Report: Proposal to Retroactively Apply a New Refinancing/Subordination Policy of the First Time Home Buyer (FTHB) Program to Current FTHB Borrowers

CITY OF GLENDALE, CALIFORNIA REPORT TO THE:

Joint D City Council D Housing Authority 1:8'.1 Successor Agency D Oversight Board D

June 24, 2014 AGENDA ITEM

Report: Proposal to Retroactively Apply a New Refinancing/Subordination Policy of the First Time Home Buyer (FTHB) Program to Current FTHB Borrowers

1) Housing Authority Resolution to Authorize:

a. Retroactive Application of a New Policy of the FTHB Program to Certain Current FTHB Loans

b. The Executive Director, or his designee, to

Execute Modification Agreements

Amending the FTHB Loan Documents for existing FTHB Loans at the time of

refinancing.

Public Hearing

D

D

D

D

Approved for

~,;it.\,, dP~calendar

ADMINISTRATIVE ACTION Submitted by:

Hassan Haghani, Director Community Development Department Prepared by:

Peter Zovak, Deputy Director of Housing

Anne Bockenkamp, Housing Coordinator Approved by:

Scott Ochoa, City Manager Reviewed by:

Yasmin K. Beers, Assistant City Manager

Phillip Lanzafame, Director of Economic Development

RECOMMENDATION

The Community Development Department recommends that the Housing Authority of the City of Glendale (Authority) apply a new First Time Home Buyer (FTHB) Program

refinancing/subordination policy retroactively to certain current FTHB loan agreements. This policy change would eliminate the requirement to refinance only with the original first mortgage lender. This reason for this proposed change is to provide better customer service and greater choice to participating homeowners.

BACKGROUND/ANALYSIS

Staff recommends that a new refinancing/subordination policy be adopted that will apply retroactively to current FTHB loan agreements. This policy change would permit FTHB

borrowers to refinance their first mortgage loans with any direct lender. Currently refinancing for these borrowers is limited to only the original first mortgage lender. Staff recommends all other refinancing loan agreement requirements and FTHB policies and procedures would still be required.

From 1993 through 2011 (with the elimination of Redevelopment) the Authority offered a direct assistance FTHB loan program to assist moderate income first time home buyers to purchase a resale home in Glendale. The program provided a total of 228 FTHB loans. Almost half of these loans have been paid off through the years. ·

While new loans to purchase resale homes are no longer being offered, the Authority has a portfolio of approximately 102 resale FTHB loans (not including new construction project loans or rehabilitation loans) that it continues to monitor, track monthly payments, and to service in terms of loan refinancing/subordination requests, continued owner occupancy and homeowners insurance, and loan payoffs.

Refinancing the first mortgage permits the FTHB borrower to reduce their monthly mortgage payment, often by hundreds of dollars per month and/or permits them to access a limited amount of their home equity to serve their family needs and goals. A FTHB Program borrower must obtain written approval from the Authority in the form of a signed subordination agreement from the Authority in order to refinance to a new first mortgage loan. This process gives the Authority a say in the type, terms, and amount of the new first mortgage loan in order to protect the public funds invested in the FTHB borrower's home. Written approval of the refinance via a subordination agreement would still be required if the proposed policy change is approved. Lending and title regulations were more lax in the 1990's and early 2000's when the program was issuing new loans. The preferred lender provided additional security that the Authority loans would be protected in the long term. The preferred lender promised Glendale they would provide special tracking and treatment for these loans so that they would never be refinanced without Authority approval at terms the Authority would not approve. Today that special benefit has largely been lost due to a series of buyouts of one preferred lender after another by larger banks. Also, recently adopted federal lending and title regulations now provide greater

protections to both the homeowner and all lenders on title of the property. As a result the policy requiring that only the original lender be permitted to refinance the first mortgage is less

necessary than in the past.

This policy has become an obstacle for certain homeowners to obtain a cost effective

refinancing due to their inability to shop for a direct lender who will provide the best loan at the best price.

Reasons for a Change in Policy at this Time:

• Borrowers have complained that JP Morgan Chase Bank (Chase), the current successor to the series of lenders who have taken over as original first mortgage lender (including

Glendale Federal, Coast Federal, and Washington Mutual Bank) has not provided the

best customer service, interest rates or other terms for refinanced first mortgage loans. Borrowers would prefer to shop for a first mortgage lender that meets their individual

needs.

• The FTHB Program for purchase of resale homes was eliminated in 2011 due to the loss

of Redevelopment Set Aside funds with the dissolution of Redevelopment. As a result the relationship of the Housing Authority to Chase as a "preferred lender" has become obsolete. Originally the FTHB Program required use of a preferred lender in order to

provide specialized and personalized service to FTHB borrowers. This benefit is now largely gone as there are no new FTHB loans in the pipeline and there is little incentive for Chase to provide a higher level of service to our borrowers.

• The Authority successfully relied on three different direct lenders (Guild Mortgage, Summit Funding, and I Mortgage) for Doran Gardens' first mortgage loans. This process demonstrated that choice of lender is appreciated by borrowers. While working with different lenders is slightly more administratively burdensome than working with one

preferred lender, staff believes the burden is mitigated by improved customer service to the borrowers. (Doran Gardens' agreements do not limit refinancing to the original first

mortgage lender.)

