HENNEPIN COUNTY. Neighborhood Stabilization Program NSP HOMEBUYER ASSISTANCE PROGRAM FOR CITY/PARTNER ACQUISITION AND REHAB

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1 HENNEPIN COUNTY Neighborhood Stabilization Program NSP HOMEBUYER ASSISTANCE PROGRAM FOR CITY/PARTNER ACQUISITION AND REHAB Program Description & Guidelines AUGUST 2011

2 TABLE OF CONTENTS Program Background... 1 Purpose of the Program Guidelines... 1 I. Marketing and Outreach... 2 II. Borrower Eligibility... 2 III. Eligible Properties... 4 IV. Ineligible Properties... 5 V. NSP Homebuyer Assistance Program Loan... 5 VI. Lenders... 6 VII. Underwriting... 6 VIII. Application Processing... 7 IX. Summary of Typical Loan Process... 8 X. Reasons for Denial or Postponement of Loan Applications... 9 XI. Appeals Procedure... 9 XII. Subordination NSP Homebuyer Assistance Program Loan... 9 XIV. Modification and Termination of the Program... 9 XV. Reuse of Repaid Funds... 9

3 Background The Neighborhood Stabilization Program (NSP) is funded by the U.S. Department of Housing and Urban Development (HUD) under the Housing and Economic Recovery Act (HERA) of The goal of NSP is to revitalize and stabilize communities. The cities included in NSP are Brooklyn Center, Brooklyn Park, Champlin, Crystal, New Hope, Robbinsdale and Richfield (collectively hereafter referred to as the City ). Hennepin County has created the Neighborhood Stabilization Program Homebuyer Assistance Program (NSP Homebuyer Assistance Program) to accompany the City or their development partner properties that were purchase and rehabilitated in the NSP target neighborhoods that have been impacted by the high rate of foreclosure to assist with stabilization. THE FUNDS FOR THE CITY ACQUISITIONS ARE IN A SEPARATE BUDGET FROM THE DIRECT NSP BUYER ASSISTANCE. The documents that are used are the same and the loans will be held by Hennepin County. Administration of the NSP Homebuyer Assistance Program and the functions and responsibilities of the City, their development partner, or Hennepin County staff shall be in compliance with the U.S. Department of Housing and Urban Development (HUD) NSP regulations as well as all Federal, State and local nondiscrimination laws and with the rules and regulations governing Fair Housing and Equal Opportunity in housing and employment. The City, their development partner, or Hennepin County shall not deny any family or individual the equal opportunity to apply for or receive assistance under the NSP Homebuyer Assistance Program on the basis of race, color, gender, religion, creed, national origin, age, familial or marital status, handicap or disability, sexual or affectional orientation or reliance on public assistance. Hennepin County s office is accessible to persons with disabilities. The Minnesota Relay Service and Hennepin County TTD/TTY line provides accessibility for the hearing impaired. Loans provided under this program are considered special mortgages under the terms of Minnesota Statute A homeowner with a special mortgage must receive counseling prior to any refinancing. Purpose of the Program Guidelines The purpose of the guidelines is to establish requirements for carrying out the NSP Homebuyer Assistance Program in a manner consistent with the NSP requirements and the Community Development Block Grant (CDBG) Program, as referenced in the HERA Act. Hennepin County is responsible for complying with all changes in HUD regulations pertaining to the HERA Act. If such changes conflict with these guidelines, HUD regulations will have precedence. Hennepin County reserves the right to amend and adapt these guidelines, as needed, to comply with NSP requirements and commitment timelines. Page - 1 -

4 I. Marketing and Outreach The City or their development partner will market the NSP Properties A. The City or their development partner should conduct the targeted outreach efforts through at least the following actions: 1) List properties on the Multiple Listing Service (MLS) 2) Develop an informational sheet/brochure for how the sale of the NSP property will happen; 3) Providing information to the Realtors Association and Lenders; 4) Providing eligible homeownership counseling agencies with information to make announcements at workshops, put information in their newsletters and have the counselors make referrals; 5) Providing information to directors of the public housing agencies and housing authorities that serve the target areas; 6) Providing information to the target cities to put on their websites and in their newsletters; 7) Provide as a press release to newspapers covering the target areas; and 8) Posting information on the City website. B. Properties are sold on a first come first serve basis. II. Borrower Eligibility A. Must be a U.S. Citizen or be a legal U.S. Resident (have legal immigration status). B. NSP Homebuyer Assistance Program will be an incentive to households whose gross (income before any deductions) household income does not exceed one hundred twenty percent (120%) of the area median income (AMI) for the Minneapolis/Saint Paul metropolitan statistical area as determined from time to time by HUD. In addition, if needed, the NSP Homebuyer Assistance Program can also provide affordability assistance for households at or below eighty percent (80%) of the AMI. The amount of assistance needed will be determined by Hennepin County. For NSP the current household income limits, as of June 2011, are: % limit 80% limit 120% limit 28,950 33,100 37,250 41,350 44,700 48,000 51,300 54,600 44,950 51,400 57,800 64,200 69,350 74,500 79,650 84,750 69,450 79,400 89,300 99, , , , ,000 Page - 2 -

