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2017-10-13 CPA Question Habitat GLENDALE.docxResponse to CPA Questions October 13, 2017 Glendale Road Homes o   What was the reception of the neighbors at the public hearing? Response was mixed at the two on-site forums that were held prior to the public hearing. Some neighbors were very enthusiastic to see a planned 24-unit subdivision be permanently taken off the table to allow for conservation land and four affordable homeownership units. Some neighbors were upset to see change in their neighborhood at all and would have preferred the property to be 100% conservation land. However, funds for a conservation project of the entire development area were not available. Wayne Feiden worked with several of the immediate abutters to address particular project design concerns so that when the Planning Board held their public hearing, only one person showed up who was opposed to the idea of affordable housing at the site. Many of the people who attended the on-site forums were happy to learn about the Habitat for Humanity model of developing and selling homes. o   A few details:  with a private first mortgage, will the $700 downpayment be acceptable?  Will the houses be underinsured if insured for the sales price rather than the replacement cost? Our conversations with lenders indicate that the $700 down payment will be acceptable because the second mortgage from Habitat will be viewed as down payment assistance. This creates a very favorable loan to value ratio. We sell all our homes for sales prices that are less than replacement cost and ask our homeowners to purchase insurance for replacement cost not sales price. o   Please confirm my understanding that, upon resale, affordability to those at less than 80% AMI will be made possible by debt forgiveness of the second mortgage if necessary. You are correct. If at the time of resale the seller did not have enough equity from the sale to repay the second mortgage it would be forgiven. This is unlikely to occur unless there is a decline in home values and incomes in the area, but we will write this into our legal documents to be sure no Habitat homeowner is stuck with a payment that cannot be made from the proceeds of the sale of their house. A more likely scenario would be: Home sold for $149,000 with a first mortgage of $86,000 and a soft second from Habitat for $62,300 (after $700 down payment) Homeowner notifies Habitat after 10 years that they plan to sell their home. The maximum resale price allowed is $152,000 (this is hypothetical, it will depend on the area median income at that time in the future and what is affordable). Habitat finds an income eligible buyer earning less than 80% of the AMI who would like to purchase the house for $152,000. At closing the initial Habitat homeowner receives $152,000 from the buyer, from this: $67,750 is paid to the bank for principal owed on the first mortgage $31,150 is paid to Habitat for the remainder owed on the second mortgage $5,000 is paid in closing costs and legal fees $48,100 is paid to the homeowner and they use this as a down payment for a non-subsidized home o   Are the homeowners likely to be negatively affected by the annual 1/20th debt forgiveness from a tax perspective, or are their incomes such that this will not be an issue. Because repayment on the second mortgage is only triggered upon sale of the home there is no income to tax on an annual basis. We verified this with Habitat for Humanity International who has worked with other affiliates on structuring deferred forgivable second mortgages. o   Does bus access make this development accessible to downtown via means other than a car? No, unfortunately this neighborhood is not easily accessible by bus. Downtown Northampton is approximately 5 miles from these future homes – a distance that could be travelled by bike. This neighborhood is also about 4 miles from downtown Easthampton Some people prefer urban living and others prefer living closer to open space at the edge of town. We are giving these low income buyers an opportunity to live in a “suburban” area that they would otherwise be priced out of. By living within the city limits they will have access to the great Northampton school systems.