HomeMy WebLinkAbout09.A- Economic Development Agency DOC ID: 1353 D
CITY OF SAN BERNARDINO—REQUEST FOR COUNCIL ACTION
Report/Information
From: Emil A. Marzullo M/CC Meeting Date: 11/21/2011
Prepared by: Carey K. Jenkins, (909) 663-
1044
Dept: Economic Development Agency Ward(s): All
Subject:
Homebuyer Assistance Program Report for the Quarter Ending June 30, 2011; Authorization for
AHS to Serve as the Lender for HAP Loans
Financial Impact:
There is no impact to the City's General Fund. The Agency's approved HAP budget for
FY2011-2012 has been reduced to $500,000 to better reflect the need and demand for HAP
lending.
Motion: Receive and file Quarterly Report of the Homebuyer Assistance Program
activities for the Redevelopment Agency of the City of San Bernardino and
authorize AHS to serve as the lender of HAP loans.
Synopsis of Previous Council Action:
On September 22, 2011, the Redevelopment Committee recommended the Council receive and
file this HAP Report for the quarter ending June 30,2011.
Backeround•
On October 17, 1994, the Community Development Commission of the City of San Bernardino
("Commission") approved the Mortgage Assistance Program ("MAP") which made available a
limited number of deferred payment second mortgages, in amounts up to 10 percent of the
purchase price for single-family detached homes as assistance towards down payments for
income qualified homebuyers.
On October 5, 1998, the Commission authorized the modification of the MAP to allow the
Executive Director, under extenuating circumstances, the authority to approve up to 20 percent
in mortgage assistance. Certain operational definitions were also clarified. The general public
had the perception that this program was to provide first mortgages rather than down payment
assistance. Therefore, the name was changed to the Homebuyer Assistance Program ("HAP"),
which it is presently known.
In 2007, the median sales price of a single-family residence in the City of San Bernardino
("City") was $375,000. The increase in home sale prices made it extremely difficult for low- to
moderate-income buyers to purchase a home at an affordable housing cost as required by State
law. Therefore, on June 4, 2007, the Commission authorized down payment assistance for an
amount up to a maximum of 30 percent of the purchase price to fill the gap on a case-by-case
Updated: 11/17/2011 by Linda Hartzel D
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basis.
Soon after this approved increase, the San Bernardino housing market experienced an extensive
correction. In many neighborhoods, housing prices plummeted by as much as 60 percent of their
value. At its core, the significant drop in property values was fueled by low-interest rates,
subprime loans and the rampant speculation this caused in the housing market. In essence, there
was too much money chasing too few deals causing otherwise suspect financings to be done.
As a result, the City is currently dealing with the aftermath of this major housing correction and
the economic dislocation it has caused. This correction in the housing market has been ongoing
since 2007, and based on certain estimates, may take an additional five to seven years to
stabilize.
Currently, the HAP makes available a limited number of deferred payment (principal and
interest) second mortgages, not-to-exceed 10% of the maximum purchase price of $250,000.
This Program is specifically designed to provide qualified families with down payment/closing
costs monies necessary to secure financing towards the purchase of single-family detached
homes in the City.
Current Issue•
For the reporting quarter ending June 30, 2011, the Agency expended $25,880 in low and
moderate income housing funds ("low-mod funds") for its Homebuyer Assistance Program. The
total private lender funding for these purchases was $306,675. This is equivalent to a private
lawk investment of almost $12 for every $1 invested by the Agency and a total of 3 eligible
homebuyers utilizing HAP assistance to purchase homes throughout the City. Based on data
collected by Agency staff, the average, household utilizing the HAP Program has the following
characteristics:
HAP PROGRAM AVERAGES
Household Size Household Income Household Sales Price HAP
AMI Assistance
3 $44,418 106% $106,666 $8,626
The following table identifies the Council Wards where HAP activity has occurred:
HAP PROGRAM LOCATIONS BY WARD
Wards #of Units HAP Amount % of Total
1 0 $0 0%
2 1 $8,680 34%
3 0 $0 0%
4 0 $0 0%
5 0 $0 0%
6 1 $8,500 32%
7 1 $8,700 34%
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Total 13 1 $25,880 100%
The above chart reflects a dispersion of loans through three Wards. Of the 3 HAP loans made
this reporting period, all were secured by homes participating in the Neighborhood Stabilization
Program ("NSP"). The layering of Federal and Local resources continues to be a focus of the
Agency to ensure broader and more sustained neighborhood revitalization is achieved.