5 C. Prior to approval of the assistance, income eligibility will be determined by Hennepin County using definition of income found at 24 CFR Part Household income refers to the annual projected income as of the date of the Certification Application, from all sources and before taxes and withholding, of all adults that will live in the housing unit. Gross income includes, but is not limited to: salary, commissions, bonuses, earnings from full or part-time employment, interest, dividends, tips, gains on sale of securities, annuities, pension, royalties, veterans administration compensation, net rental income from all sources, alimony, child support, public assistance, sick pay, social security benefits, income from assets, business activity or investments, unemployment, estate or trust income and miscellaneous income. The income from any of the following assets with a value over $5,000 shall be computed as the greater of 1) actual interest income; and 2) imputed income based on the percentage rate established by HUD from time to time (currently two percent (2%)): Cash in Checking and Savings Accounts; Certificates of Deposit; Retirement accounts such as IRAs, 401Ks and Deferred Compensation the borrower has access to; Investment accounts, i.e., securities, stocks/bonds and U.S. Savings Bonds; Life Insurance death benefits. Redemption value of Life Insurance Policies; The current market value of all interests in real estate minus the current loan amount and cost to sell the property. D. The Borrower does not have to be a first time buyer. The Borrower must not have an ownership interest in another property and must occupy the property within 60 days of closing. The NSP assisted property must be the primary residence of the Borrower. E. The Borrower must contribute at least $1, of his/her/their own funds toward the purchase of the property, to be applied to entry costs (i.e. inspections, appraisal fees, application fees, earnest money, prepaid expenses, appliances, or other items as approved by Hennepin County). F. The Borrower must complete a qualified homebuyer training course from a HUD approved counseling agency. A list of NSP approved agencies is available on the web at or by calling For the purpose of the NSP Homebuyer Assistance Program, a qualified homebuyer training will be one using the curriculum called Home Stretch. The Home Stretch classes and curriculum are maintained by the statewide, nonprofit Home Ownership Center (HOC) and are recognized as a standard for homeownership education in Minnesota. The curriculum includes classes and Page - 3 -

6 one-to-one meetings with a homeownership counselor to review personal credit and income. A copy of the participation certificate should be submitted with the application for assistance, but must be provided prior to final approval of assistance. In the case of a Joint Tenancy purchase, both Borrowers should attend and satisfactorily complete a Home Stretch course. The main Borrower should complete a Home Stretch course within the one year prior of purchase. G. The Borrower must meet the requirements of a participating lending institution and qualify for an eligible first mortgage. H. The Borrower must fulfill the NSP Homebuyer Assistance Program obligations in a timely manner and must remain eligible to participate based on the program requirements and those of the lender through the time of the loan closing. I. The Borrower must not have a previous loan through Hennepin County or any other loan that ended in foreclosure within the previous five years. J. Borrower must purchase an Owner s Title Insurance Policy. K. The Borrower must meet the requirements as specified elsewhere in these guidelines. III. Eligible Properties The property must be one that the City or their development partner purchased and rehabilitated using NSP funding. The City or their development partner would have already met the following NSP requirements when they purchased the property, so they are not applicable to the Borrowers purchase: The property is located in NSP target areas in suburban Hennepin County. Properties would have been purchased by the City or their development partner to meet the discount required by NSP is a minimum of one percent (1%) below the current market value. The City or their development partner would have had to meet applicable requirements of the required Part 58 Environmental Review. The City or their development partner cannot sell a property for more that it is worth, for an amount of the total development costs or $276,683, whichever is the least amount. Properties must be single family housing, which includes a detached single family unit, a townhome unit, a condominium unit, a manufactured unit with the lot, or a cooperative or mutual housing unit. The City or their development partner would have required to ensure that the properties has must meet the property standards adopted for Page - 4 -

