THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA DATE: DECEMBER 16, 2004 C ROBERT R. OVROM, CHIEF EXECUTIVE OFFICER

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1 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA REVISED Pg. 3 as underlined and Attachment C as underlined, also deleting #10 & 11 M E M O R A N D U M 17 DATE: DECEMBER 16, 2004 C TO: FROM: RESPONSIBLE PARTIES: SUBJECT: AGENCY COMMISSIONERS ROBERT R. OVROM, CHIEF EXECUTIVE OFFICER JENNY SCANLIN, PROJECT MANAGER JOHN LUJAN, SENIOR HOUSING FINANCE OFFICER AYAHLUSHIM HAMMOND, REGIONAL ADMINISTRATOR AUTHORIZATION TO AMEND PROVISIONS OF THE PROPOSED COOPERATION AGREEMENT WITH ENTERPRISE HOME OWNERSHIP PARTNERS, INC. FOR FUNDING OF SECOND MORTGAGES AND TO ENTER INTO LOAN AGREEMENTS WITH ELIGIBLE FIRST TIME HOMEBUYERS COUNCIL DISTRICT NINE CORRIDORS SOUTH OF SANTA MONICA FREEWAY RECOVERY REDEVELOPMENT PROJECT AREA (CD 9) COMMITTEE REVIEW: SPECIAL PROJECT REVIEW, 12/9/04 RECOMMENDATIONS That the Agency, subject to City Council review and approval: 1. Approve the Finding of Benefit Resolution (Attachment A hereto) which finds that an Agency program which provides second mortgages to qualified very low, low and moderate income families to purchase residences ( Homebuyer Program ) within or in the immediate vicinity of the CD9 Corridors South of Santa Monica Freeway Recovery Redevelopment Project Area ( CD9 Project Area ) is of benefit to the CD9 Project Area; 2. Authorize the Chief Executive Officer or designee to enter into a five-year Cooperation Agreement with Enterprise Homeownership Partners, Inc. ( EHOP ) for an amount not to exceed $500,000 per fiscal year subject to the annual availability of funds; 3. Recognize the existing commitment of $350,000 in second mortgage loans in the Agency Budget and Work Program available for the EHOP Homebuyer Program this fiscal year ;

2 ENTERPRISE HOME OWNERSHIP PARTNERS 2 4. Authorize the Chief Executive Officer or designee to amend certain provisions of the previously-approved Cooperation Agreement with EHOP, and to take such other actions as may be necessary to carry out the agreement; and 5. Authorize the Chief Executive Officer or designee to execute a Loan Agreement ( Loan Agreement ) with eligible first time homebuyers ("Eligible Homebuyers") to provide second mortgages, and to take such other actions as may be necessary to carry out the loan and covenant agreements. SUMMARY The proposed actions would allow the Agency to amend certain provisions of the proposed Cooperation Agreement with EHOP, including the funding of second mortgages for homebuyers purchasing within and in the immediate vicinity of the CD9 Project Area, and authorize execution of Loan Agreements for second mortgages to qualified very low, low and moderate income families. To date, EHOP has purchased 132 homes from the Department of Housing and Urban Development ( HUD ) within and in the immediate vicinity of the CD9 Project Area (Attachment B hereto) and is in the process of rehabilitating or remodeling 16 homes. In 2002, the Agency approved funding in the amount of $150,000 to provide second mortgages to first time homebuyers for the initial phase of the program, however, due to a lack of available funds in the CD9 Project Area, the program was never instituted. Project Area staff continued to meet with EHOP regarding the program, and towards the end of fiscal year , began to redraft the Cooperation Agreement outlining the essential program components. The CD9 Project Area also set aside a total of $350,000 in its fiscal year budget for second mortgage loans for rehabilitated properties. By partnering with EHOP, the Agency will meet one of the overriding housing needs within the CD9 Project Area: increased homeownership. This program is also attractive from a general administrative perspective since EHOP will find the prospective buyers, determine their income eligibility, prepare them for the responsibilities of homeownership, find institutional lenders for the primary loans, and create a complete loan package for Agency staff review before recording the soft second deed of trust for a given buyer. Over the past several months, the Agency and EHOP have worked to finalize details of the Homebuyer Program terms and conditions. To that end, staff has identified a number of changes which will clarify program requirements as well as increase the effectiveness of the program. The recommended program changes are: Maximum Second Mortgage: The maximum amount of second mortgages for single-family detached (owner-occupied) and extended family units will increase from $40,000 to $60,000. The Agency will also consider funding properties that contain up to four (4) dwelling units. The maximum amount of second mortgages for single-family multiple units (1-4 units, one of which is owner-occupied) will be $50,000 per unit, for a maximum of $200,000. Income Eligibility: The initial Board action approving the Homebuyer Program authorized funding to qualified low (80% Area Median Income ( AMI ) and moderate (120% AMI) income families. The Cooperation Agreement will also authorize funding to qualified very low (50% AMI) income families. Pursuant to HUD regulations for homes HUD conveys to EHOP, the income of Eligible Buyers cannot exceed 115% AMI. However, homes purchased through the private market can be sold to Eligible Buyers up to 120% AMI. Eligible Buyers will be defined as families whose income does not exceed 50% AMI for Very Low Income families, 80% AMI