For the full year from July 1, 2010, through June 30, 2011, the Agency provided a total of
$335,370 in home buyer assistance. The loans were used to facilitate the purchase of 26 homes
for families living in the City of San Bernardino. Below is a chart that shows the number of
loans provided by ward and the amount invested by the Agency within each of those wards.
HAP PROGRAM LOCATIONS BY WARD
Wards #of Units HAP Amount %of Total
1 0 $0 0%
2 3 $28,580 9%
3 1 $14,000 4%
4 4 $59,290 17%
5 5 $89,550 27%
6 2 $16,500 5%
7 11 $127,450 38%
Total 26 $335,370 100%
Based on data collected by Agency staff, the average, household utilizing the HAP Program has
the following characteristics:
HAP PROGRAM AVERAGES
Household Size Household Income Household AMI Sales Price I HAP Assistance
2.7 $46,773 100% $121,536 1 $10,772
The first two quarters of 2011 experienced a significant decline in the number of HAP loans
originated as compared to the last two quarters of 2010. Much of the decline is attributable to
the lack of quality inventory and expiration of the first time homebuyer tax credit. Additionally,
according to the Fisery Case-Shiller Indexes, which track real estate activity in 380 cities, the
unemployment rate in the greater San Bernardino/Riverside area is 13.7 percent. High
unemployment coupled with the plummeting housing values, and high housing and rental
vacancy rates has caused prospective homebuyers ready to buy homes to explore purchasing in
areas they previously had been priced out of buying in. As homes become more affordable in
surrounding cities and mortgage interest rates continue to hover around 4.5 percent, homebuyers
will seek to purchase homes in areas which may not include the City of San Bernardino.
Economists and those that study real estate trends suggest that while home prices remain
affordable, many prospective buyers remain on the sidelines anticipating another drop in home
prices. The reluctance to purchase has caused inventory to rise thereby exacerbating the
downward pressure on home values throughout the San Bemardino/Riverside area. This area is
Updated: 11/17/2011 by Linda Hartzel D
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expected to experience a 15.6 percent drop in real estate prices by the first quarter of 2012 (See
attached article by Michael Sauter and Douglas McIntyre 247wallst.com). Notwithstanding, the
Agency, through its affiliated non-profit, Affordable Housing Solutions ("AHS"), is committed
to providing assistance to homebuyers in the City of San Bernardino.
While there has been a reduction in the loan amount and number of requests for assistance, the
Agency still finds demand from certain homebuyers which require the assistance of a deferred
silent second loan.
Based on current market conditions, the Agency's 10 percent loan cap should be sufficient to
close transactions for the foreseeable future and no adjustments to the loan cap are being
recommended at this time. The need for future down payment assistance cap adjustments will
be monitored by Agency staff as it continues to review real estate financing trends and home
buyer demand to determine the appropriate level of assistance.
Separately, the Housing Department intends to transition administration of the program from the
Agency to Affordable Housing Solutions of San Bernardino which will also serve as the lender
for HAP loans. Given the experience AHS has gained over the past two years to successfully
manage affordable housing programs, the current challenges to California redevelopment, and
the threat from title companies to no longer insure loans made by redevelopment agencies,
Agency staff recommends AHS be authorized to serve as the official lender on all HAP loans
effective immediately.
By making this adjustment to the existing program, the Housing Department will continue to
provide residents with home ownership opportunities, preserve a program that has assisted
thousands of homebuyers and create a mechanism to lend with the appropriate title insurance in
place. To accomplish this goal, Agency staff will work with Agency Counsel to make all
necessary changes to our present loan documents.
Environmental Impact:
This item does not meet the definition of a "project" under Section 15378 of the California
Environmental Quality Act(CEQA) and therefore there is no environmental impact.
Supportine Documents:
09-22-11 HAP Quarterly Map-Ending June 30, 2011 (PDF)
09-22-11 HAP July 1,2010 -June 30,2011 (PDF)
09-22-11 HAP Quarter Report-M. Sauter Article (PDF)
Updated: 11/17/2011 by Linda Hartzel D
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HAP Quarterly Report for Period Ending June 30 , 20 1 1
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Total 3 $25,880.00 Z. Total 3 $25,880
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City of San Bernardino - Homebuyer Assistance SitE
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Recovery?In these areas, hitting the bottom of will have to come first c
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By Michael B. Sauter, Douglas A. McIntyre to
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updated 8I11I2011 8:52:19 PM ET �
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The real estate market is already in the deepest depression in modern U.S. history. If you think s
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it can't get any worse, think again. °
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In several cities, the real estate market is about to drop even more. Home values in many of z
those cities, such as Las Vegas, have already collapsed as unemployment has shot higher. And a
with no hope of quick recovery, housing prices are expected to continue to fall. 24/7 Wall St.
