on your household size, the sIze of the
condominium, the purchase pnce, and your income Under thiS loan program, the City IS
repaid Its princIpal and'a share of the appreciation of your home at the time of resale. No
monthly payments are required
In order to be eligible for thiS program, you must meet household income limits descnbed
in the Program Guidelines In addition, you must currently live in the building where you
are Interested in buying, and meet other program guidelines
These loans are desIgned to be used together with a separate loan from a bank or savIngs
and loan (also known as first mortgage lender) You may seek such a loan from any lender
you WIsh; however, terms of these loans are subject to approval by the City, and adjustable
rate loans with negative amortization Will not be allowed Currently four lenders have been
approved by the City and are listed on the follOWing page
Loan Aooroval and Closina Process
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Your first mortgage lender will be responsible for managing the Joint loan approval and
clOSing process (for lender and City) on your behalf. Any quesllons you might have
regarding the status of your City loan should be directed to your lender. Please remember
that your lender Will be working dosely with the City to expedite your loan request. Do not
contact the City directly for loan status.
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To summanze the Joint loan approval and closing process, the following outline has been
prepared
1 Contact lender of your choice to prequallfy (see approved list below)
2 Submit all reqUIred lender and City forms to the lender to commence
underwntlng and verifications
3 Lender issues commitment
4 Lender forwards completed loan package to the City for review and approval
(typically four to SIX weeks from submittal of application materials)
5. City reviews lender loan package for borrower eligibility and underwrites City
loan amount (typically two to three weeks from receipt of completed lender
loan package)
6 City Issues commitment to borrower (With copy to lender)
7 Lender and City prepare loan documents and submit to City deSignated
escrow (typically within a week of commitment letter Issuance)
8 Borrower executes lender and City loan documents.
9 Upon receipt of executed loan documents from escrow, City funding can be
processed and scheduled (typically within two weeks from receipt of loan
documents)
Because the above timing IS tied so closely to Borrower responsIveness, compleXity of the
transaction, turn-around time for incomplete information, and quality of the lender loan
package, time frames for funding specific loans vary greatly However, most loans have
funded Within SIX to nine weeks from City receipt of the lender loan package.
Aoollcabons and ProQram GUidelines
Applications for the City loan program may be obtained from the following financial
Instltubons that have been approved by the City. Copies of Program Guidelmes can be
obtamed from the Planning Counter in Room 111 at Santa MOnica City Hall located at
1685 Main Street. Further Informabon regarding the City approved lenders is prOVIded on
the attached exhibit
CITY APPROVED LENDERS.
Sanwa Bank AliCia de la Cruz (213) 887-7310
Jennifer Pusateri (310) 393-9329
Sumitomo Bank Jan Anderson (310) 451-1681
GMAC Jeffrey Thomas (818) 783-7800 X 230
BOnita Mayne (818) 783-7800 X 225
Coast Savings Bank Karen Grenier (310) 462-8198
*In the event addrtlOnallenders are added to the City's lISt. updated Information can be obtained from the HOUSing DiviSIOn at (310)
458.8702 X 1
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January, 1997
COMPARATIVE LENDER INFORMATION1
TORCA Loan Program
SANWA SUMITOMO GMAC COAST
Fixed Interest 81% 80% 82% 875%
Rate(10/1/96)
POints 0% 0% 0% $ 500
Fees2 $350 $1425 $1610 $1895
Presales N/A NIA 70% of units> 70% of Units
Pnor Homeownershlp IV. least 7 yrs ago NIA N/A N/A
Date of TORCA Conversion N/A NIA At least 3 yrs ago N/A
MCC' Yes No Yes No
1 Flrst-tlme home buyer program tenns for each Inslltubon are reflected above wllh the exceptIOn of Coast that
has no specific program
2Esbmated fees for a $50:000 loan, fees consist of points, appraisal, credit report, documentabon fee,
recording fees, processing fee, underwntmg fee, wire fee, tax servlcelflood certificate, tJtIe Insurance (lender),
escrow settlement charges Totals exclude mortgage broker fees wllh the excepoon of Coast that works only
With brokers
'County of Los Angeles sponsored Mortgage Credit Cerbficate Program (MCC) parbclpant Eligible borrowers
can receive a dollar for dollar tax cred~ against federal Income tax resunlng In an Increased abllrty to afford
a mortgage payment
"WaIVers can be obtained on a case by case baSIS
NOTE: THE ABOVE INFORMATION IS SUBJECT TO CHANGE BASED ON MARKET CONDmONS. WE
URGE YOU TO CONTACT LENDERS TO COMPARE PRICING AND TERMS.
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