3 ENTERPRISE HOME OWNERSHIP PARTNERS 3 for Low Income families and 115% 120% AMI for Moderate Income families depending on how the property was initially acquired. Loan Repayment: The initial Board action approving the Homebuyer Program authorized mortgages at 0% with a thirty-year (30) term, which would become due and payable upon sale or refinance of the property. This Agreement clarifies that no principal or interest payment shall be required until year thirty of the Note, at which time the owner can choose to refinance and pay off the Note in full or begin monthly payments on a new loan with the Agency for a fifteen year term. The new loan for the Note will have a three (3) percent annual simple interest rate. The following summarizes terms and conditions of early sale or refinancing: 1) If the property is sold or refinanced within the first thirty (30) years, the owner will be required to repay the principal in full and interest. Interest on the principal amount of the Agency Loan will be calculated as follows: the lesser of either (a) six percent (6%) annual simple interest from the date of the Note to the date of sale or refinancing, or (b) that percentage of increase in value that the subsequent sale price is over the original sale price as the principal amount of the Note is to the original purchase price. Neither refinancing or sale of the property will effect the forty-five (45) and/or fifty-five year affordability covenants on the property; 2) The Agency can choose to extend the amount of the original second mortgage to the new income-eligible purchaser with a new thirty-year term. The Agency is only obligated to offer a second mortgage to the subsequent purchaser at an amount equal to or less than the original second mortgage, depending on the size of the new purchaser s first mortgage; 3) If the Agency Loan is pre-paid for any reason within the first five (5) years of the date of the Note, Borrower shall pay, in addition to principal and interest, a penalty calculated as ten percent (10%) of the Note; 4) If the property is sold under the Agency s definition of hardship dispensation within the first five years of ownership or to a subsequent buyer who does not meet income eligibility requirements, the Agency may agree to modify or forgive the terms concerning penalty for pre-payment of the loan and equity-sharing, upon such written request of the Borrower. Occupancy: The initial Board action approving the Homebuyer Program required that the Eligible Buyer occupy the property as his or her principal residence for a minimum of three (3) years. The occupancy requirement is now extended to the entire length of the forty-five year (45) covenant. Sale/Rent of the Property: The initial Board action approving the Homebuyer Program stipulated that the Eligible Homebuyer could sell the property only to a family of low or moderate income. In the absence of a hardship dispensation, the Homebuyer Program will now allow the property to be sold only to a subsequent buyer who is the same income level (Very Low, Low or Moderate Income) as the Eligible Buyer at the time of initial purchase. In addition, the Homebuyer Program does not allow the owner to lease the owner-occupied unit of the property at any time during the forty-five (45) year covenant. In a single-family multi-unit property, the owner must be trained to manage the property and is required to lease the rental units to households between 50% and 80% AMI. The rental units will be covenanted as affordable for a fifty-five (55) year term. Family Income Priority: No more than 50% of the Properties served by the Agency s second mortgages will be purchased by moderate-income individuals/families. The remaining loans shall be reserved for individuals and families who qualify as very low or low-income.