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identified ten housing markets that are expected to drop by at least another 10 percent by 2012. LO
Methodology: We used data from the Fisery Case-Shiller Indexes, which track real estate C
activity in 380 cities. We selected those that are forecast to have the largest percent price drop N
between the first quarter of this year and the first quarter of next. We added several other pieces
of information to our city-by-city information, including June unemployment levels, median d
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household income, and when home prices are expected to reach their troughs in each market. r
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Median household income in these cities tended to be near the U.S. median, and in some cases
well below. We expected to find high unemployment in these cities. This turned out to be the rn
case. In all but one of the cities we examined, unemployment was well above the national
average. The rate was over 18 percent in two of the cities. This link between unemployment and °o
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expected future drop in home prices shows again how insidious the housing price problem is.
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Home prices fell from all-time highs in 2006. Home equity tapped by second mortgages had
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been a tremendous source of income then for families who used it for retirement saving, a
education, and simple consumer purchases. Three years later, many of those homes were =
worth less than their mortgages. A large population of homeowners still owed a second N
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mortgage. The burden of those two home loans happened to come at a time when national o
unemployment rose from 4 percent in the mid-2000s to 10 percent. The mix of unemployment
and high mortgage payments ripped the home market apart. E
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The ten markets on the 24/7 Wall St. list of"Housing Markets That Will Collapse This Year," and
several other like them, may not see a full recovery in home prices for years. Inventories in c
these markets tend to be large. Demand tends to be low as the unemployed cannot be buyers.
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Finally, fear of further price drops all exacerbate the problem. No person or organization,
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including the federal government, has been able to help support the housing market, although
the administration has tried. Not a single plan has built even a thin net under home values, c
despite the best efforts of the best economic minds in the world.
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10. Fort Lauderdale, Fla.
Expected price drop: -11.1 percent O
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Median family income: $58,800 (194th highest)
Unemployment rate: 11.8 percent
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Median home price: $196,000 (55th highest) 00
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Projected to hit lowest level: Q2 2013
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Since 2006, home prices in Fort Lauderdale have dropped by nearly 50 percent. A full 28
percent of that drop occurred in 2009 alone. As was the case throughout most of Florida, the
collapse of the housing bubble decimated the construction-based economy. The unemployment
rate of nearly 12 percent is evident of the construction sector's disastrous decline. The value of o
the 686,000 homes in the Fort Lauderdale area is expected to get even worse through at least
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the second quarter of 2013. Between Q1 2011 and Q1 2012, the median home price is
projected to decline an additional 11.1 percent. Between 2012 and 2013, that number will u
further decrease by 8.7 percent. Q
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9. Bethesda, Md. in
Expected price drop: -11.5 percent
Median family income: $114,100 (the highest) T
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Unemployment rate: 5.1 percent d
Median home price: $417,000 (5th highest)
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Projected to hit lowest level: Q3 2012 cc
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Bethesda, the extremely wealthy D.C. suburb, has the highest median family income in the =
country — $114,100. It also has the fifth highest median home price, at $417,000. That position
may change, however, as Case-Shiller projects home values will drop by more than $60,000 by A
next year. c
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8. Salinas, Calif.
Expected price drop: -11.8 percent
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Median family income: $62,100 (145th highest) O1
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Unemployment rate: 12.8 percent v
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Median home price: $240,000 (34th highest)
Projected to hit lowest level: Q2 2012
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Salinas is a small coastal city located 25 miles south of San Jose. Since 2006, the median value
of the 125,000 houses there decreased in value by more than 61 percent. This is the fourth
biggest decline from peak home value among all major American cities. More than 40 percent of C7
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this drop occurred in 2009, the year after the housing bubble burst. Unemployment in the city is Y
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at 12.8 percent, well above the national average of 9.2 percent. Several companies in the area,
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including food processing company Romco, expect to continue to lay off workers in the coming °o
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months, which should serve to further depress home values.
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7. El Centro, Calif.
