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Pleasanton council increases down payment loans for first-time homebuyers

Prospective homeowners can receive up to $100,000 toward their first house in the city

Prospective first-time buyers in Pleasanton may have a better shot at purchasing a home in town after the Pleasanton City Council unanimously increased maximum loan amounts and agreed to make other modifications to a little-used loan program offered by the city.

"We've struggled with this for quite some time on the council because nobody was using it, and I think this will increase the value of it to a lot of people," commented Mayor Jerry Thorne before voting during Tuesday night's meeting.

Launched in 2003, the city's down payment assistance (DPA) program -- which supports below-market-rate homeownership through low and deferred-interest loans -- will now receive $300,000 in available funding annually. With the new fiscal boost, staff said three loans at the maximum funding level can be processed each year.

A total of 50 low- and moderate-income residents have received help from the program with down payment loans of up to $20,000 during that time -- all but four reside in and own below-market housing units. The remaining four are unrestricted, market-rate homeowners.

However, only one DPA loan has been issued in the last five years. The main challenge with achieving more participation in the DPA program is "simply because of the high price homes in Pleasanton," city housing manager Steve Hernandez told the council.

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City staff said the current maximum loan of $20,000 is "insufficient" to contribute to the standard industry down payment requirement of at least 20%.

The median sale price for a single-family detached home in Pleasanton was $1.3 million as of July, according to the Bay East Association of Realtors, requiring a standard 20% down payment of approximately $260,000.

"Even condominium or townhome units that have lower price points ($755,000 median sale price in July 2020) would still require more than $151,000 down payment to purchase one of these units," staff said.

Loans are currently issued at 3.5% -- a "relatively competitive" interest rate compared to the program's original 4.25% prime rate, according to city staff -- and amortized over 20 years. The city contracts with nonprofit Hello Housing to administer the program.

Under the modified program, loans will be restructured to deferred 30-year, 0% interest loans for a $100,000 maximum, increasing a homebuyer's purchasing power. Monthly payments would not be needed as long as the buyer occupies the home.

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Participants must still contribute at least 3% toward their down payment, and the 50 people already on the program will not be included under the new modifications.

Along with increasing the loan maximum by five times its original amount, the council also adopted a shared appreciation loan policy for the DPA program.

"When the homeowner pays the money back, there is a prorated share of appreciation that they also have to pay back," Hernandez explained.

Livermore already has a shared appreciation loan program while Alameda County's AC Boost program provides up to $150,000 to first-time homebuyers who live in, work in or have been displaced from the county. The AC Boost program is funded by Measure A1 and also administered by Hello Housing.

The loan's "principal balance amount plus a prorated share of appreciation is repaid when the homeowner sells, or at the end of 30-year period, whichever comes first," according to the new policy.

For example, if someone buys a home for $663,053 with a $100,000 DPA loan at 15.08%, then later sees a $200,000 appreciation, the city's share of that appreciation amount would be $30,160.

"When they pay, not only is there the principal loan amount of $100,000, but they're also paying the shared appreciation of $30,160, therefore they'll be repaying us $130,160," Hernandez said.

Staff recommended the proposed DPA loan terms match the AC Boost Program to ensure the county allows the AC Boost loan to be "layered" with the city's DPA loan, noting "if the loan terms match, that's much easier for the borrowers."

There are currently 42 lenders who have agreed to allow the city "to subordinate their loan to the AC Boost Program," Hernandez said.

"And really, because of the high prices of homes in Pleasanton, we're really anticipating that our potential homebuyers will have to secure both an AC Boost loan from the county and a (DPA) loan from the city," he added.

Councilman Jerry Pentin said, "Having this layered with AC Boost and then the shared equity loans really will give some first-time homebuyers a chance at buying a home in Pleasanton."

Later, Hernandez also mentioned "other programs homeowners could potentially tap into" besides AC Boost and combine with a DPA loan, though he added "funding for those are typically small and they're highly competitive." Homebuyers may combine the DPA program with a below-market unit as well.

The current preference system for applicants may also be revamped at the urging of the city's Housing Commission and staff to include Pleasanton residents -- preferably those residing in the city no less than five years -- and giving additional preference points to school district employees, firefighters, police, city or county employees, and employees of nonprofit social service providers.

