sr-121410-3hCity Council Meeting: December 14, 2010
Agenda Item:
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Financing Program for Residents at Mountain View Mobile Home Park to
Purchase New Manufactured Homes
Recommended Action
Staff recommends that the Council:
1. Approve a Financing Program for new manufactured homes at Mountain View
Mobile Home Park (MVMHP) pursuant to terms included in the staff report.
2. Approve Financing Program funding to facilitate the purchase of a maximum of
54 new manufactured homes, not to exceed $9,222,500, as outlined in the staff
report.
Executive Summary
The proposed voluntary Financing Program (Program) for MVMHP will create
opportunities for existing residents to purchase and/or occupy new, quality, sustainable
manufactured homes that meet current health and safety standards. The Program
includes three options: 1) deferred payment loan; 2) lease-to-own; and 3) renting from
the City. These financing options are intended to address all of the existing household
income levels at the property, which range from extremely-low income to moderate
income.
Background
Mountain View Mobile Home Park (MVMHP) was purchased by the City in 2000 to
preserve affordable housing. A comprehensive improvement project that updated the
Park's infrastructure to meet federally-approved standards was completed in September
2010. Of the 105 spaces, 20 housing units are City-owned and will be replaced with
new, sustainable manufactured homes (September 28, 2010 City Council staff report),
leaving 54 existing occupied resident-owned units that are older mobile homes and
travel trailers. By attrition, spaces in the Park have been left vacant to accomplish both
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the infrastructure improvements and the temporary relocation for replacement of the 20
City-owned units. Consequently, 31 spaces are currently vacant but will be occupied in
the future with mobile homes that meet current building and sustainability standards.
Discussion
The Program is available to all MVMHP residents and includes three options to address
the varying economic circumstances of the households who reside at this property. Staff
analyzed various income levels (extremely low, very-low, low and moderate) and
housing expenses (conventional loan down payment and interest, space rent, utility
costs, insurance, and maintenance costs) to determine the feasibility of the proposed
Program for residents. The financial burden. of homeownership includes maintenance
and repair costs in addition to mortgage, taxes, and homeowner insurance costs. For
this reason, affordable homeownership programs often do not target extremely low or
very low-income households due to the ongoing increased financial burden
homeownership would demand on these household budgets. However, the proposed
Program allows for the possibility that homeownership may be feasible for very low
income households in some instances. The following is a summary of the Financing
Program options. More detailed descriptions of these options and the associated terms
are included in Attachment A.
O tion 1 -Deferred Pa ment Loan
The amount of the City's Deferred Payment Loan would not exceed 50 percent of the
purchase, delivery and installation cost of the new manufactured home. For each
qualifying household that chooses the Deferred Payment Loan option, the City will
compensate the household for their existing mobile home based on the predetermined
amount established in this report and remove and dispose of the old unit. The proposed
Program requires that compensation for the existing mobile home be applied in its
entirety towards the purchase of a new manufactured home and represent at least 20
percent of the purchase and installation cost of the new. home, unless the resident
provides additional cash to meet the 20 percent down payment condition of the loan.
The household must also demonstrate its ability to obtain a conventional loan, thereby
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maximizing the amount that the household is eligible to borrow based upon industry
underwriting standards. Golden West Homes, the manufacturer selected to construct
and install 20 existing city-owned rental units offers a conventional loan program
through its financial partner, 21St Mortgage, which is available to MVMHP residents.
Program participants would not be obligated to obtain conventional financing from this
lender or any particular lender, but would be obligated to obtain an appropriate amount
of conventional financing based upon their household income. Loan repayment to the
City would be deferred until sale or transfer of the manufactured home and would carry
a zero percent interest rate. The City would share in any appreciation realized when the
home is sold, at a ratio equivalent to the City loan portion of the original purchase price.