7 the NSP program as outlined in the Hennepin Housing Consortium s New Construction and Rehabilitation Standards (the Standards), which are hereby made part of these guidelines by reference, prior to marketing the properties for sale. The Standards include the provisions at 24 CFR 35, requiring property built prior to 1978 be free of all lead paint hazards. The following are applicable to the Borrower. Purchase the property with ownership in fee simple title, a 99-year leasehold interest (CLT), ownership in a state recognized cooperative or mutual housing unit. The property must be occupied by the Borrower as their principle place of residence. IV. Ineligible Properties Properties specifically ineligible are ones not develop with NSP by the City or their development partners. V. NSP Homebuyer Assistance Program Loan A. The minimum principal amount of a NSP Homebuyer Assistance Program Loan is $1,000. The assistance is an incentive for households with income up to 120% of AMI. The maximum incentive assistance will be set each by City. If determined necessary by Hennepin County, in addition to the incentive funds households at or below 80% of the AMI may also be eligible for affordability assistance. The maximum amount of additional affordability assistance will be set each by City. B. The NSP Homebuyer Assistance Program Loan will be a forgivable, zero percent interest, deferred mortgage. The NSP program requires minimum affordability periods, so the term of the mortgage will be based on the amount of assistance provided to the household, as listed below: $1,000 to $14,999 will be a Five (5) year term $15,000 to $40,000 will be a Ten (10) year term Over $40,000 and certain developers will be a Fifteen (15) year term C. The NSP Homebuyer Assistance Program Loan will run concurrent to the first mortgage. D. The NSP Homebuyer Assistance Program Loan must be repaid if during the term of the loan the property: is sold; ownership is transferred; is refinanced; or is not maintained as the Borrower s principal place of residence. Page - 5 -

8 E. The NSP Homebuyer Assistance Program Loan is to take second position behind the first mortgage, unless approved by Hennepin County. F. The NSP Homebuyer Assistance Program Loan may be used to pay: up to 50% of the required down payment; and/or the reasonable and necessary costs incurred by the Borrower associated with the purchase. These costs may include: private lender origination fees, credit reports, fees for title evidence, fees for the recording and filing of legal documents, attorney fees and private appraisal fees; and/or Additional upfront costs of acquiring the principal residence, but not the entire cost of the acquisition (i.e.: additional down payment) G. The proceeds of the NSP Homebuyer Assistance Program Loan shall be disbursed at the loan closing. The loan closing is the legal process that transfers the property title to the Borrower, transfers loan funds and makes the property the legally enforceable collateral for the lender. All of the proceeds of the NSP Homebuyer Assistance Program Loan must be disbursed to persons or entities other than the Borrower. Any excess funds loaned to the Borrower not needed for the property purchase must be applied to decrease the amount of the first mortgage or be returned to Hennepin County. If returned to Hennepin County, funds shall be applied as a partial prepayment of the NSP Homebuyer Assistance Program Loan. H. If repayment is due to the sale of the property and proceeds from sale are not sufficient to repay in full the NSP Homebuyer Assistance Program Loan after paying obligations due to the first mortgage, the repayment amount will not exceed said proceeds. I. These loans are considered a special mortgage under the terms of Minnesota Statutes The Borrower must receive counseling in regards to any mortgage refinancing even though they will need to repay the Loan. VI. Lenders The Borrowers have their choice of any lender that is willing to work with and within the program guidelines. VII. Underwriting The HERA Act requires that Hennepin County, when providing funds ensure affordability for households. A. The NSP Homebuyer Assistance Program is depending upon the first mortgage lenders to apply prudent Borrower and property underwriting standards to support the objective of successful homeownership. Ideally, this Page - 6 -

