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TITLE: |
Consideration and Approval of Amendment to Contract No. 2019-03: Amend Contract 2019-03 between the City of Flagstaff and Housing Solutions of Northern Arizona for the City of Flagstaff Community and Employer Assisted Housing Programs to accommodate recommended changes to the program guidelines and provide an additional one-year term. |
STAFF RECOMMENDED ACTION: |
Approve the recommended Amendment 2 for the City of Flagstaff Employer Assisted Housing (EAH) and Community Homebuyer Assistance Program (CHAP).
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Executive Summary: |
The City of Flagstaff Housing Section is requesting an amendment to Contract No. 2019-03, between the City of Flagstaff and Housing Solutions of Northern Arizona, Inc. (HSNA), for the Employer Assisted Housing (EAH) and Community Homebuyer Assisted Housing (CHAP) programs. The amendment will provide an additional one-year term and incorporate programmatic changes to improve the effectiveness of the program, as recommended by the Housing Commission on September 28, 2023.
Changes to both programs are being recommended in response to rapidly shifting housing market conditions. Due to increases in both housing prices and interest rates, as well as the limited assistance amount offered through the CHAP and EAH programs, the purchasing power of mortgage ready households falls far below current market pricing in Flagstaff. Increasing the maximum assistance amount for community homebuyers and offering additional, repayable assistance to employees will ensure the programs are effective and being utilized by the intended population.
Staff is recommending an additional renewal of the current contract (2019-03) with HSNA as well as the following changes to Exhibit A:
Section 2. Program Eligibility Criteria (EAH and CHAP)
- Remove Section 2.2.2 stating that the Home purchase price may not exceed 125% of the FHA 203(b) mortgage insurance limit for Coconino County.
- Remove Section 2.2.4 stating that the Home purchase must be an arms length transaction.
Section 3. Assistance Levels and Lending Parameters (CHAP)
- Amend Section 3.1.1 to read Maximum amount of financial assistance is $40,000.00 per household.
- Amend Section 3.1.2 to read Total amount of financial assistance provided will be based on household contribution. The program will match household contribution on an 8 to 1 basis with up to $5,000 of household funds matched with up to $40,000.00 of CHAP funds.
- Amend Section 3.1.3 to read Households must contribute a minimum of $1,000 of the purchase price through documented buyer funds. The remaining household contribution may come from gifts from immediate family members, as documented.
- Amend Section 3.1.4 to read CHAP financial assistance will be repaid based on a shared appreciation model. The borrower will owe the City the principal sum plus Net Proceeds, which is defined as the difference between the principal sum and x% (the percent of the original purchase of the home received in assistance) of the sales price when the property is sold, or, if the property is not being sold, of the appraised value of the property at the time of repayment. In the case of HUD/FHA first mortgages, the City’s share of the appreciation will not exceed 50%. Furthermore, the Homeowner shall be permitted to recover at least the original purchase price, sales commission, and cost of capital improvement.
- Amend Section 3.1.5 to read In any case where the home purchased is a City of Flagstaff Land Trust or Deed Restricted property, the shared appreciation repayment model is not required.
Section 3. Assistance Levels and Lending Parameters (EAH)
- Amend Section 3.1.1 to read Maximum amount of financial assistance is $20,000.00 per household.
- Amend Section 3.1.2 to read Total amount of financial assistance provided will be based on employee contribution. The program will match employee contribution to the home purchase on a 2 to 1 basis with up to $5,000.00 of employee funds matched with up to $10,000.00 of EAH funds. The EAH program will also match gifts from immediate family members, as documented. Employees may utilize additional assistance, up to $10,000 of non-forgivable EAH funds, after the 2 to 1 match is met.
- Amend Section 3.1.3 to read The first $10,000 of EAH financial assistance will be forgiven over a 10-year period. Employees may use additional assistance, up to $10,000, in the form of a non-forgivable loan. Financial assistance will be immediately repaid by the employee if any of the following were to occur: (1) employment with City of Flagstaff terminates for any reason; (2) home is no longer owner-occupied; (3) employee refinances home to access home equity – refinance with no cash-out is permitted and EAH assistance will subordinate; (4) information provided to HSNA or City of Flagstaff at time of assistance is determined to be fraudulent. Up to $10,000 of EAH financial assistance shall be repaid on a pro-rated basis and any additional assistance is to be repaid in full.
- Amend Section 3.1.5 to read In any case where the home purchased is a City of Flagstaff Land Trust or Deed Restricted property, the shared appreciation repayment model is not required.
