Neighborhood Stabilization Program 2 (NSP2) Homebuyer s Program. Policies and Procedures

Neighborhood Stabilization Program 2 (NSP2) Homebuyer s Program Policies and Procedures Approved by Modesto City Council Resolution No. 2012-119

Table of Contents I. Introduction...3 II. III. IV. City Loan Terms...4 First Mortgage Loan Terms...5 City Loan Eligibility Criteria...5 V. City Process for Eligibility...7 VI. VII. VIII. IX. Debt Ratios...8 Determining Annual Income for Eligibility...9 Homebuyers Counseling Class...9 Selecting a Home...10 X. Home Inspection...10 XI. XII. XIII. XIV. XV. XVI. Home Warranty...10 Final Mortgage Loan Approval...11 City Loan Approval...11 Closing the Loan...11 Information for Realtors Regarding Purchase Agreements...12 Long Term Monitoring...13 XVII. Violations and Penalties...14 XVIII. Equal Credit Opportunity Act...14 XIX. XX. XXI. Conflict of Interest...14 Exhibit 1: Income Qualifications...15 Exhibit 2: Appraisal Guidelines...19 2

Introduction: The Neighborhood Stabilization Program2 (NSP2) is funded by the U.S. Department of Housing and Urban Development (HUD) to assist program eligible low/moderate/middle income (LMMI) homebuyers to purchase selected homes within the city limits of Modesto. The homes available for purchase are previously foreclosed and vacant homes, purchased and rehabilitated by City approved developers to create move-in ready homes. The sales price of the homes will be determined by an appraisal required after the property repairs have been completed. Homebuyers will secure a first mortgage from a lender and assume a portion of the existing loan made to the developer by the City of Modesto as a second silent loan. HUD requires the Neighborhood Stabilization Program funding to be expended where continued affordability of the home is ensured. The City loan requires that the homebuyer occupy the home as their primary residence for a minimum of 25 years, referred to as the Affordability Period. The homebuyer will not be allowed to rent the home during the Affordability Period. The City will monitor the homes annually to ensure that the primary residence occupancy requirement is being met. 3

City Loan Terms: The City loan amount will not be less than 20% of the current after rehab appraised value of the home, but not more than 50% of the current after rehab appraised value of the home. The City loan will cover the financing gap between the first mortgage loan obtained by the applicant and the appraised value of the property, up to 50% of the appraised value. The loan shall accrue interest at the rate of 3% simple interest. No monthly payments are required during the 30-year term. City loan principal and interest is due and payable in full after 30 years No prepayment penalty. There is no charge or penalty for making full or partial payments on the loan. The purchaser must maintain the home as their primary residence. The NSP loan is generally not assumable. However, if the subsequent purchaser of the home meets the income eligibility for that household size at the time of purchase, the applicant may apply to the City for a waiver of the non-assumption of the loan. Resale to a non-eligible household within the 25 year affordability period will trigger recapture. If the homebuyer sells, transfers title, rents, or fails to occupy the home during the Affordability Period, the homebuyer must pay the City a portion of the net equity in the home, referred to as recapture. This is in addition to the principal and interest owed on the City loan. If the homebuyer sells, transfers, rents, or fails to occupy the home during the first 12 months of the Affordability Period, the homebuyer must pay off the City loan and the City is entitled to 50% of the net equity. The City s share will decrease 2% per year, until year 25. After the end of the 25-year Affordability Period, the City will no longer be entitled to any portion of the equity of the home, only any remaining principal and interest owed on the City loan. Even if the homebuyer is able to pay off the City loan prior to the end of the Affordability Period, the City s recapture of net equity will remain in effect until the end of the 25-year Affordability Period. 4

First Mortgage Loan Terms: For the benefit of the applicant, the first mortgage lender should be located in Stanislaus County. Lender fees must be reasonable. The City encourages applicants to shop multiple reputable lenders to ensure they are getting the best interest rate and the reasonable fees. FHA and conventional fixed rates loans are only allowed. Loan terms cannot exceed 30 years. Applicant must be pre-approved for the maximum FHA or conventional loan by the first mortgage lender (underwriter approval required) prior to proceeding in the City s program. Buyer must be fully credit committed by a Direct Endorsement (DE) or conventional underwriter. The loan amount must be the maximum amount the applicant(s) can be qualified for without exceeding the allowable debt ratios. After a home is selected, the first mortgage loan will never be for more than 80% of the purchase price of the property, but never less than 50% of the purchase price. The monthly housing ratio, including principal, interest, taxes, insurance, homeowner s dues, cannot exceed 30% of the household s qualifying income. The total debt to income ratio cannot exceed 43% of the household s qualifying income. These ratios cannot be exceeded during the approval process OR at closing. Applicant must have an impound account (Monthly payments consist of Principal, Interest, Taxes, and Insurance PITI) Any Lender appraisal must meet NSP requirements. City Loan Eligibility Criteria Applicant(s) must meet the following eligibility requirements: The household s annual income must be between 50% and 120% of the Area Median Income (AMI). This is adjusted for family size for Modesto. 5