An alternative policy choice to serve only low-income (80% area median income) buyers was rejected as not being "effective," with Hernandez stating very few homes in Pleasanton will be affordable to 80% AMI buyers, who usually have difficulty meeting the industry standard of 40% debt-to-income ratio.

Pentin asked if $300,000 was enough for the program, to which assistant city manager Brian Dolan replied, "$100,000 is a lot more than the $20,000 we were giving out ... I think we wanted to just test drive the proposed changes and see how it worked before we got more aggressive on the funding."

Councilwoman Julie Testa said "there will be demand" for the program and asked if the city is limited to three loans per year "or what kind of flexibility might we be able to look at."

"We would be limited to how much we budgeted for the program, and we gave the council a range to consider because we thought that was a reasonable range to start," Dolan said. "We'd love to have the chance to do three in the first year, but it's definitely a council policy and budgeting question."

Vice Mayor Kathy Narum wondered if the council could add more funds "if we have more qualified applicants than whatever money is set aside."

Dolan said, "We could commit to coming back if we ran out and there are more eligible applicants, and then you could consider adding to it."

Narum called the program "one more way to get housing for people and private homeownership," while other council members expressed interest in eventually expanding the program.

"For $100,000, it seems somewhat economical compared to what it costs to subsidize a below-market unit in an apartment complex" Narum said. "I would hope that if there is a groundswell of interest in it, that we would at least have a conversation about possibly allocating more than the $300,000 midterm to this program."

The changes will require the city to allocate more funding to support the program, according to staff. The city's Lower Income Housing Fund (LIHF) funds the bulk of the DPA program, and will see more funds expended annually as a result of the modifications. The current balance of the LIHF is approximately $10 million.

In other business

* Three separate contracts for services related to COVID-19 were approved during the consent agenda portion near the start of the meeting. Items on the consent agenda are considered routine in nature and usually voted on by the council in one motion.

The council agreed to defer rental payments for one year for the Pleasanton Downtown Association's use of the city-owned building downtown at 333 Division St.

As of March, the monthly rate is $996 for the PDA; under the agreement, the city will not receive $11,952 from the PDA from this November through October 2021.

The group recently requested the deferral "so that limited incoming revenues can be directed to marketing the downtown and supporting businesses."

Most of the PDA's "revenue-generating" events were canceled for the year, following restrictions and sheltering orders from state and county health officials related to the pandemic. The canceled events include the St. Patrick's Day Brew Crawl, Wine Stroll, and Concerts in the Park, as well as the Halloween Brew Crawl and Antique Fair.

As a result, staff said the PDA lost out on about $136,500: "This severely reduced revenue has created financial hardship for the PDA, particularly as it has decreased PDA's ability to effectively promote the downtown, per the agreement with the city."

The deferred rent will be repaid over a 36-month period at 0% interest, or $332 in addition to their regular monthly rent payment.

* A lease agreement for portable trailers to maintain physical distancing between employees at the city's Operations Services Department was ratified Tuesday.

With the city moving into the next phase of its recovery plan, all maintenance divisions staff are expected to "work 100% at the same time, but at 50% building occupancy." To meet distancing requirements among employees, staff said additional indoor accommodations are necessary.

The one-year, $162,325 contract with Pacific Mobile Structures will pay for the use of two large office trailers and two smaller trailers that will act as locker rooms for employees. The trailers will serve the parks and utilities divisions' field staff through September 2021.

The council also approved a $138,000 one year lease with Royal Restrooms for one two-stall restroom and another two-stall restroom with shower, both also to be used by maintenance personnel until Sept. 2021.

* Multiple committee and commission appointments were ratified at the start of their meeting Tuesday. The city recently solicited applications to fill unscheduled vacancies and fill several expiring terms.

In total, 25 individuals were appointed by the council to the city's Housing, Economic Vitality, Civic Arts, Parks and Recreation, and Youth commissions and committees, among others.

The mayor also included commissioners "who, as a result of other openings, are changing status from an alternate to a regular member," according to public documents.

