HomeMy WebLinkAboutAgenda - 10-21-2014 - 7aORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: October 21, 2014
Action Agenda
Item No. 7 -a
SUBJECT: Community Home Trust Request to Amend Operational Procedures
DEPARTMENT: Housing, Human Rights &
Community Development
ATTACHMENT(S):
Letter from Community Home Trust
PUBLIC HEARING: (Y /N) No
INFORMATION CONTACT:
James E. Davis, Jr.
919- 245 -2488
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PURPOSE: To review and approve proposed procedural changes by Community Home Trust.
BACKGROUND: The Community Home Trust (CHT) is an affordable housing provider whose
clientele includes first -time homebuyers earning less than 80 percent of the area median income
with subsidy from the federal HOME program. In May 2014 CEO Robert Dowling submitted a
letter addressed to the Town of Chapel Hill, the Orange County Board of Commissioners and
the Orange County HOME Consortium proposing procedural changes to its operations. The
proposal addresses two (2) issues-
1 . Homebuyers' limited access to financing; and
2. CHT's difficultly in selling homes.
CHT asserts that its homebuyer mortgage funding from the NC Housing Finance Agency will be
exhausted in 2015, making it necessary to identify alternative funding sources. To address this
issue, CHT is proposing to allow lenders to secure their investment with a fee simple interest.
Currently, CHT can only grant a leasehold interest in the home as collateral. This leasehold
interest secures the home, but not the land upon which the home is situated. Mr. Dowling
asserts that this form of collateral attributes to there being only one bank in the region that is
willing to extend financing to its buyers. While a fee simple interest could potentially result in a
lending institution foreclosing on the home and the property, CHT homebuyers have never
surrendered their home to a lender through foreclosure. Historically, CHT has re- acquired
property at risk of foreclosure and plans to continue this trend.
To address the issue of difficulty in selling homes, CHT has proposed that it be allowed to sell
homes that contain federal subsidy through the HOME program to households with an income
of up to 115% of the Area Median income (AMI), where permissible by US Department of
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Housing & Urban Development (HUD) guidelines. The HOME Program imposes an affordability
period on projects assisted with HOME funds in order to ensure that HOME investments yield
affordable housing over the long term. For homebuyer projects such as the Community Home
Trust, the length of the affordability period is based on the amount of HOME funds invested in
the property:
HOME FUNDS PROVIDED
AFFORDABILITY PERIOD
<$15,000
5 years
$15,000 - $40,000
10 years
> $40,000
15 years
However, the restrictive covenants CHT executes with the County stipulate 99 years of
affordability. As a result, houses that are originally sold with the assistance of HOME funds that
are later re- acquired by CHT must be re -sold to a family earning less than 80% AMI. Otherwise,
CHT must refund the HOME funds invested to the County from the proceeds of the sale.
FINANCIAL IMPACT: There is no financial impact regarding the policy allowing CHT to extend
a fee simple interest in properties sold. However, should the Board approve the proposed policy
change regarding selling homes to families above 80% AMI where the federal subsidy remains
in the home, this may reduce the number of low and moderately -low income families served by
the Orange County HOME Consortium. Notwithstanding this reduction in low income families
served, the affordability period as mandated by HUD would be met.
RECOMMENDATION(S): The Manager recommends that the Board review and approve the
policy changes as requested by Community Home Trust to permit CHT to extend a fee simple
interest to mortgage lenders and permit homes to be sold to persons up to 115% AMI where
permitted by HUD.
IF
INS/
BOARD OF
DIRECTORS
Alan Lee
President
Gloria Beissinger
Treasurer
Gordon Merklein
Secretary
Jess Brandes
Cresha Cianciolo
Kathleen
Ferguson
Jennifer Ferris
Lisa Inman
Michelle Johnson
Jaimie Lee
Jim Merritt
Penny Rich
Maryann Toone
Jim Ward
Jonathan Weiler
Executive Director
Robert Dowling
C
Date: May 22, 2014
To: Chapel Hill Town Council and Orange County Commissioners and the Orange
County HOME consortium
Copy: Roger Stancil, Michael Talbert and CHT board of directors
From: Robert Dowling, Community Home Trust
Re: Challenges that require action
In 2007, 1 addressed the Assembly of Governments about two challenges that
jeopardized the success of inclusionary housing. Those challenges were (i) long
term affordability of our homes, and (ii) longterm maintenance.