Option 2 -Lease-to-Own
Residents ineligible for a conventional loan (or without the cash to cover 100 percent of
the cost of a new home) may benefit from the Lease-to-Own option. For each qualifying
household that chooses the Lease-to-Own option, the City will compensate the
household for their existing mobile home based on the predetermined amount
established in this report and remove and dispose of the old mobile home. The City
would purchase a new manufactured home and .enter into a lease agreement and a
purchase option agreement with the resident that must be exercised within three years.
The total monthly lease amount paid to -the City will include the space rent,
manufactured home rent and a utility allowance, and will be affordable based on the
household's income category (i.e., extremely low, very low, low or moderate). The
compensation for the existing mobile home would be held by the City until the lease
option matures. If the resident chooses at that time to purchase the manufactured
home, the old unit compensation will be applied to the purchase of the new
manufactured home. Otherwise, the .compensation for the old unit will be paid to the
resident.
Option 3 -Rent from the City
Existing resident-owners at MVMHP would also be offered the option of occupying a
new manufactured home and renting from the City. This option may be desirable to
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households who want to enjoy the benefit of a new manufactured home without the
financial burden of repaying a conventional loan or the ongoing maintenance and repair
costs. For each qualifying household that chooses the rental option, the City will
compensate the household for their existing mobile home. based on the predetermined
amount established in this report and dispose of the old mobile home. The City will
purchase a new manufactured home and enter into a lease agreement with the
household. The total rent paid to the City will include the space rent. and unit rent,
discounted for a utility allowance, and be affordable to the household's income level.
Program Administration
In order to be expeditious and cost-effective, Housing Division staff will coordinate with
the City Attorney's Office to develop the initial loan documents required for the proposed
program. A professional services contract for compliance administration will provide
eligibility determinations and process loan applications and servicing. Additionally, credit
counseling, budgeting and education for potential MVMHP residents interested in the
program will be provided through contracted non-profit agencies who specialize in these
services. Staffing and related costs associated with ongoing monitoring would not be
incurred until late FY 2011-12 and will depend on the number of residents who utilize
the program. If all residents participate in the program, it is anticipated that a .50 FTE
Administrative Analyst or .50 FTE Housing Specialist may be required for ongoing
monitoring and eligibility determination from resale of a home. Staff will continue to
monitor workload levels to determine whether the Housing Division will have the
capacity to absorb the additional workload. If the additional activities prove to be
beyond current capacity levels, additional staffing will be proposed as part of the FY
2011-12 budget process.
Next Steps
If the Financing Program is approved by Council, staff will notify the MVMHP residents
of funding availability and establish the Program application submittal period within 120
days. All applications will be reviewed for eligibility and staff will work with successful
applicants to complete the necessary Program agreements to obtain the new
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manufactured homes for ownership, lease-to-own, or rental. For residents participating
in the Deferred Loan or Lease-to-Own options of the Program, the City will provide
referrals to approved credit counseling, household budgeting, and homeowner
education programs. At a later date, Council could consider allocating funds for
additional Program funding for Village Trailer Park residents in the event they are
subject to displacement.
Commission Action
On July 22, 2010 the Housing Commission considered the proposed Financing Program
discussed in this report. In addition to unanimously recommending that staff proceed to
Council with the proposed Financing Program, the Housing Commission recommended
that the financing program include referrals to credit counseling and homeowner
education services and that staff clarify the affordable rent limits for the proposed
program and provide examples illustrating details of the program options financing
structure. These examples are included in Attachment C.
Public Outreach
Housing staff convenes monthly on-site meetings with the residents of MVMHP. The
concepts of the proposed Financing Program have been discussed several times over
the last year. At a meeting with the residents on July 28, 2010, staff presented the
details of the Program. The general response was support for the Program if existing
households renting City-owned units were provided with an opportunity to become
owners. The proposed Program reflects this input.
Environmental Analysis
The proposed financing of new manufactured homes has been reviewed under both the
California Environmental Quality Act (CEQA) and the National Environmental Quality
Act (NEPA). The project was determined to be exempt from CEQA and achieved a
Finding of No Significant Impact under NEPA. Staff will assemble the environmental
review documentation and submit the package to HUD to initiate a final public comment
period prior to HUD's release of funds for the subject purpose.