Income Limits 50% Income Limit 120% Income Limit Household Size 1 Person $21,700 $52,100 2 Person $24,800 $59,500 3 Person $27,900 $66,950 4 Person $31,000 $74,400 5 Person $33,500 $80,350 6 Person $36,000 $86,300 7 Person $38,450 $92,250 8 Person $40,950 $98,200 (Effective December 2011) (Income limits are adjusted annually) Applicant(s) must have lived within Stanislaus County for the past six (6) consecutive months, or been employed in Stanislaus County for the past (6) months. Applicant(s) to be on title must have a middle credit score of 600 or higher based on the following credit agencies: Equifax, Experian, and TransUnion. There are some credit issues that applicants must allow for certain time to pass before they can qualify for a NSP2-HP loan. These exceptions are as follows: - Three years from the date of discharge for a Bankruptcy, Chapter 7 or Chapter 13. (Applicant should have good credit since to qualify for the program) - Three years from the date of foreclosure or short sale. (Applicant should have good credit since to qualify for the program). The City will contribute up to 50% of the buyer s closing costs. The applicant must show proof of available funds for potential closing costs or an allowable gift. The buyer s closing cost portion could be between 3 to 4% of the purchase price of the home. Lender s credit can be applied towards closing costs. Applicant must be able to secure a conventional or FHA first mortgage. Applicant(s) or any household member cannot be on title to another property. 6

Applicant(s) must complete an eight (8) hour homebuyer counseling class from a HUD approved housing counseling agency. Applicant(s) must meet U.S. residency requirements. Co-signors are not allowed. Note: Property must be owner occupied, cannot be rented, transferred or leased during the loan term. If, the property is no longer the participant s principal residence), the loan and the net equity share will become immediately due and payable in full. This requirement is incorporated in the loan documents (loan agreement, deed of trust, promissory note) executed by the City and the participant(s). The property must be occupied within 60 days of loan closing. City Process for Eligibility: The interested homebuyer will contact the City of Modesto Parks, Recreation and Neighborhoods Department at 577-5245 or 577-5311. Staff will explain program guidelines and requirements and ask the potential homebuyer a series of questions that relate to program eligibility. Based on preliminary information, staff will estimate the loan amount the potential homebuyer could be eligible for. If the applicant wishes to proceed and appears to meet program eligibility requirements, staff will mail the applicant an intake package for completion. The package will include an intake application form and a checklist of required documents that must be returned with the intake application. Applicant(s) must submit a pre-approval letter from their lender that meets the City s requirements. The letter should include proof that the applicant(s) has been pre-approved by an underwriter. If the applicant(s) is approved for conventional financing, the lender will not need to allow for mortgage insurance. The applicant must also provide a copy of their credit report provided by the lender that shows the scores from the three major credit reporting agencies. (Experian, Equifax, and Transunion) If the City receives an incomplete intake package, the applicant will be notified of the missing documentation. The intake package will not be processed until all required documents are received by the City. After the City receives the completed intake form and required documents, staff will determine the applicant(s) program eligibility as follows: Does the applicant meet the residency requirements? 7

Is the current household income between 50% and 120% of Median Area Income (MAI) based on household size? (MAI is adjusted annually). Does applicant have proof of funds available for potential closing costs or an allowable gift? Is the applicant(s) or a member of the household currently on title to any other property? Has the applicant(s) been pre-approved for a first mortgage loan that meets the City s guidelines? If the credit report indicates an existing mortgage loan, or if the credit report indicates a foreclosure, short sale, or bankruptcy within the last three years, the applicant(s) will be considered ineligible. A letter of explanation will be mailed to the applicant. If staff determines the applicant(s) will benefit from credit counseling, staff will refer the applicant(s) to a HUD approved credit counseling agency. The City will contact the applicant(s) first mortgage lender to verify qualifying income, debt ratios and will request a copy of underwriter s approval and any other necessary information. The information will be reviewed to further verify that all requirements have been met prior to the applicant being able to enter into any purchase agreement for an NSP home. Debt Ratios: Following are the acceptable debt ratios the City of Modesto can allow: 1. Front-End Ratio (housing expense): The maximum is 30%. The front-end ratio is the new principal, interest, taxes and insurance (PITI), mortgage insurance, and Homeowners Association dues divided by the gross income. The typical debts used to determine the qualifying front-end ratio is the future housing expense. 2. Back-end Ratio: The maximum is 43%. This is the new housing expense and the minimum monthly payments from the applicant s liabilities divided by the gross income. The typical debts used to determine the qualifying back-end ratio are the minimum required monthly payments on all of the following: Auto loans Student loans Personal loans Charge cards 8

