1 Homebuyer Assistance

2 24 CFR (a) Beneficiary Must qualify as low-income Must occupy property as a principal residence for affordability period Receive title through fee simple title, land trust, or, if homeownership under state law, receive share in mutual housing or coop Contracts for deed not homeownership

3 Eligible Properties Eligible property types: Single-family (1-4 units), including condominium units and manufactured housing Manufactured home Sales price must be < 95% of median purchase price in the area 24 CFR (a)

4 Eligible Properties 1-4 units (single family), including condominium units PJ must inspect units for property standard compliance HQS for acquisition Rehab/New Construction standards if applicable Includes lead-based paint requirements

5 Affordability Requirements PJs have two options for controlling affordability of the property during the affordability period: Recapture Resale 24 CFR

6 Recapture Provisions Homebuyer sells to any willing buyer Sale triggers recapture of all or portion of “direct subsidy” to the homebuyer Direct subsidy = financial assistance that reduced purchase price from FMV or was provided directly to homebuyer (e.g., downpayment, closing costs, HOME mortgage) 24 CFR (a)(5)(ii)

7 Recapture Provisions Recapture full amount of subsidy or a reduced amount May forgive portion May share net proceeds May capture portion of appreciation 24 CFR (a)(5)(ii)

8 Recapture Provisions If no direct subsidy, must use resale provisions Recapture amount is limited to net proceeds of sale Cannot recapture more than is available at closing

9 Common Recapture Issues Insufficient description in Con Plan HUD must review for regulatory compliance and approve Citizens have insufficient information Permit “assumption” of requirements or waive recapture if next buyer is low-income Not limited to net proceeds Buying out of requirements

10 Resale Provisions When the home is sold, HOME affordability restrictions are passed on to the next buyer 24 CFR (a)(5)(i)

11 Resale Provisions Purchaser must be low-income and occupy as principal residence Resale restrictions control subsequent sale during the period of affordability New buyer assumes existing affordability period, unless additional HOME $ provided New, potentially shorter POA

12 Resale Provisions Resale Price must be “affordable to reasonable range of low-income families” Original homebuyer must receive a “fair return” on investment Both terms must be defined in Con Plan, and PJ must state how it will address situations where both standards cannot be met Alternative: Presumption of Affordability 24 CFR (a)(5)(i)

13 Common Resale Issues Resale provisions described in Con Plan often don’t meet requirements Insufficient detail No fair return or return not fair Don’t require resale to low-income buyer Don’t define affordability to a “reasonable range” of low-income buyers Don’t define upfront how resale price will be determined

14 Common Resale/Recapture Issues PJs often develop a “hybrid” provision that includes elements of both or an “either or” provision that creates uncertainty for the homebuyer HOME rule currently does not permit either of these approaches

15 Ensuring Affordability Written agreement with homebuyer imposing resale/recapture and requiring principal residency for POA Must be separate from loan docs Resale – deed restriction required Recapture – optional; lien OK Monitoring for principal residence not required 24 CFR (a)()(i)(A)

16 Emerging Homeownership Issues HOME Program Design

17 Program Design Issue The homeownership landscape is in the midst of enormous shifts Depreciation in previously overvalued markets Skyrocketing foreclosures Substantial contraction of the mortgage market Have you rethought your program design yet?

18 Program Re- Design Issues Market changes Underwriting standards Counseling Anti-predatory lending and resubordination policies Rehabilitation option