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Financial Impacts & Budget Actions
The budget will have three components: $1,027,500 to compensate owners for existing
units; $8,100,000 to finance the purchase of the mobile homes; and $95,000 for various.
contractual services, for a total not to exceed program cost of $9,222,500, as shown in
Attachment B. Funds are budgeted and available in the follov~ing accounts:
Account Amount funding Source ',
H15004908.589000 $4,430,000 Redevelopment Housing Set-Aside
H15004910.589000 $4,782,500 Redevelopment Housing Set-Aside
01264.555060 Subledger
74138W $10,000 CDBG
Prepared by: Barbara Collins, Housing Manager
Andy Agle, Director 2S
Housing and Economic Development
Forwarded to Council:
~~~~..
Rod Gould
City Manager
ATTACHMENTS:
A. Financing Program Terms
B. Financing Program Budget
C. Examples of Financing Options
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ATTACHMENT A
PROGRAM FINANCING TERMS
OPTION 1 -DEFERRED PAYMENT LOAN TERMS:.
Deferred Payment Loans are intended to assist existing MVMHP resident-owners under
these terms:
Participant musthave income adequate to obtain an appropriate amount of
conventional financing for the manufactured home being purchased. City will
compensate the Participant for their existing unit at a predetermined rate based
on the unit type (Travel trailer valued at $7,500, Single-wide mobile home valued
at $25,000, Double-wide mobile home valued at $30,000) and dispose of the old
unit.
The loan amount will be based upon the Participant borrowing capacity including
conventional financing. The loan amount shall be no more than is necessary to
enable the household to obtain maximum affordable private financing and utilize
personal assets to purchase the manufactured home, and shall not exceed 50%
of the cost of purchase, delivery and installation of the manufactured home.
Additional terms as are follows:
® Term: 55 years.
® Down Payment: The minimum down payment must be 20%. However, all
of the compensation for the existing unit paid by the City must be utilized
as a down paymenf on the new manufactured home, regardless of
whether or not it exceeds 20% of the purchase/delivery/installation cost.
^ Interest Rate: Zero percent (0%) on City loan; contingency interest on
appreciation (see Repayment).
^ Insurance: Participant must maintain comprehensive general liability, fire
and other casualty insurance.
® Repayment: The principal amount of the loan and contingent interest are
due and payable on the earlier of fifty-five years, or upon resale, transfer,
or default. Contingent interest is a share of the resale price of the unit
equal to the amount of the City loan, divided by the original purchase
price, multiplied by the amount of appreciation (difference between
purchase price and resale price) of the unit.
^ Security: Deed of Trust recorded against the manufactured home.
Resale: Upon sale, City has option to purchase unit at an affordable
housing cost. If City does not purchase unit, resale restricted to income-
qualified buyer at or below 80% area median income.
^ Removal: Unit may not be removed from MVMHP.
Each Participant will submit the necessary income documentation to
establish initial eligibility for the Program and be recertified annually
thereafter.
Existing units may need to be relocated to a vacant space within MVMHP
while the target space is prepared and the new manufactured home is
installed.
® Participant must complete City-approved credit counseling, household
budgeting and homeownership education programs as required.
OPTION 2 -LEASE-TO-OWN TERMS:
The Lease-to-Own Program is intended to assist existing MVMHP resident-owners
under these terms:
• Participant must have income adequate to obtain an appropriate amount of
conventional financing for the manufactured home being purchased, but has poor
credit and needs time to rebuild their credit-or-
• Participant has income which is too low to qualify for an adequate mortgage, but
is confident their incomes will increase enough to qualify for a loan by the end of
the three-year option period.
• City will compensate the household for their existing unit at a predetermined rate
based on the unit type (Travel trailer valued at $7,500, Single-wide mobile home
valued at $25,000, Double-wide mobile home valued at $30,000) and remove
and dispose of the old unit.