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Expected price drop: -12.1 percent
Median family income: $43,300 (10th lowest)
Unemployment rate: 28.6 percent c
Median home price: $130,000 (70th lowest)
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Projected to hit lowest level: Q1 2012 W
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El Centro is located five miles from the Mexican border, and is one of the poorest cities in the r
country. Median income is just$43,300 per family, the tenth-lowest in the U.S. Unemployment is aY`
at a staggering 28.6 percent. Between 2006 and 2011, home prices decreased by more than 50
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percent. According to a report in the Imperial Valley press, one home was sold in the El Centro
area before the recession for $390,000. In 2009, that home was listed at $200,000. Prices are r
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expected to drop an additional 12.1 percent by the first quarter of 2012. v
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6. Miami, Fla. r
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Expected price drop: -13 percent f1
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Median family income: $47,800 (32nd lowest)
Unemployment rate: 13.4 percent
Median home price: $175,000 (76th highest) N
Projected to hit lowest level: Q2 2013 0
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At 13.4 percent, Miami has one of the highest unemployment rates of any major American city. E
Home values are above average, but are down by more than 50 percent since 2006. Partially as
a result of the staggering unemployment rate, the value of the city's homes are projected to ¢
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decrease by another 13 percent by the first quarter of 2013. What's more disturbing, prices will
then likely fall an additional 10.1 percent. If this second drop occurs, it will be by far the greatest o
depreciation of property values in the country in an area already decimated by current low °'
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prices.
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5. Merced, Calif.
Expected price drop: -13.2 percent c
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Median family income: $42,900 (8th lowest)
Unemployment rate: 18.6 percent
Median home price: $112,000 (38th lowest)
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Projected to hit lowest level: Q2 2012
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Merced has a median family income of just $42,900, placing it among the ten poorest major 0
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cities in the country. In 2008, the city's property lost 46.1 percent of its value. This was the z
second-greatest depreciation in home value for a city since at least 1980. The city's median
home prices are expected to drop an additional 13.2 percent by the beginning of next year.
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4. Detroit, Mich,
Expected price drop: -13.4 percent c
Median family income: $49,000 (47th lowest) N
Unemployment rate: 12.7 percent
Median home price: $42,000 (the lowest median home price) 2
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Projected to hit lowest level: Q2 2012 t
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Since the recession began, Detroit has been the horror story for plummeting home values, A
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foreclosures, vacancies, and unemployment. To date, Detroit's median home price of$42,000 is
the lowest among all 385 major metropolitan areas. While the motor city has been languishing
for some time before the recession, the drop in home value has been more steady, as opposed
to the rapid drop-offs seen in cities in Florida, Nevada, and California. Detroit's already record-
low values are expected to drop an additional 13.4 percent by the first quarter of 2012. R
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3. Las Vegas, Nev. a¢
Expected price drop: -13.9 percent =
Median family income: $58,900 (196th lowest) N
Unemployment rate: 12.4 percent c
Median home price: $140,000 (90th lowest) c
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Projected to hit lowest level: Q4 2012 s
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Las Vegas was one of the center points of the meteoric growth in the first half of the 2000s, only
to be followed by a catastrophic fall in the second half. Between 2008 and 2011, home prices in o
the city dropped by 42.3 percent, the second greatest decline in the country. Although home N
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values in the city are already more than 58 percent off their peak, they are projected by Case-
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Shiller to drop an additional 13.9 percent by Q1 2012, and then 6.3 percent more by Q1 2013.
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2. Riverside-San Bernardino, Calif. w
Expected price drop: -15.6 percent
Median family income: $59,700 (190th highest) 3
Unemployment rate: 13.7 percent
Median home price: $181,000 (70th highest) s
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Projected to hit lowest level: Q1 2012
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Like so many industrial cities in California, Riverside-San Bernardino is being affected by the W
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recession and housing crisis more than most other parts of the U.S. Unemployment has hit 13.7
percent, home vacancy and rental vacancy rates are high, and home values are plummeting.
Median home prices are down more than 55 percent from their peak in 2006. By the beginning
of next year, prices are expected to drop an additional 15.6 percent, or nearly $30,000.
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1. Naples, Fla. Mn
Expected price drop: -16.6 percent
Median family income: $62,800 (137th highest)
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Unemployment rate: 10.5 percent
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Median home price: $225,000 (40th highest) m
Projected to hit lowest level: Q4 2012 N
Like much of southwest Florida, Naples was one of the fastest-growing communities in the C
country as it prepared for the millions of baby boomers on the cusp of retirement. When the m
housing bubble burst, however, the thousands of construction projects for condominiums and
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retirement communities were halted or lost money, and home values plummeted. From peak m
home value in 2006, prices dropped by 55 percent. They are expected to keep falling through O
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next year more than any major city in the country. By Q1 2012, home values will drop an =
additional 16.6 percent, or nearly $40,000.
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