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Pleasanton council increases down payment loans for first-time homebuyers

Prospective homeowners can receive up to $100,000 toward their first house in the city

by / Pleasanton Weekly

Uploaded: Wed, Oct 21, 2020, 3:09 pm

Prospective first-time buyers in Pleasanton may have a better shot at purchasing a home in town after the Pleasanton City Council unanimously increased maximum loan amounts and agreed to make other modifications to a little-used loan program offered by the city.

"We've struggled with this for quite some time on the council because nobody was using it, and I think this will increase the value of it to a lot of people," commented Mayor Jerry Thorne before voting during Tuesday night's meeting.

Launched in 2003, the city's down payment assistance (DPA) program -- which supports below-market-rate homeownership through low and deferred-interest loans -- will now receive $300,000 in available funding annually. With the new fiscal boost, staff said three loans at the maximum funding level can be processed each year.

A total of 50 low- and moderate-income residents have received help from the program with down payment loans of up to $20,000 during that time -- all but four reside in and own below-market housing units. The remaining four are unrestricted, market-rate homeowners.

However, only one DPA loan has been issued in the last five years. The main challenge with achieving more participation in the DPA program is "simply because of the high price homes in Pleasanton," city housing manager Steve Hernandez told the council.

City staff said the current maximum loan of $20,000 is "insufficient" to contribute to the standard industry down payment requirement of at least 20%.

The median sale price for a single-family detached home in Pleasanton was $1.3 million as of July, according to the Bay East Association of Realtors, requiring a standard 20% down payment of approximately $260,000.

"Even condominium or townhome units that have lower price points ($755,000 median sale price in July 2020) would still require more than $151,000 down payment to purchase one of these units," staff said.

Loans are currently issued at 3.5% -- a "relatively competitive" interest rate compared to the program's original 4.25% prime rate, according to city staff -- and amortized over 20 years. The city contracts with nonprofit Hello Housing to administer the program.

Under the modified program, loans will be restructured to deferred 30-year, 0% interest loans for a $100,000 maximum, increasing a homebuyer's purchasing power. Monthly payments would not be needed as long as the buyer occupies the home.

Participants must still contribute at least 3% toward their down payment, and the 50 people already on the program will not be included under the new modifications.

Along with increasing the loan maximum by five times its original amount, the council also adopted a shared appreciation loan policy for the DPA program.

"When the homeowner pays the money back, there is a prorated share of appreciation that they also have to pay back," Hernandez explained.

Livermore already has a shared appreciation loan program while Alameda County's AC Boost program provides up to $150,000 to first-time homebuyers who live in, work in or have been displaced from the county. The AC Boost program is funded by Measure A1 and also administered by Hello Housing.

The loan's "principal balance amount plus a prorated share of appreciation is repaid when the homeowner sells, or at the end of 30-year period, whichever comes first," according to the new policy.

For example, if someone buys a home for $663,053 with a $100,000 DPA loan at 15.08%, then later sees a $200,000 appreciation, the city's share of that appreciation amount would be $30,160.

"When they pay, not only is there the principal loan amount of $100,000, but they're also paying the shared appreciation of $30,160, therefore they'll be repaying us $130,160," Hernandez said.

Staff recommended the proposed DPA loan terms match the AC Boost Program to ensure the county allows the AC Boost loan to be "layered" with the city's DPA loan, noting "if the loan terms match, that's much easier for the borrowers."

There are currently 42 lenders who have agreed to allow the city "to subordinate their loan to the AC Boost Program," Hernandez said.

"And really, because of the high prices of homes in Pleasanton, we're really anticipating that our potential homebuyers will have to secure both an AC Boost loan from the county and a (DPA) loan from the city," he added.

Councilman Jerry Pentin said, "Having this layered with AC Boost and then the shared equity loans really will give some first-time homebuyers a chance at buying a home in Pleasanton."

Later, Hernandez also mentioned "other programs homeowners could potentially tap into" besides AC Boost and combine with a DPA loan, though he added "funding for those are typically small and they're highly competitive." Homebuyers may combine the DPA program with a below-market unit as well.

