ATTACHMENT 3

STAFF REPORT

POTENTIAL HOUSING RESOURCES

There are several potential sources of funding that could be used to support the development of affordable housing and provide assistance to potential homebuyers.  Below is a summary of the programs and an assessment of the potential use of the funds.

Construction Costs

We have identified the following sources of funds that could be used for construction costs for this project:

Community Development Block Grant Program

Each year the Town receives Community Development funds through the U.S. Department of Housing and Urban Development.  In 2004-2005, the Town received $711,000 of Community Development funds.  Funds must serve households earning less than 80% of the area median income by household size.  Eligible uses of funds that could be used in conjunction with this project include property acquisition, site improvements and down payment / second mortgage assistance.  Over the past several years, the Council has used approximately $200,000 of these funds each year for the renovation of the Town’s public housing units.  Funds are also used for site development for homeownership projects (Orange Community Housing and Land Trust and Habitat for Humanity), neighborhood revitalization activities in the Northside neighborhood (property acquisition, rehabilitation, and public improvements), and community services activities that serve lower income households.   Generally Community Development funds cannot be used for actual construction costs. However, funds may be used for costs related to developing a site. 

HOME Program

In 1992, Chapel Hill, Carrboro, Hillsborough and Orange County formed the Orange County HOME Consortium with Orange County acting as the lead entity.  The Consortium was established as a local partnership to develop affordable housing serving households earning less than 80% of the area median income.  Each year, the Consortium receives federal HOME Program funds from the U.S. Department of Housing and Urban Development.  In 2004-2005 the Consortium planned activities for $905,336 of HOME Program funds.  Eligible uses of funds relevant to this project include acquisition of property (including assistance to homebuyers), new construction, tenant-based rental assistance, site improvements, demolition (under special conditions), and project cost related to developing a site. 

Economic Development Initiative (EDI)

The US Congress allocated Economic Development Initiative Funds to communities for a variety of activities including affordable housing development and economic development projects. In 2000, the Town received an Economic Development Initiative Grant on behalf of the Orange Community Housing and Land Trust for land trust activities.  The Town could apply for an Economic Development Initiative Grant for this project.

Section 108 Loan Guarantee Program

The Section 108 Loan Guarantee property enables states and local government participating in the CDBG program to obtain federally guaranteed loans to help fund large community and economic development projects. The loan amount cannot exceed five (5) times the community’s most recent Community Development allocation ($711,000 in 2004-05 in Chapel Hill).  States and local governments must pledge to use future Community Development Block Grant allocations (up to the loan amount) as security for the loan.  The maximum loan term is twenty years. 

Homebuyer Assistance Programs

Below are descriptions of programs that can be used to assist the future homebuyers of the proposed units.  The Community Development, HOME Program and Economic Development Initiative programs mentioned above could also be used to provide direct assistance to homebuyers. 

All programs listed below are subject to funding from the respective agencies. 

Triangle Smart Commute Initiative

The Smart Commute Initiative was developed by the Fannie Mae Corporation to recognize that homeowners who spend less on commuting expenses may have more disposable income for housing expenses (i.e. a mortgage).  Eligible homebuyers must live one quarter mile from a public bus stop or one half mile from a public rail station.  Under this program participating lenders would add a potion of the potential transportation savings to a household’s qualifying income, which could allow a family to borrow more money to buy a home.  Local participating jurisdictions include the State Employee’s Credit Union, RBC Centura, Allied HOME Mortgage, Central Carolina Bank, and Countrywide Home Loans.  There are no income restrictions for this program.  

The North Carolina Housing Finance Agency

The North Carolina Housing Finance Agency currently offers a variety of homeownership programs for individuals, local governments and non profit organizations:

• The Homeownership Mortgage Loan Program provides mortgages to buyers with low and moderate incomes at a below market interest rate.  The program is available to first time homebuyers or individuals who have not owned a home in three years. Interest free deferred second mortgages up to $7,000 for downpayment assistance and closing cots is also available.  The agency also has an assistance program incase its borrowers lose their job.

• The Mortgage Credit Certificate program is designed for buyers who do not qualify for mortgages because of their debt ratios, credit issues or other reasons.  The Mortgage Credit Certificate reduces a homeowner’s tax liability dollar-for-dollar by 20% of the mortgage interest they pay.  These buyers could receive a maximum tax credit of $2,000 per year.

• Local governments and nonprofit organizations may apply for the New Homes Loan Pool.  This program provides interest-free, deferred–payment second mortgage loans of up to $20,000 per unit for the purchase of newly constructed or like-new, substantially rehabilitated homes.  Homebuyers must earn less than 80% of the area median income. 

• Local governments and nonprofit organizations may also apply for the Self-Help Housing Program. This program also provides interest-free second mortgage loans of up to $20,000 per home for permanent financing of newly-built homes using homebuyer sweat equity.  Eligible buyers must earn below 50% of the area median income.