Section 4. Loan Terms (EAH)
- Amend Section 4 to read The financial assistance loans will be secured on each property by a Deed of trust and Promissory Note payable to the City of Flagstaff. The original recorded Deed of Trust and Promissory Note will be delivered to the City of Flagstaff Housing Section within 60 days of purchase, as part of the client file. The Note will be forgiven over a ten year period for the first $10,000 of EAH funds utilized. At the end of ten years, the City of Flagstaff Housing Section will record with Coconino County Recorder’s Office a Deed of Release and Reconveyance for the first $10,000 of EAH funds utilized. If repayment is triggered prior to the ten-year recapture period, the City of Flagstaff Housing Section will process payoff requests from the Title Company. Up to $10,000 in EAH assistance is forgiven on a pro-rated basis over the ten-year life of the loan. Any additional EAH assistance is repayable as outlined in Section 3.1.3. Assistance requires no payment and no interest unless and until repayment is triggered as outlined in Section 3.1.3. The City of Flagstaff will subordinate to a second lien position to a primary mortgage lender. The City of Flagstaff, at its own discretion, may decide to subordinate to a third lien position. Refinancing to obtain a lower payment only and no cash out (no cash is borrowed) will be allowed. The City reserves the right to review each subordination as a lender. Prior to subordination, borrower will complete housing counseling with HSNA to ensure they understand costs associated with the refinance. HSNA will provide refinance housing counseling at no additional charge to the City of Flagstaff
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Financial Impact: |
Currently, the EAH program (021-05-106-0366-4-4290) has a balance of $175,213.00 and CHAP (021-05-106-0361) has a balance of $280,744.00. Program Income from repaid loans is placed into a revolving loan account and additional funds can be requested and allocated through the annual budget process.
Administrative fees to HSNA are $1,250 per loan, paid at the point of closing. With these changes, remaining funds are available for approximately 8 EAH loans and 6 CHAP loans, assuming the maximum amount of assistance is required. |
Policy Impact: |
The recommended contract amendment and programmatic changes are in line with the City of Flagstaff 10-Year Housing Plan, and will aid the City in its overarching goal to reduce the current affordable housing need in our community by half over the next 10 years.
10-Year Housing Plan
Element one: Impact at least 6,000 low-to-moderate income Flagstaff residents through a combination of unit creation or subsidy provision.
- Connect people to equitable housing solutions.
- Connect 2: Implement a framework for centering equity in proposed and existing housing practices, policies, and programs.
- Connect 2.1 Evaluate housing policies and strategies in City of Flagstaff planning documents through an equity lens
- Connect 2.4 Utilize City of Flagstaff resources to educate the community about financing and housing opportunities with an emphasis on assisting low- to moderate-income households to advance through the housing continuum and to address past racial disparities.
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Connection to PBB Priorities/Objectives, Carbon Neutrality Plan & Regional Plan: |
PBB Priorities
- High Performing Governance
- Encourage public trust through transparency, accessibility & use of the City’s public participation policy
- Implement innovative local government programs, new ideas & best practices; be recognized as a model for others to follow
- Be an employer of choice through inclusive recruitment & by providing employees with the necessary tools, training, support & compensation
- Safe & Healthy Community
- Support social services, community partners & housing opportunities
- Inclusive & Engaged Community
- Foster community pride & civic engagement by increasing opportunities for public involvement, in line with best practices & legal requirements
- Advance social equity & social justice in Flagstaff by supporting social services
- Facilitate & foster diversity & inclusivity, including support of anti-racist policies & practices
- Enhance community involvement, education & regional partnerships to strengthen the level of public trust
- Ensure city facilities, services, & programs are accessible for all residents & representative of Flagstaff’s diverse community
- Sustainable, Innovative Infrastructure
- Support the community’s social infrastructure needs; assist those partner organizations that provide services the City does not
- Robust Resilient Economy
- Support & strengthen a more robust, diverse, & sustainable economy in ways that reflect community values & provides for affordable housing opportunities
- Enhance understanding between the development community, the City & Flagstaff residents
- Enhance the community’s workforce development programs & improve partnerships with higher education institutions & the private & public sectors
- Livable Community
- Create a welcoming community through partnerships, resilient neighborhoods, & civic engagement
- Support regional partners which provide equitable & inclusive educational opportunities for Flagstaff residents of all ages
- Actively support attainable & affordable housing through City projects & opportunities with developers
- Environmental Stewardship
- Implement, maintain & further the Climate Action & Adaptation Plan (CAAP) with awareness of social inequities
- Strengthen Flagstaff’s resilience to climate change impacts on built, natural, economic, health, & social systems
Regional Plan
- Goal NH.1. Foster and maintain healthy and diverse urban, suburban, and rural neighborhoods in the Flagstaff region.