9 means that the assistance should be used to make a homebuyer s front end ratio/monthly housing ratio payments of principal, interest, taxes and insurance (PITI) not exceed 30 percent of the household s gross income. For households using the incentive loan, ratios can be lower than 30% with no need for approval by Hennepin County. For households at or below 80 percent of AMI could receive the affordability assistance, the assistance is needs based. The additional assistance will be used to help create an affordable housing ratio for the household. If the household is already spending less than 30 percent for their housing, they will not be eligible for the affordability assistance. Or if the 30 percent ratio cannot be achieved even with the affordability assistance the household may not be eligible for any assistance. Hennepin County will not provide assistance that would put the ratio lower than 28 percent. PITI amounts over the 30 percent ratio will need to be reviewed and approved by Hennepin County. B. The first mortgage product must be considered an A or prime lending product. It must be a fixed rate FHA, VA, or Conventional, or Fannie Mae or Freddie Mac insured loan. C. Hennepin County will not approve the use of NSP assistance with interest only loans, adjustable rate loans, balloon loans, or any loan that is considered sub-prime or predatory. D. Hennepin County will also not approve the use of NSP assistance with loans that are co-signed with another party that will not live in the property. VIII. Application Processing A. The City or their development partner will provide an application packet. It is the responsibility of each applicant to assure that City or their development partner receives his/her/their application. Only applications and release forms with original signatures will be accepted by City or their development partner. B. At the time of application, applicants must fully complete a Certification Application form, sign a Release of Information form and provide Hennepin County household income information, including but not limited to the following: Alternative income documentation as necessary to verify the total household Gross Annual income from all sources (i.e. employment, social security income, child support, asset income, etc.). Page - 7 -

10 For self employment income, signed copies of the most recent three years of filed federal tax returns. In addition, they must provide a current profit and loss statement. IX. Summary of a Typical Loan Process Item # Description of Activity (who, what, where) The applicant completes and submits the application packet, eligibility information, and a mortgage pre-approval letter from the lender and a copy of the homeownership training certificate of completion to City/development partner. The applicant enters into a purchase agreement (PA) with the City/ development partner. The City/development partner sends applicant application and the PA with all addendums to Hennepin County. 4 The lender confirms applicant s mortgage eligibility and approves purchase The lender provides required supporting loan documentation to Hennepin County (1008-uniform underwriting form, 1003 residential loan application form, income and asset verifications, good faith estimate, etc.). Hennepin County reviews supporting documentation and eligibility verification for consistency with program goals and requirements. Hennepin County receives a fully executed PA. Hennepin County reviews the PA to ensure the required discount has been achieved by the Borrower. If Borrower and the property are eligible, Hennepin County sends Borrower an approval letter, sample loan documents and a Buyer Awareness form for signature. Hennepin County issues an approval letter to lender and reserves the funds for the Borrower s closing on the property. The lender sends Hennepin County the final 1008 and a copy of the bank appraisal. The Borrower or lender sends Hennepin County a copy of Borrower s title commitment. The Borrower is required to purchase an Owner s Title Insurance Policy. A copy of the Policy will be collected at closing. Borrower requests and provides Hennepin County a copy of their homeowners policy binder, listing Hennepin County as an additional insured and additional mortgagee. Hennepin County prepares the required closing documents and requests check for the loan closing. Hennepin County attends the loan closing. At the loan closing, Hennepin County has the Borrower sign the required loan documents. Page - 8 -

11 X. Reasons for Denial or Postponement of Loan Applications Hennepin County will do the final review and verify all applications for eligibility. Those applicants not meeting the eligibility requirements will be sent a written notice explaining the reason(s) for denial of participation. No further applications will be accepted by Hennepin County where an applicant has been previously found to have falsified their application or misused loan funds. No reapplications will be accepted for one year following applicant's cancellation of loan or other actions that delay the processing beyond a reasonable period of time. Consideration will be given to applicants who request an extension for a medical or family emergency, or applicants that are currently under written order to correct for health and safety items. XI. Appeal Procedures Appeals regarding denial of a loan application or interpretation of eligibility requirements may be made in writing to the Director of Hennepin County Housing, Community Works and Transit. A written response will be provided within thirty (30) days. XII. Subordination of the NSP Homebuyer Assistance Program loan During the term of the loan, the Borrower s ability to use any equity in the property may be limited as Hennepin County will not subordinate the NSP Homebuyer Assistance Program Loan to additional debt added after the purchase or upon refinance. XIV. Modification and Termination of Program Hennepin County may modify or terminate the NSP Homebuyer Assistance Program as it deems appropriate, as required by HUD, or for the continued implementation of same, including, but not limited to: (1) policy revisions necessary due to a change in design of the NSP financing mechanism; (2) policy revisions necessary due to changes in the rules and regulations of the Neighborhood Stabilization Program and/or the Community Development Block Grant Program; and (3) to facilitate prompt and proper expenditure of NSP funds. Once Hennepin County has provided financial assistance and the mortgage executed, financial assistance shall not be rescinded except as provided for in the executed NSP Homebuyer Assistance Program Mortgage and Promissory Note. XV. Reuse of Repaid Funds Hennepin County will utilize repaid NSP funds for the purpose of assisting other affordable housing activities within suburban Hennepin County according to federal regulations and/or County policies. Page - 9 -

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