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HomeMy WebLinkAboutM-78-0002• Mayor and :lember s of the City Commission Joseph R. Crassie City tanager ,J(N 5 '`: Urban Development Action Grant Proposal (1) The administration is in the process of preparing an Urban Development Action Grant Proposal to the U. S. Department of Housing and Urban Development. This proposal involves providing home ownership opportuni- ties for moderate income residents in the City of Miami by providing $5 million dollars in CDAG funds for second mortgage financing which will result in 325 units housing. Each house will have solar energy and innovated design will be encouraged through the development of prototypical units. I have attached a description of the proposal for your information. a z�T'ol" .'errr, 1.IETROPOI_ i TAN DADE ronrr HOMEOWNERSHIP ASSISTANCE LOAN PROGRAM NEEDS In January 1973, the Federal Government "froze" all Federally subsidized housing programs for low and moderate income families. The housinn freeze confronted Dade County with two serious problems. First, the County was faced with an ever g rowlna demand and need on the part of its citizens for low ane moderate incc+ne housing. Second, the County owned several tracts of land it had boucrt under the Nelahborheod Development and Urban Renewal Programs. The slums on the once blighted land had been cleared, families and businesses re- located and the land lay vacant, fallow and off the tax rolls, since it had been accuired specifically for subsidized housino and was not marketable for alternative u3as. OE'JTIC'J Dace County moved aggressively to solve the problem by developing a unique assistance prccram to help moderate income families become homeowners. This approach met several objectives: to provide homeownership housing for families in need; and to ret County ownea land back on the tax rolls and to spur the lagging construction industry. PESP(NS 1 B I C I TY FOR DEVE! OP` EtJT OF THE PROGRAM In December, 1973, Dade County began on its own to attack the problem of housing Its low and m+oaerate income families. The Mayor convened a community -wide housing symposium -- bringing together leaders from government, civic groups, financial institutions and business. The symposium reviewed recommendations which had been formulated by a task force headed by Dade County Commissioner Harvey Ruvin. The task force hal +.or,ed for five months to structure a local program to fill the gap created by the freeze of Federal housing programs. URBAN DEVELOP:LENT ACTION GRANT PROPOSAL FOR MIAIMI, FLORIDA The City of Miami, in partnership with the Dade County Department of Housing and Urban Development, will be submitting an Action Grant Application to rrovide home ownership opportunities for moderate income families. The Action Grant will have two principal objectives: To encourage the dispersion of moderate income families and to replace slum and blighted conditions with in -fill housing in Comprehensive Neighborhood Revitalization Areas, thus helping to stabilize these neighborhoods. In order to conserve energy and substantially reduce utility costs to the moderate income home owners, each home will have solar energy. Innovative design will he encouraged through either the development of prototypical units or design standards. The program will provide employment opportunities in the construction field for minorities and for neighborhood residents. In the past we have carried out this type of program with local funds and five of the six developers were mino- rity firms. We would expect this situation to continue. The City of :Miami will be asking the U. S. Department of Housing and Urban Development for an Action Grant in the amount of a5 million to provide second mortgage financing for 325 units of housing. 75 of these units will be built on land that has been or is being acquired with Community Development funds. The re.mainin-i 25) units will be built in non -impacted neighborhoods throughout the City of 'Miami. Developers will be invited to submit proposals for housing on land that they own or can acquire. Thi.; program will help us meet the goals of the Housing Assistance Plan and is an integral ;art of our Community Development Program. As in'dicated in the attachment, the locally -developed program has been extremely successful in attracting developers and securing the participation of 1e:.. rs . As cart of the Action ':rant Application we will submit letters from lending in- stitutions xrr'':;:;ing their intent to continue to participate in the program and letter:, from successful and unsuccessful developers expressing their intent to submit proposals. We would _. roct that the first units of housing would be committed within five months of the approval of the Action Grant and that all units would be committed within 12 months of the Action Grant approval. Construction would start n 9 months of the selection of the developer and would be completed within of its commencement. . It would be noted that under this program a developer is not required to sell a house to a moderato income family. Any family can purchase the house but our second mortgage assistance b, my offered to moderate income families. Under the lri':.il program, several houses were sold to families who did not need help and this has created 'd broader economic diversity in the neighborhood. Priority for purchase of homes financed under this program will he given to families dis- placed through t:.. Community Development process. f NEEDS i4ETROPOL i TAN DADE COUNTY HOMEOWNERSHIP ASSISTANCE LOAN PROGRAM