Child Support Alimony Federal Tax Lien Repayment Schedules These ratios cannot be exceeded at any time during the loan process OR at closing. Determining Annual Income for Eligibility: Section 8 income guidelines are used to determine annual income, which is defined as the gross amount of income of all adult household members that is anticipated to be received during the coming twelve-month period. Income recertification will be required if more than 180 days have elapsed from the date of the original certification and the date of loan closing or occupancy of the property. When making eligibility decisions, only the household composition, employment data, or other relevant information as presented in the original application will be considered. Applicants will not be allowed to make any material changes in the application in an attempt to reverse a City loan denial. Section 8 income guidelines are used to calculate annual income to determine program eligibility. Annual income is defined as the gross amount of income of all adult household members, which are anticipated to be received during the coming 12-month period. Homebuyers Counseling Class: Program participants will be required to complete an eight hour homebuyercounseling workshop from a HUD certified agency. The City encourages all applicants to attend the class prior to entering into a purchase agreement. However, all applicants must complete the homebuyer s counseling class within 15 days from the date the purchase agreement is accepted by all parties. This requirement must be included in the purchase agreement. The purpose of the workshop is to provide the homebuyer with step-by-step guidance to successfully purchase and maintain ownership of a home. The workshop also helps homebuyers by educating them on how to obtain mortgage financing they can afford. Subjects covered include shopping for a mortgage loan, finding a realtor, shopping for a home, home maintenance, budgeting, and on-going financial costs. Upon the participant s completion of the class, the workshop provider will issue a certificate of completion. Participant must submit the certificate to the City of Modesto. The workshop provider may charge participants a nominal fee. This fee is non-refundable and is not reimbursable as an eligible closing cost. 9

NOTE: Prior to attending class, applicant may want to check with City staff to make sure provider is HUD certified and acceptable with the City s program. Selecting a Home: Once the applicant(s) has passed the eligibility process, the City will issue an NSP eligibility certificate with the applicant s purchasing limit. Realtors will be required to obtain this certificate from any buyer prior to execution of the purchase contract. The properties will be listed in the Multiple Listing Service (MLS). The buyer may wish to obtain a realtor to represent them in the purchase of the home. The price of the home will be the lesser of the after rehabilitation appraised value or the project cost. The project cost is the acquisition cost of the property and the rehabilitation costs. The buyer(s) will be required to make a good faith deposit of $500 when selecting a home. The good faith deposit will be held by the escrow company and will be applied to the buyer s share of the closing costs. If a second appraisal is required by the first mortgage lender and the appraised value differs from the City s original appraisal, the sales price of the property could be adjusted downward or upward, and will be subject to City approval to ensure the adjusted purchase price meet the NSP guidelines established by the Department of Housing and Urban Development. Home Inspection: The City requires all homebuyers to have a home inspection completed by a qualified home inspector prior to purchasing the property. Home inspection companies can be found in the phone book under Home Inspection Services, or referred by the realtor. The buyer must pay out-of-pocket for the home inspection, but, upon proof of payment, these funds can be counted as part of the buyer s share of the closing costs. Home Warranty: The buyer will receive one-year Comprehensive Plus Plan home warranty from Fidelity National Home Warranty at the close of escrow. It is the responsibility of the buyer to know what coverage the home warranty will include. Additional warranty coverage for items not included in the Comprehensive Plus Plan may be eligible for purchase, at the buyer s expense. The buyer should consult Fidelity National Home Warranty at 1-800-862-6837 for additional information. Buyers will be responsible for any home repairs not covered by the warranty, or after expiration of the warranty. 10

