Mortgage Subsidy Q&A.docxWhat does this mortgage subsidy program offer that existing mortgage subsidy programs do not? This program is specific to Northampton buyers and allows up to 100% AMI. The MHP One
Mortgage and the FHLBB Equity Builders Programs, only provided a subsidy in the form of a 0% interest, deferred payment loan (DPL) to buyers below 80% AMI. MHP recaptures these funds
at sale, transfer of the deed or cash out refinance. FHLBB forgives the deferred payment loan (DPL) after 5 years.
The Northampton program will offer a deferred payment loan (DPL) at 1% simple interest of $500 a year that’s due at the time of sale, transfer of the deed or cash out refinance along
with any principle owed. Borrowers who remain in their homes will realize forgiveness of the deferred payment loan (DPL) beginning at year 16 and through year 30. Household will still
owe $7,500 in interest if they remain for 30 years. An individual who remains for the full 15 years will owe $57,500. This represents the full recapture and interest of $500 a year
for 15 years or $7,500. Most programs are forgiven over time, the Northampton program has some recapture of the funds and charges interest.
How have you determined that this is a feasible program -- that there is sufficient housing available for purchase at a price that an income-qualifying household could afford?
We are working with and have clients closing below 80% AMI, unfortunately the buyers who are purchasing market rate housing need a gift from a family member of $40,000-50,000 to actually
purchase. Very few LMI buyers have these family resources. I’ve had several buyers just over 80% reach out this year for grant assistance through the CDBG program and unfortunately,
they are over income, no matter how little it is. These are the buyers we want to help, that have incomes between 70-100% AMI.
There are currently 46 available properties available for sale between $250,000 and $350,000 in Northampton. This includes 27 single family homes and 19 condominiums. Many of these
homes are in the affordable range of LMI buyers. We had a buyer close recently on condo in Northampton who is below 80% AMI. She received a gift from her parents of $40,000 to make
the numbers works. The condo was $283,000 and the single buyer made $45,000 a year. Her monthly payment is $1474.32 including the condo fee and homeowners’ insurance. Her rent was
$1800. She now has the ability to save $300 a month for future housing expenses, retirement, and other life goals.
If a household sells their home prior to the 15th year, you state that they will pay the $50,000 back in full. Will this money come back to the CPC? We will need to indicate on the
mortgage and note where these funds should go upon recapture. We recommend that they go back to the CPC. We also recommend any interest go back to the Office of Planning and Sustainability
for administrative expenses.
If they sell between year 16 and 29, will that portion of the loan they pay back come back to the CPC? We will need to indicate on the mortgage and note where these funds should go
upon recapture. We recommend that they go back to the CPC. We also recommend any interest go back to the Office of Planning and Sustainability for administrative expenses.
Please justify how $30,100 in personnel and other expenses are necessary for four mortgages? This is a staff intense project that requires many hours of staff time for fair and intentional
marketing, speaking to lenders, real estate professionals, attorneys and helping the buyers understand the guidelines, complete the necessary steps in the application process. It also
involves answering questions about the program, intake, collecting documents from the buyers, mailings, fliering, social media posts and a variety of other services provided to the
buyers to help them understand the steps to accessing the funds. Follow up, reporting and program evaluation are also required. Valley has past experience with these programs. We
have administered similar
programs in Easthampton, Amherst, and Pelham. An analysis of these programs showed that our administrative costs varied for $7,325 to $8,651 per mortgage subsidy.
How will ongoing costs created by ongoing implementation of the project to the city be handled? We have included a small amount in the budget for the creation of the mortgage and note.
Valley staff will be creating the application documents, forms, advertising, marketing, social media posts, answering questions of clients, bankers, real estate agents, others, collecting
of applications, verifying income, working with the clients, their banks, agents, and attorneys. Applications will be process and approved at Valley and sent to City staff for review,
final approval, including a request to process a check for closing by the Planning and Sustainability Staff. Valley staff will prepare the mortgage and note for the buyer’s attorney
to record at closing. Recorded documents will be sent to the Office of Planning and Sustainability. Existing staff would be responsible for any requests for payoffs, refinance or discharges
as these requests come in. We don’t feel there will be any significant staff expenses for at least 5 years due to borrowers staying in a home for much longer periods due to affordability.
Buyers will not be eligible for a refinance or any equity loans or cash out for a long time due to indebtedness. The City may refer these clients borrowers to Valley for technical
assistance about selling, refinancing or the repayment process or with any other questions regarding the mortgage and note.
Interest and forgiveness schedule:
Due After year:
1- $50,500
2 - $51,000
3 - $51,500
4 - $52,000
5 - $52,500
6 - $53,000
7 - $53,500
8 - $54,000
9 - $54,500
10 - $55,000
11 - $55,500
12 – $56,000
13 - $56,500
14 - $57,000
15 – $57,500
16-30 $3,333.33 is forgiven each year for a total of $50,000 over the 15 years.
$7,500 in interest charges is still due at the end of the term. There is no interest in years 16-30 to simplify the recapture during these years.