4 ENTERPRISE HOME OWNERSHIP PARTNERS 4 RE August 1, 2002 Authorization To Enter Into A Cooperation Agreement With Enterprise Home Ownership Partners, Inc. To Provide Second Mortgages For Single Family Homes October 9, 2002 City Council Approval of the Agency Board action SOURCE OF FUNDS CD9 Housing Trust Funds PROGRAM AND BUDGET IMPACT There is no fiscal impact to the City s General Fund as a result of the recommended actions. The proposed action is consistent with the proposed FY05 Budget and Work Program for the CD9 Project Area as Work Objective C91010 (Housing Rehabilitation Program). ENVIRONMENTAL REVIEW The proposed project does not constitute a project as defined by the California Environmental Quality Act. BACKGROUND The provision of housing for all income levels and family sizes is one of the basic building blocks of neighborhood revitalization and stabilization in the CD9 Project Area. Homeownership rates in the CD9 Project Area are at 27% as compared to an average of 37% for the entire City of Los Angeles. Increasing home ownership will provide families with an opportunity to gain equity and increase their quality of life, as well as create a greater likelihood that the individual property will be maintained on a regular basis and neighborhood pride will take hold. As of the initial Redevelopment Plan adoption in 1995, 97% of all residential properties in the CD9 Project Area were in various stages of deterioration. By investing in EHOP s Homebuyer Program, which rehabilitates existing homes, the Agency is not only financing more affordable housing opportunities but also addressing the need to repair and upgrade the existing housing stock of the area, much of which was built before The EHOP program operates in an Asset Control Area, as defined by HUD, in the City of Los Angeles, specifically in South Central, Boyle Heights, Highland Park, Pacoima and Canoga Park. Although this program operates in more than one of the Agency s Project Area s, this will be the Agency s first agreement with EHOP for second mortgage assistance. To date, EHOP has utilized Mortgage Credit Certificates and silent seconds provided by the Los Angeles Housing Department to help first time homebuyers meet the financing gap for purchasing a first home. With the continuing rise of the median home price in the County of Los Angeles, the subsidy needed by families qualifying for affordable homeownership opportunities has had to increase proportionately. This means that larger subsidies are available on a per household basis but the total funds are serving fewer families. In order to keep up with the stock of homes EHOP has been able to bring to the market for affordable homeownership, they have requested that the Agency become a partner in the program as a loan agent providing second mortgage assistance. In addition to being able to qualify more families for homeownership, the Agency second mortgage assistance will allow EHOP to expand its program to serve families up to 120% AMI.

5 ENTERPRISE HOME OWNERSHIP PARTNERS 5 EHOP is an affiliate of the Enterprise Foundation located in Los Angeles, California and is constituted as a 501(c) (3) nonprofit corporation. The Foundation is dedicated to rebuilding neighborhoods in Los Angeles and other urban communities in the United States. Working with partners, the Foundation provides low-income families access to decent and affordable homes, safer streets, jobs and childcare. The Foundation has raised and invested more than $5.5 billion in loans, grants and equity to help build or renovate more than 120,000 homes and apartments, $60 million of which has been spent within the boundaries of the City of Los Angeles. EHOP, a HUD service provider, is a partnership between Enterprise Foundation, local government entities, lenders, foundations, non-profit and for profit community development organizations, real estate brokers, home buying counseling agencies, the City s Problem Property Resolution Team and various other interested parties. EHOP s goals are to revitalize existing residential stock in selected and targeted neighborhoods with economic and physical reinvestment needs. Said residential stock is then sold to very low, low and moderate income buyers, providing households with an opportunity to participate in the benefits of home ownership and providing stabilization within neighborhoods. EHOP also provides counseling and related home ownership certification to the prospective buyers. Specifically, EHOP acquires properties (1-4 units) from HUD and the private market, maintains these properties while under EHOP s control, manages the rehabilitation of the properties through development partners, and resells the properties to eligible homeowners. EHOP provides financing for the initial acquisition of properties as well as for the rehabilitation. Eligible Buyers will purchase the properties using available private financing designed for first time homebuyers, with second mortgage assistance from the Agency. Councilmember Perry as well as the CD9 Project Area Community Advisory Committee support the project and the recommended actions. Robert R. Ovrom Chief Executive Officer by Richard L. Benbow Chief Operating Officer Attachment A Finding of Benefit Resolution Attachment B CD9 Project Area Map There is a conflict of interest known to me that exists with regard to an Agency employee concerning this action. Bill Jones, Director of Enterprise Home Ownership Partners, Inc., is the husband of Sara Gonzalez-Jones, Senior Executive Assistant of the Agency. She has been notified to have no communications with any Agency staff or official on matters related to this project. The Project Manager and other staff members have been similarly advised. To the best of my knowledge Mrs. Gonzalez-Jones has had no involvement with the project.