First Mortgage Loan Approval: After the property has been selected and a Purchase Agreement executed by buyer and seller, and delivered to the first mortgage, the first mortgage will proceed with final loan approval. The City can submit a copy of the original appraisal to the first mortgage lender. If the first mortgage lender will not accept the City s appraisal and requires a new appraisal, the buyer may be asked by the first mortgage lender to pay the cost upfront. Upon proof of payment by the buyer, these funds can be counted as part of the buyer s share of the closing costs. If a second appraisal is required by the first mortgage lender, the first mortgage lender must submit a copy to the City after receipt. If the appraised value differs from the City s original appraisal, the sales price of the property could be adjusted downward or upward, and will be subject to City approval to ensure the adjusted purchase price meet the NSP guidelines established by the Department of Housing and Urban Development. Upon receipt of their loan approval, the first mortgage lender will submit a copy of their loan approval, including loan conditions, to the City. If the first mortgage lender obtains a rate lock and the loan does not close prior to expiration of the rate lock the City will not be responsible for any cost, and the cost will not be counted as part of the buyer s share of the closing costs. City Loan Approval: After the City has received the final loan approval, including conditions, from the first mortgage, the loan will be submitted to the Housing Rehabilitation Loan Committee for approval. This committee meets the first and third Thursday of each month. Applicants and their lenders are invited to the meetings. This is a public meeting. If the loan is approved by the Committee, the City will issue a City loan approval letter, including any City loan conditions. Closing the Loan: All prior to document conditions on the City loan must be cleared before the buyer is scheduled to sign the City loan documents. These documents will be signed at the City offices to ensure that the buyers are fully aware of the program conditions, including the 25-year Affordability Period. 11

It may take five to six working days from the time the documents are signed by the buyer until the loan is ready to close. The City loan documents must be executed by the City. After the documents are fully executed, the original Deed of Trust and Agreement Affecting Real Property will be sent directly to the local escrow/title company, along with the City s instructions for the escrow company. After all escrow and loan conditions have been met, the City funds will be sent to the escrow/title company. The City may need up to 24 hours to remit the funds to escrow. After the documents are recorded with the Stanislaus County Recorder s office, the homebuyer will be able to obtain keys from the seller or realtor. Information for Realtors Regarding Purchase Agreements: The buyer(s) and seller will enter into a standard sales contract, including all required seller disclosures. Terms of the contract are non-negotiable and are as follows: The realtor must attach a copy of the buyer s City of Modesto NSP eligibility certificate to the contract. The sales price will be pre-determined by the City s original appraisal. The buyer s good faith deposit of $500 will be credited towards the buyer s share of the closing costs and the remaining funds must be paid into escrow prior to closing. All funds will be held by the escrow company and applied to costs at closing. Checks will payable to the escrow company. The City will pay up to 50% of the buyer s normal closing costs. NSP2 Homebuyer s Program must be noted under Additional Financing terms on the Purchase Agreement. The seller will provide a termite clearance, not more than 180 days old. The buyer will provide a Home Inspection report to the City. If the home was built prior to 1978, the seller will provide a copy of the lead based paint clearance. The buyer will receive a one year warranty paid by the seller, from Fidelity National Home Warranty. The seller paid cost will be paid through City s NSP financing for the seller. A City approved Title Company should be utilized and when possible utilize the same escrow/title company that was used on the first purchase of the property, resulting in possible cost savings. Because there are two loan approvals, the transaction closing date must be a minimum 45 days after the acceptance of the contract. Any costs paid by or due to the seller/developer for Pest Clearance, will be paid outside of escrow through the City s NSP2 financing for the seller. The Natural Hazard Disclosure will be an allowable seller paid closing cost in escrow. 12

Agents will be eligible for up to 5% commission on the properties. The breakdown is 2.5% for the buyer s agent, 2.5% for the seller s agent or 5% if the agent is representing both parties. If the potential buyer has not already obtained a Certificate, the homebuyer must complete the homebuyer s counseling class within 15 days from the date the purchase agreement is accepted by all parties. This requirement must be included in the purchase agreement. The realtor should submit the purchase agreement and required addendums to the City. Upon receipt of the Purchase Agreement, the City will review it for NSP requirements. The City will notify the realtor(s) if any NSP requirements are not met, and request corrections to the Purchase Agreement. The required addendums are: Buyers, Inspector Advisory Wood Destroying Pest Addendum (if applicable) Agency Disclosure Residential Listing Agreement Disclosure and Consent for Representation of More Than One Buyer or Seller Statewide Buyer and Seller and Advisory. Structural Pest Control Report and Certification Transfer Disclosure Statements Receipt of Environmental Hazards and Earthquake Guide Natural Hazards Disclosure Report and Special Tax Assessment Verification of Property Inspection Any Property Inspections (whole house, fireplace, roof, etc.) Long term Monitoring: The City of Modesto will monitor the borrowers and housing units in an annual basis to ensure adherence to program requirements included, but not limited to the following: 1. Owner occupancy 2. Property tax payment 3. Hazard Insurance Coverage 4. Good standing on primary loans 5. General upkeep of housing units An annual self-certification letter will be sent to the borrower s via return receipt mail. The Buyer will need to provide the City with a copy of at least one utility bill to document owner occupancy. 13