In January 1973, the Federal Government "froze" all Federally subsidized housing programs for low and moderate income families. The housing freeze confronted Dade County with two serious problems. First, the County was faced with an ever growino demand and need on the part of its citizens for low and moderate income housing. Second, the County owned several tracts of land it had bow:ht under the Neighborhood Development and Urban Renewal Programs. The slums on the once blighted land had been cleared, families and businesses re- located and the land lay vacant, fallow and off the tax rolls, since it had been accuired specifically for subsidized housina and was not marketable for alternative usas. SCUJTiCN Dade County moved agcressively to solve the problem by developing a unique assistance prccram to help moderate income families become homeowners. This approach met several objectives: to provide homeownership housing for families in need; and to net County ownea land back on the tax rolls and to spur the leaning construction industry. RESFNS I G I L I TY Fi R DEVEL CPMENT OF THE PROGRAM in December, 1973, Dade County began on its own to attack the problem of housing its low and moderate income families. The Mayor convened a community -wide housing symposium -- bringing tonether leaders from government, civic groups, financial institutions and business. The symposium reviewed recommendations which had been formulated by 3 Task force headed by Dade County Commissioner Harvey Ruvin. The task fora: naa r.or-ed for five months to structure a local program to fill the gap creati;;, by the freeze of Federal housing programs. A Eacked by the concern and commitment voiced by the ccrmunity, the Dade County 5card of Commissioners i.; June, 1974 appropriated $4.9 million in its operating budget -- in a year of very tight budget restraints -- to initiate a yet undetermined housing proraram. The Commission instructed the Cade County Department of Housing and Urban Development (Little HUD) to develop a financial program for its approval. ROLE OF COUNTY The program developed and approved by the County Commission in January, 1975, provided both a marketing program for private development of the -land and financial assistance to qualified home purchasers. Metro competively bid the sale of the County owned land for purchase and redevelopment by private developers of solely housina. This bid process set the minimum design standards for the housing, fixed the sales prices on the completed houses and provided to the developer a commitment that the County would assist qualified purchasers with the financing of the purchase with a deferred payment second mortgage that reduces the families monthly housina expenses. The payment of both principle and interest on the second mortgage are deferred for 35 long as the families need the deferral, even until the first mortgage is amortized, if this period of time is required. Under the program, it is the developer's responsibility to obtain both con- struction and permanent financing commitments to construct and market the homes, and to qualify the buyers for first mortgages. The first mortgage lenders are responsible for credit applications, review and other underwriting mechanisms. The Count,y's role is limited to supervision of the construction to Insure quality homes and the review and approvals of applicants for second mortgage loans. Following the completion and occupancy of homes, the County, through a contract with the local Urban league, provides training and couselling to the buyers -- a very lmrortand ingredient of the program. 2 ='etro also monitors the family income, occupancy ano family situations to protect against overcrowding, speculation, and to determine needs for continued second mortialo payment deferrals -- as will be discussed later. L'acause of the "private sector" orientation of the program, the County has not had to create a bureaucratic organization to administer the program. Private developers are in the business to build and sell houses and private lenders are in the business to underwrite mortgages -- the County is in neither business. The County has not attempted to usurp either the developer's or the lender's responsi- bility, but rather assumes a monitoring role of the process, a role it can control throucn the design and quality asoects of the bid process and the approval of second mortgage loans. OLE OF OTHER HERR COVERN'ENT, CIVIC GRCLFS , AND THE PRESS As incicated aocve, government leaders and civic grouos were involved in the creation of the program as were the financial and business organizations who continue their involvement in its implementation. Government leaders and civic groups were able to .remonstrate the need for a program within the County and its municipalities. The press was able to publicize both the need and the unique aspects of the program to the public at large, so that the County Ccrmission could receive the support it needed to initiate the inovative program. E1'JANCING The second mortgages are provided from General Revenue Sharing Funds in the County's operating budget. The Board of County Commissioners supported the program because the County's investment would be returned to the County at some future date, and that the program was a "pay-as-you-go" activity, requiring no commitment of future funds. The program provides for this return in three way . First, through jobs during construction; second, by creating local tax revenues on 1.7n: and improvements that 3 miht not nave produced taxes for many years; and_third, by providing