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HomeMy WebLinkAboutresolution.council.006-98"', RESOLUTION NO. (C~ Series of 1998 A RESOLUTION OF THE CITY OF ASPEN, COLORADO, APPROVING A RECOMMENDATION FOR THE ESTABLISHMENT OF AN AFFORDABLE HOUSING LOAN PROGRAM IN THE CITY'S CHILD CARE TRUST FUND, AND AUTHORIZING THE CITY MANAGER AND THE ASPEN/PITKIN COUNTY HOUSING AUTHORITY TO EXECUTE SUCH LOANS. WHEREAS, there has been submitted to the City Council a recommendation for a new affordable housing loan program from the Child Care Trust Fund Review Committee, a copy of which is annexed hereto and made a part thereof, and; WHEREAS, the City Council desires to enhance the capability of Aspen residents to secure financing for affordable housing, and; WHEREAS, the City Council desires to increase the interest earnings of the Child Care Trust Fund. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ASPEN, COLORADO: Section One That the City Council of the City of Aspen hereby approves the recommendations of the Child Care Trust Fund Review Committee, a copy of which is am~exed hereto and incorporated herein, and does hereby authorize the City Manager of the City of Aspen and the AsperFPitkin County Housing Authority to execute such loans on behalf of the City of Aspen. Dated: ~~..::-~ ,1998. John .B~ee~ettfMayo'~r~;*~'~ I, Kathryn S. Koch, duly appointed and acting City Clerk do certify that the foregoing is a tree and accurate copy of that olution adopted by the City Council of the City of Aspen, Colorado, at a meeting hel~ ~.e~6., 1998. ~Cle~rk ~ MEMORANDUM TO: Mayor and Council THRU: Amy Margerum, City Manager THRU: Steve Barwick, Assistant City Manager FROM: Doug Smith and Child Care Trust Fund Review Committee DATE: December 15, 1997 In an effort to increase the earnings on the Child Care Trust Fund and, at the same time, assist the affordable housing program, a review committee of local bank employees, Cindy Christensen from the housing office and myself have recently held several meetings. The members of the committee are Carl Britton of Pitkin County Bank, Jaylene Park of Colorado National Bank, Mary Ryerson of Alpine Bank and Mike Taets of Norwest Bank. Mary and Mike also serve on the Child Care Grant Advisory Committee, so they have a special interest in insuring that the trust funds are invested at the highest possible yield consistent with safety. We have come up with two programs that we think are creative in answering both of the goals that we set out to reach, increasing yield and assisting housing. The first program would be directed to those potential home purchasers who cannot qualify for a conventional mortgage because their debt to earnings ratios are too high. As we all know, the housing market in Aspen is unique in that people are forced to spend a much larger portion of their income for housing than in other parts of the country. Many times, potential home purchasers find that their mortgage payment, including principal, interest, taxes and insurance is less than the amount they are currently paying to rent housing. In addition, they will also be able to benefit from the tax advantages of owning their home, which include the deduction of interest and taxes. Local banks are aware of this anomaly in the Aspen market and, in the past have agreed to finance these non-conforming mortgages in their own portfolio. The problem is that -. they have only been willing to do this on annually adjusted floating rate, which many ~- potential purchasers do not find attractive. The committee is suggesting that the Child Care Trust Funds be used to purchase these loans at a fixed rate for 3-5 years, which will give the potential purchasers a chance to season their loans and prove the ability to pay. This will then afford them the possibility of obtaining permanent financing through normal channels. If they are not able to refinance their mortgage before the end of the 3-5 year term, the rate would then adjust to a floating rate loan. These are loans the banks would have made in any case, and by structuring the transaction in this manner, all parties will benefit. The originating bank will handle all paper work, and also service the loan on a monthly basis, The Trust Fund will purchase the loan once a closing occurs, and receive a monthly check for principal and interest. Currently the Child Care Trust is earning approximately 6% interest as part of the City's pooled investment funds, and current rates for a 3-5 year fixed rate mortgage would be approximately 6.5% to 6.75%, net of servicing. The second program would allow assistance to those people who are unable to come up with the standard 20% down payment. Ira person receives a 90% mortgage through conventional channels, they must pay mortgage insurance which, on a $150,000' mortgage, amounts to approximately $65 monthly. We are proposing that the Trust Fund loan the additional 10%, which would then negate the need for mortgage insurance, lowering monthly payments. Tbe interest rate on this lom~ would be the same as the 80% mortgage, which in today's market would be approximately 7%, net of servicing. Them are some purchasers who may want to take advantage of the second program, even though they could liquidate assets in order to provide the full 20% down payment. In such instances, the committee felt that, in order to have the trust fund moneys help as many people as possible, ifthe l0% mortgage was a "want to" situation as opposed to a "have to", we should charge the applicable monthly mortgage insurance rate in addition to interest. The underlying thinking of the Committee is that affordable housing in Aspen is a sectwe investment, given the number of people who participate in each lottery. The committee was not comfortable, however, in considering 100% loans. It was felt that it was important that potential o,~naers need to have some investment in their property in order to insure that it is adequately maintained. In addition, since there are fees incurred when an affordable trait is sold, ira 100% mortgage was granted and the unit sold within a short period of time thereafter, the seller could be in a position of having to provide funds in order to close. We look forward to discussing this proposal with you at your next meeting in order to gain your approval to proceed. All committee members are plam~ing to attend the meeting in order to answer any questions you might have.