• The number of FTHB resale loans that remain active and have not been paid off is

significantly lower at this time (102 of the original 244 FTHB loans are still active) and therefore the impact of this change at this time is less burdensome administratively then it would have been several years ago.

• An analysis of loan servicing for the Single Family Rehabilitation Loan (SFR) Program shows that refinancing of loans is proceeding successfully without a preferred lender. The SFR Program permits use of a variety of first mortgage lenders.

• New regulatory requirements for lending and title policies are providing better guarantees to protect the FTHB loan position and investment than in the past. Retain Som~ Limitation on Lenders:

Proposed Policy:

"First Time Home Buyer Loan Program agreements currently limit a "permitted refinancing" to a refinancing of the first mortgage loan with the original lender only. The revised policy replaces this requirement with the provision that a "permitted refinancing" may be with any direct lender of the borrower's choice,

provided all other Housing Authority refinancing and subordination requirements

and policies are met.

This policy does not apply to special FTHB loans for San Gabriel Valley Habitat for Humanity (Habitat) constructed homes that restrict refinancing of the first mortgage loan to the original first mortgage lender (Habitat) in order to assure

that resale or transfer of the home will only be to another low income home

owner." FISCAL IMPACT

There is no new fiscal impact associated with this policy change in terms of requiring additional funding for loans.

There will be additional staff time required to explain requirements to lenders unfamiliar with

Housing Authority FTHB agreements, policies and procedures. This additional administrative

effort must be balanced against improved responsiveness to borrower needs and concerns.

ALTERNATIVES

Alternative 1: Approve the loan policy as proposed.

Alternative 2: Maintain the original lender as the FTHB Program required lender for

refinancing/subordination requests as stated in the loan agreements based upon the

determination that a preferred lender provides greater protection of Housing Authority assets

and is more important than providing greater convenience to FTHB borrowers.

Alternative 3: The City Council may consider any other alternative not proposed by staff.

CAMPAIGN DISCLOSURE

This requirement does not apply.

EXHIBITS

RESO~UTION

NO. _ _

A RESOLUTION OF THE HOUSING AUTHORITY OF THE CITY OF GLENDALE

APPROVING REVISIONS TO THE FIRST TIME HOME BUYER PROGRAM TO

RETROACTIVELY APPLY A REVISED REFINANCING AND SUBORDINATION

POLICY TO CURRENT FIRST TIME HOME BUYERS

WHEREAS

,

the

Housing

Authority established a

F

i

rst

Time

Home Buyer Program

(t

he

Program) in

1993

;

and

WHEREAS, The Program has

provided opportunities for low

and

moderate

income

persons and families to purchase a home in Glendale;

and

WHEREAS, the Hous

ing

Authority

has previously

approved modifications to

the

Program

to eliminate the equity sharing requirement, to provide

greater

flexibility for

obtaining refinancing of

the

existing loans

and allowing

subordinate

loans

;

and

WHEREAS,

it

has been determined that

furt

her

modifications to the Program

to

eliminate the

requirement

to refinance only

with

the original first mortgage lender will meet

the goals of the

program and protect

taxpayer-assisted loans, while at

the

same

time

providing

greater flexibility

and

better customer

service

.

NOW, THEREFORE

,

BE IT RESOLVED BY THE HOUSING AUTHORITY OF

THE CITY OF GLENDALE;

SECTION 1.

A further

revision

to the

First T

ime

Home Buyer

(FTHB)

Program

is

hereby approved

as

follows:

"

Permitt

ed

Refinancings" may

be

made with

any

direct

len

der of the borrower's choice,

provided that

(a) all other

Hous

i

ng

Authority refinancing

and

subordination

requirements and

policies

are

satisfied,

and

(b) all refinancings of

FTHB

lo

ans

for San Gabriel Valley Habitat for Humanity (Habitat)

constructed

homes

shall

be restricted to the

original

first mortgage lender

(Habitat).

This revision shall

be

i

mplemented and

applied retroactively

to existing

FTHB loans

.

SECTION 2. The

Executive

Director,

or

his

designee, is hereby authorized to

execute

modification agreements

to

the First Time Homebuyer Loan

documents as

necessary, including the Loan Agreement

,

Promissory Note, Deed of Trust

and

Notice

of

Restrictions

,

at such time

a

FTHB borrower requests

Authority

approval

to

refinance

its

first mortgage

in

accordance

with the revised

FTHB

Program

guidelines

.

Adopted this _

_ _

day of

_

_ _

_ _

,

2014.

Chair,

H

ousing Authority City of Glendale

ATTEST:

Clerk

STATE

OF

CALIFORNIA

)

COUNTY OF

LOS

ANGELES )

C

ITY

OF GLENDALE

)

I

,

Ardashes Kassakh

ia

n

,

Clerk of th

e

Housing Authority

of the City of

Glendale,

do

hereby

certify

that

the foregoing

Resolut

ion

No

.

was

duly adopted by the

H

ousing

Authority of the City of

Glendale

,

Ca

l

ifornia,

at a regular

meeting held

on

the

_

day

o

f

,

2014 and

t

hat

the

same was adopted by the following

vo

te

:

Ayes:

Noes

:

Absent:

Abst

ain

:

Clerk