the assistance with a repayable second mortgage at 3% interest, compounded annually, e'en though the repayment may not begin for 20 years. The second mortgage can be 50% of the purchase price on a two or three bedroom house and bop of the purchase price on a four bedroom mouse. The family is required to make a 5% down payment, which all goes towards principle, since the developer is required to day the loan costs on the first mortgages. The balance of the purchase price is the first mortgage. Althcu:,n the program provides the possibility that no payments are required until the first mortgage has been amortized, or 20 years, we also require that families must pay no less than 20% of their adjusted income based on annual income certification for principle, interest, taxes and insurance. if, at any time during the life of the first mortgage, the families' payments on the first mortaaaes fall below the 20% finure, then payments would become due on the second mortgage in an amount sufficient to bring the total of the two payments back to the 20% requirement. Our statistical studies indicate that with inflation at a much lower rate than exists tocay, and an appreciation of property at today's rate, that most of the secona nortc;3ne will be amortized long before the maximum terms. A fourth factor that should be considered by future generations is that this program, instead of creating a tax burden for them, is creating a significant equity position for the homeowner from SI,500 to S30,CC0 in today's dollar, and this equity can be translated into future pruchasinq power by persons who would normally not be able to accumulate this amount of cash. The "pay-as-you-go" nature of the program makes the program appear very expensive at first glance. The County budgeted a maximum second mortgage for each unit under construction -- in our situation approximately S15,500 per house. However, in practice, our overage second mortgage is Tess than SI3,000 per house. The 4 reduction is the result of homes being purchased by families through conventional financing, with no second mortgages or very low second mortgages. Thus, the County has achieved a primary goal of putting land back on the tax rolls without any permanent subsidy. Without this program, this housing would not have been constructed and no - tax base would have been generated. The local taxpayers are being protected through secure mortgages with potential income from mortgage payments, frcm taxes, and from equity accumulation by the homeowner. AiECUA.CY OF LEGAL REOU l REMEN T S The County's legal responsibility is limited to the annual income certification to determine future payments on the second mortnage and to insure that the home continues to be used as owner/occupied residences and not as rental properties. The Zeal reiuirement of horse mortgage administration becomes the responsibility of the first rortcano lencer. He has a far greater interest to protect and will do so on these houses in the same manner as he would do on any other mortgage. This further eliminates the neea for a large County bureaucratic structure to administer the program. SL "•'ARY 2F PFCGRA'•1 ACCO`•1FL I SE'.'•IENTS Metro has committed $2.9 million in second mortgages on 189 houses. Of these, 37 are completed and occupied and the remaining 152 are in various states of construc- tion, all scheduled for occupancy in the next 12 months. Some significant statistics cn the buyers and the financial aspects of their purchase follows. Typical Family Char!cteri st i cs Average Number of Adults and Age 1.44 34.5 Years Average Number of Children and Age 2.92 11 Years Average Income - Head of Household $691 Monthly, $8;292 Yearly Average Income Spouse or Other Sources $161 Monthly, $1,932 Yearly Average Total Income $852 Monthly, $10,224 Yearly LOw5t Income $,5I 1 Monthly, $6,132 Yearly Hhhest Income $1,511 Monthly, $18,132 Yearly 5 Typical Financial Arrannement Sales Price Down Payment First Mortgage Second Mortgage Average Medium $29,640 S29,500 $ 1,496 S 1,500 S14,952 $I4,300 S13,192 $13,700 Monthly Payment $ 174 S 162 Averace Monthly Payment is 23.5% of Average Adjusted Income The income mix depicted in the statistics is clearly creating both housing for lower income families and for higher inccme families, providing desired economic integration that is important in insuring the stability and viability of the nei;hoonccod. This integration is further ennanced because sales of the homes are not limited to only families eligible for second mortgace assistance, and over income families can and are purchasing houses in the development under conventional mortcaae terms. The above statistics do not include information on those families who did not require a second mortgaae. if they did, the average income would be higher and the average second mortgage would be Tower. But aside from the financial and theoretical aspects of the program, it accomplishments and atrributes can best be described by the following pictures of the before and after living conditions of two families. This is the "guts" of the program. 6 ii THE FUTURE OF THE PROGRAM The .metropolitan Dade County Homeownership Assistance Loan Proaram was conceived originally as a demonstration program to try and resolve our local problems. It has been successful and can continue on a small scale from the projected income return on the mortcanes. Additional funding for exoanded activities must be closely weighed against other local needs since at the present time, no mechanism exists for funding of the prooram from Federal housing programs. 8