Since 2007, we have been chipping away at the maintenance issue and have made
great progress. However, the affordability problem is worse today than it was in
2007 due primarily to two factors:
1. HUD income limits for purchasers are lower today than they were in 2007
2. The costs of owning one of our homes increases every year due to higher
home prices and higher HOA dues, property taxes and stewardship fees.
I have discussed these issues at both Town Council and County Commissioner
meetings in recent years, However, I am compelled to write this memo because
external circumstances continue to present risks to the long term success of
inclusionary housing. I believe it is my responsibility to alert you to these risks and
to offer mitigating solutions.
Specifically, the risks that jeopardize the programs are two:
1. Home Trust home buyers have limited access to first mortgage financing
2. Reduced federal subsidies, in conjunction with continued stagnant income
limits, make it increasingly difficult to resell some of our homes.
Mortgage financing for our buyers has been difficult in recent years, but the NC
Housing Finance Agency provided $5 million specifically for our buyers. This funding
has enabled us to sell most of the 38 homes we have sold this fiscal year. However
those funds will be exhausted in 2015 and we need to identify alternative sources of
mortgage funding.
Our ability to attract other lenders, such as SECU and Self Help, requires that we
allow these lenders to obtain the fee simple interest in the property in the event of
foreclosure. If we provide the fee simple interest as collateral, and we allow a home
to be foreclosed upon, we would lose it from our inventory entirely.
We recognize the risks of making this change, but the Home Trust board has
weighed those risks and approved the change in order to accommodate the
P.O. Box 307, Carrboro, NC 275 10 1 919-%7-1545 f
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needs of our home buyers. As you all know, we have never had a foreclosure and we hope
never to allow a home to be foreclosed upon. However, the Home Trust cannot unilaterally
agree to provide the fee simple interest without approval from both the Town Council and the
Board' of County Commissioners.
By way of this memo, we are asking for your approval of this change. We are more than
happy to work out the details with your attorneys and staff.
On the matter of reduced federal subsidies, the Town Council, the County Commissioners and
the HOME Consortium could help us to better utilize CDBG funds, HOME funds and local funds
that are already invested in our homes by allowing us to sell to higher income households.
Currently, we are prohibited from doing so, because both the Town and the County impose 99
year affordability restrictions that limit buyers to 80% of AMI.
If the Town, County and HOME Consortium will allow us to sell to households up to 115% of
AMI when permissible by HUD, you will assist us in two important ways:
1. Our window of eligible buyers will be widened (which will increase diversity in some of
our neighborhoods)
2. We will require less subsidy in the future to continue to make all of our homes
affordable to households at 80% AMI
Again, by way of this memo, I am requesting approval from the Town Council, the County
Commissioners and the HOME consortium to allow us to sell homes to higher income
households when permitted by HUD.
Both of these challenges, if left unaddressed, have the potential to truly disrupt the success of
our inclusionary housing programs. We had hoped that the Charter would address these
issues, Ibut it does not appear that the Char-ter will be executed prior to the summer break.
You all have been instrumental to our success over the years. Thanks to your support, there are
227 affordable homes integrated into market rate neighborhoods in Chapel Hill and Carrboro.
We estimate the market value of these community assets to be more than $40 million.
We very much appreciate your support. We are more than happy to answer any q',uestions you
might have. Thank you for your consideration.
Sincere
/w
Robert Dowling
Executive Director
I RUN a IN mr//
P.O. Box 307, Carrboro, NC 27518 1 919-967-1545
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