RESOURCE MANAGEMENT AGENCY - B. BARNES

Approve the subordination of a County-issued second loan for 721 Colorado Way, a property restricted to purchase by a low-income household, to a refinanced first loan.

SBC FILE NUMBER: 790

The present owners of 721 Colorado Way (Assessor's Parcel 020-96-0-055-0) are seeking refinancing of a loan on their property, which is subject to a Resale Restriction Agreement limiting future purchase of the property to low-income households.  The owners are under obligation both to this first loan and to a second loan granted by the County.  The lender for this refinancing requests that the County agree to a subordination agreement that would cause the new first loan to stand as a higher obligation than the County's loan.

In 2001, the owners purchased 721 Colorado Way, a property reserved for a low-income household as part of the Riverview Estates below-market-rate development, at a price of $163,210.  In order to purchase the property, the owners obtained three loans—the first from the United States Department of Agriculture for $115,200, the second from the County (under the federal HOME Investment Partnerships Program) for $25,510, and the third from the Federal Home Loan Bank Affordable Housing Program for $6,500, in addition to making a $16,000 down payment.  Under the Resale Restriction Agreement, the owners are permitted to sell the property to a low-income household at a maximum price gradually increasing at the same rate of change as area median income; as of 2016, the permissible price was approximately $226,650.

The owners now seek to refinance the first loan while keeping the original second loan in effect.  (The third loan was designed in its original terms to be forgiven over a predetermined time period and as a result is no longer owed by the owners.)  Because the lender asks that the new first loan become a higher obligation than the County second loan, the County will want to ensure future recovery of funds from its second loan by ascertaining that the first loan will continue to be affordable to a low-income household and that all loans will together not exceed the maximum allowable purchase price (now approximately $225,650, as noted earlier).

The lender has stated the new first loan will be in the amount of $100,000 at a fixed rate of 4.25 percent.  A future sale at the maximum allowable purchase price will adequately pay off the new first loan together with the County second loan.  The lender has also stated that the owner's new monthly payment for principal, interest, hazard insurance, and property tax will amount to $751.09, which does not exceed 35 percent of the owners' household income, part of the Resale Restriction Agreement's guidelines.

The amount of all loans together will allow a future sale to pay off these loans, allowing the property in the future to remain part of the County's affordable housing stock and not be sold at market rate.  The new first loan will therefore remain affordable to the owners, thereby preventing foreclosure and protecting the County second loan.  Because of this, approval of the subordination agreement would not jeopardize the County second loan.

Staff therefore recommends the Board approve the subordination agreement.

Staff respectfully recommends the Board approve the subordination agreement and authorize the County Administrative Officer to execute the agreement.