• City will purchase a new manufactured home.
• City will enter into a lease agreement with the household. The total rent paid to
the City will include the space rent, unit rent and utility allowance, and will be
affordable and adjusted to the household's income category.
• City will enter into a purchase option agreement with the household with the
following terms:
® Term: 3 years.
The compensation for the existing unit will be held by the City during the
option period and must be applied in its entirety as a down payment
toward the purchase if the option is exercised. In the event that the
purchase option is not exercised, the City will disburse the compensation
to the resident.
Rent: If the affordable rent exceeds the Space Rent, the excess rent
payment will be applied to the purchase price if the option is exercised. In
the event that the option is not exercised, all rent paid remains with the
City.
^ Purchase Price: The purchase price will be the original cost of the
manufactured home including delivery and installation, minus the amount
of compensation for the removed unit, and minus the `rent credit' amount
established in the option agreement.
® Each participating household will submit the necessary income
documentation to establish initial eligibility for the Program and be
recertified annually thereafter.
^ Removal: Unit may not be removed from MVMHP.
® Existing units may need to be relocated to a vacant space within MVMHP
while the target space is prepared and the new manufactured home is
installed.
® Complete City approved credit counseling, household budgeting and
homeownership education programs as required.
OPTION 3 -RENT FROM THE CITY TERMS:
Available to existing MVMHP resident-owners who desire to rent new manufactured
homes purchased by the City under these terms:
® City will compensate the household for their existing unit at a predetermined rate
based on the unit type (Travel trailer valued at $7,500, Single-wide mobile home
valued at $25,000, Double-wide mobile home valued at $30,000) and will remove
and dispose of the old unit.
^ City will purchase and install a new manufactured home.
^ City will enter into a rental agreement with the household. The total rent paid to
the City will include the space rent, unit rent and utility allowance, and will be
affordable and adjusted to the household's income category.
® Each participating household will submit the necessary income documentation to
establish initial eligibility for the Program and be recertified annually thereafter.
® Existing units may need to be relocated to a vacant space within MVMHP while
the target space is prepared and the new manufactured home is installed.
ATTACHMENT B
FINANCING PROGRAM COSTS
Compensation to Owner for Existing Units
Travel Trailers $7,500 21 $157,500
Single-Wide Mobile Homes $25,000 24 $600,000
Double-Wide Mobile Homes $30,000 9 $270,000
Sub-Total 54„ ,°$1,022;500;
Financing Program (Deferred Payment
loan; Lease-to-Own; Rent from City) Up to
$150,000 $8,100,000
Program Administration
Contract for the development of legal
documents
$25, 000
Contract for initial eligibility and loan
processing
Credit counseling, budgeting, and
education
Monitoring and resale (To be determined)
$1,111 ~ ~ $60,000
$185 $10,000
TOTAL
Total Per Unit ~ $770,787
ATTACHMENT C
FINANCING PROGRAM EXAMPLES
New Unit Cost
Buyer Bank Loan
Buyer Down Payment
City Deferred Pay
Loan
$ 89,947
($ 39,294)
Affordable Rent $ 709
Space Rent $ (342)
Utility Allowance $ (84)
New Unit Rent S ." ^ 283.`
New Unit Cost $ 89,947
Buyer Bank Loan $ 39,294)
Buyer Down Payment ($ 25,000)
Lease Payment Credit for 3 years ($ 10,188)
City Deferred Payment Loan $ 15,465 ;; '.
Affordable Rent
Space Rent
Utility Allowance
New Unit Rent
$ 709
($ 342)
(average cost + green features + upgrades)
( payment of $341/mo. , 8.5% interest, & 20-year
term)
(unit compensation for old single-wide mobile home)
(average cost + green features + upgrades)
(payment of $341/mo. , 8.5% interest, & 20-year term)
(unit compensation for old single-wide mobile home)
(new unit rent @ $283/month x 36 months)
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