- Policy NH.1.1. Preserve and enhance existing neighborhoods.
- Goal NH.3. Make available a variety of housing types at different price points, to provide housing opportunities for all economic sectors.
- Policy NH.3.1. Provide a variety of housing types throughout the City and region, including purchase and rental options, to expand the choices available to meet the financial and lifestyle needs of our diverse population.
- Policy NH.3.3. Increase the availability of affordable housing for very low-income persons, through innovative and effective funding mechanisms
- Policy NH.3.5. Encourage and incentivize affordable housing.
Carbon Neutrality Plan
- Community resilience
- CR-1: Ensure all mitigation actions improve Flagstaff’s ability to adapt to the future.
- CR-2: Strengthen existing community systems to create resilience to both short-term shocks and long-term change.
- Equitable systems
- ES-2: Proactively engage community members on an ongoing basis.
- ES-4: Actively seek to recognize past harms, repair trust, and build deeper relationships with community members.
- Housing for All
- HA-1: Create housing options for households at all income levels and family sizes occupied by local residents.
- HA-2: Connect people to equitable housing solutions.
- HA-3: Preserve affordable housing.
- HA-4: Protect people from housing discrimination and remove housing barriers.
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Has There Been Previous Council Decision on This: |
On November 6, 2018, City Council approved Contract 2019-03 allowing HSNA to continue the administration of the EAH program and to administer the newly created CHAP program. This contract with HSNA began with a one-year term and an option to renew for four additional one-year terms. The last renewal was issued November 2022 and will expire in November 2023.
On May 21, 2019, City Council approved Amendment 1 to Contract 2019-3 to clarify employee eligibility criteria for the EAH program. |
Options and Alternatives: |
- Approve Amendment 2 as recommended, and authorize the City Manager to execute the contract amendment.
- Approve Amendment 2 with modifications, and authorize the City Manager to execute the contract amendment.
- Do not approve Amendment 2.
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Background and History: |
The EAH program was designed to provide all eligible City of Flagstaff employees with the opportunity for homeownership by providing funds toward the down payment on a home. The goals of the EAH Program were not only to add a housing-based benefit but to also promote recruitment and retention of City of Flagstaff employees. The EAH program is being administered by HSNA. To date, the program has opened the doors to homeownership for thirty (30) first-time Flagstaff homebuyers who are employees of the City of Flagstaff. The program has proven to be a successful tool to recruit and retain members of Team Flagstaff.
The City's Homebuyer Assistance Program (CHAP) was originally created with General Funds in 1998/99 to serve Flagstaff households up to 115% AMI that were mortgage ready but made more than 80% AMI – the limit for assistance with Federal funds. CHAP, briefly called MIHAP (Middle Income Housing Assistance Program), has always been a revolving loan program designed to aid households above the 80% AMI population. Currently, given housing prices and interest rates, combined with the limited about of assistance CHAP provides, the purchasing power of mortgage ready households falls far below market pricing.
Current contract with HSNA began November 2018 with a one-year term and an option to renew for four additional one-year terms. The last renewal was issued November 2022 and will expire in November 2023.
On September 28th, 2023, Staff presented the recommend changes and contract amendment to the City of Flagstaff Housing Commission. The Housing Commission approved a motion to forward the program changes and contract amendment to City Council with a recommendation to approve. |
Key Considerations: |
The growing disconnect between housing costs and the limited amount of assistance currently provided by CHAP has rendered the program ineffective without additional assistance and subsidy programs. All the households utilizing CHAP in FY23 were under 80% AMI and required additional subsidy such as the purchase of land trust homes or other assistance, resulting in excluding the very households the program was created to serve. Considering the current housing market conditions and CHAP assistance amounts, the purchasing power of mortgage ready households falls far below market pricing. The recommended changes will return the program to serving the intended population.
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Community Involvement: |
EAH focuses on a stable local workforce and a healthy economy. Employee assisted housing enhances employee recruitment, employee retention, neighborhood revitalization, and community relations.
Mortgage lenders, realtors, employers, social service agencies and the community at large greatly contribute to, and benefit from, the success of housing assistance programs; again, providing stability for our community.
With the recommended changes and contract amendment, remaining funds are available for approximately 8 EAH loans and 6 CHAP loans, assuming the maximum amount of assistance is required. To date the EAH program has been utilized by 30 City of Flagstaff employees with loans averaging $8,328 per household. From November 2018 to date, CHAP has provided loans totaling $521,250 to 34 first time homebuyers. All City of Flagstaff housing loans are repayable when the home is sold, no longer owner occupied or is refinanced with cash-out. The Housing Section conducts an owner-occupancy verification process to ensure compliance. |
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