The current preference system for applicants may also be revamped at the urging of the city's Housing Commission and staff to include Pleasanton residents -- preferably those residing in the city no less than five years -- and giving additional preference points to school district employees, firefighters, police, city or county employees, and employees of nonprofit social service providers.

An alternative policy choice to serve only low-income (80% area median income) buyers was rejected as not being "effective," with Hernandez stating very few homes in Pleasanton will be affordable to 80% AMI buyers, who usually have difficulty meeting the industry standard of 40% debt-to-income ratio.

Pentin asked if $300,000 was enough for the program, to which assistant city manager Brian Dolan replied, "$100,000 is a lot more than the $20,000 we were giving out ... I think we wanted to just test drive the proposed changes and see how it worked before we got more aggressive on the funding."

Councilwoman Julie Testa said "there will be demand" for the program and asked if the city is limited to three loans per year "or what kind of flexibility might we be able to look at."

"We would be limited to how much we budgeted for the program, and we gave the council a range to consider because we thought that was a reasonable range to start," Dolan said. "We'd love to have the chance to do three in the first year, but it's definitely a council policy and budgeting question."

Vice Mayor Kathy Narum wondered if the council could add more funds "if we have more qualified applicants than whatever money is set aside."

Dolan said, "We could commit to coming back if we ran out and there are more eligible applicants, and then you could consider adding to it."

Narum called the program "one more way to get housing for people and private homeownership," while other council members expressed interest in eventually expanding the program.

"For $100,000, it seems somewhat economical compared to what it costs to subsidize a below-market unit in an apartment complex" Narum said. "I would hope that if there is a groundswell of interest in it, that we would at least have a conversation about possibly allocating more than the $300,000 midterm to this program."

The changes will require the city to allocate more funding to support the program, according to staff. The city's Lower Income Housing Fund (LIHF) funds the bulk of the DPA program, and will see more funds expended annually as a result of the modifications. The current balance of the LIHF is approximately $10 million.

In other business

* Three separate contracts for services related to COVID-19 were approved during the consent agenda portion near the start of the meeting. Items on the consent agenda are considered routine in nature and usually voted on by the council in one motion.

The council agreed to defer rental payments for one year for the Pleasanton Downtown Association's use of the city-owned building downtown at 333 Division St.

As of March, the monthly rate is $996 for the PDA; under the agreement, the city will not receive $11,952 from the PDA from this November through October 2021.

The group recently requested the deferral "so that limited incoming revenues can be directed to marketing the downtown and supporting businesses."

Most of the PDA's "revenue-generating" events were canceled for the year, following restrictions and sheltering orders from state and county health officials related to the pandemic. The canceled events include the St. Patrick's Day Brew Crawl, Wine Stroll, and Concerts in the Park, as well as the Halloween Brew Crawl and Antique Fair.

As a result, staff said the PDA lost out on about $136,500: "This severely reduced revenue has created financial hardship for the PDA, particularly as it has decreased PDA's ability to effectively promote the downtown, per the agreement with the city."

The deferred rent will be repaid over a 36-month period at 0% interest, or $332 in addition to their regular monthly rent payment.

* A lease agreement for portable trailers to maintain physical distancing between employees at the city's Operations Services Department was ratified Tuesday.

With the city moving into the next phase of its recovery plan, all maintenance divisions staff are expected to "work 100% at the same time, but at 50% building occupancy." To meet distancing requirements among employees, staff said additional indoor accommodations are necessary.

The one-year, $162,325 contract with Pacific Mobile Structures will pay for the use of two large office trailers and two smaller trailers that will act as locker rooms for employees. The trailers will serve the parks and utilities divisions' field staff through September 2021.

The council also approved a $138,000 one year lease with Royal Restrooms for one two-stall restroom and another two-stall restroom with shower, both also to be used by maintenance personnel until Sept. 2021.

* Multiple committee and commission appointments were ratified at the start of their meeting Tuesday. The city recently solicited applications to fill unscheduled vacancies and fill several expiring terms.

In total, 25 individuals were appointed by the council to the city's Housing, Economic Vitality, Civic Arts, Parks and Recreation, and Youth commissions and committees, among others.

The mayor also included commissioners "who, as a result of other openings, are changing status from an alternate to a regular member," according to public documents.

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