Violations and Penalties: The acceleration clause shall be invoked if the borrower willfully and knowingly makes a false statement or representation, or knowingly fails to disclose a material fact for the purpose of qualifying for the program, or, in completing certifications, affidavits, or recertification documents. The City shall demand full repayment of principal and interest due on the loan, and the conditions of the Affordability Period. Equal Credit Opportunity Act: This NSP Homebuyer s Program will be implemented in ways consistent with the City of Modesto s commitment to Fair Housing. No person shall be excluded from participation in, denied the benefits of, or be subjected to discrimination under the program on the basis of race, color, ancestry, religion, sex, marital status, physical or mental disability (including AIDS and HIV diagnosis), national origin, familial status (children), age, sexual orientation, source of income or other arbitrary reason. Conflict of Interest: In accordance with Title 24, Section 570.611 of the Code of the Federal Regulations, no member of the governing body and no official, employee or agent of the local government, nor any other person who exercises policy or decision-making responsibilities (including members of the loan committee and officers, employees and agents of the loan committee, the administrative agent, contractors and similar agencies) in connection with the planning and implementation of the program shall directly or indirectly be eligible for this program. The applicant(s) will be required to complete and sign the NSP2 Homebuyer s Program Conflict of Interest Form, after a property is selected. 14

Exhibit 1 24 CFR Part 5 ANNUAL INCOME INCLUSIONS AND EXCLUSIONS Part 5 Inclusions This table presents the Part 5 income inclusions as stated in the HUD Technical Guide for Determining Income and Allowances for HOME Program (Third Edition; January 2005). General Category (Last Modified: January 2005) 1. Income from wages, salaries, tips, etc. 2. Business Income 3. Interest & Dividend Income 4. Retirement & Insurance Income 5. Unemployment & Disability Income 6. Welfare Assistance 7. Alimony, Child Support, & Gift Income 8. Armed Forces Income The full amount, before any payroll deductions, of wages and salaries, overtime pay, commissions, fees, tips and bonuses, and other compensation for personal services. The net income from the operation of a business or profession. Expenditures for business expansion or amortization of capital indebtedness shall not be used as deductions in determining net income. An allowance for depreciation of assets used in a business or profession may be deducted, based on straight-line depreciation, as provided in Internal Revenue Service regulations. Any withdrawal of cash or assets from the operation of a business or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by the family. Interest, dividends, and other net income of any kind from real or personal property. Expenditures for amortization of capital indebtedness shall not be used as deductions in determining net income. An allowance for depreciation is permitted only as authorized in number 2 (above). Any withdrawal of cash or assets from an investment will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested by the family. Where the family has net family assets in excess of $5,000, annual income shall include the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate, as determined by HUD. The full amount of periodic amounts received from Social Security, annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts, including a lump-sum amount or prospective monthly amounts for the delayed start of a periodic payment (except for certain exclusions, listed in Income Exclusions, number 14). Payments in lieu of earnings, such as unemployment and disability compensation, worker's compensation and severance pay (except for certain exclusions, listed in Income Exclusions, number 3). Welfare Assistance. Welfare assistance payments made under the Temporary Assistance for Needy Families (TANF) program are included in annual income: Qualify as assistance under the TANF program definition at 45 CFR 260.31; and Are otherwise excluded from the calculation of annual income per 24 CFR 5.609(c). If the welfare assistance payment includes an amount specifically designated for shelter and utilities that is subject to adjustment by the welfare assistance agency in accordance with the actual cost of shelter and utilities, the amount of welfare assistance income to be included as income shall consist of: the amount of the allowance or grant exclusive of the amount specifically designated for shelter or utilities; plus: the maximum amount that the welfare assistance agency could in fact allow the family for shelter and utilities. If the family welfare assistance is reduced from the standard of need by applying a percentage, the amount calculated under 24 CFR 5.609 shall be the amount resulting from one application of the percentage. Periodic and determinable allowances, such as alimony and child support payments, and regular contributions or gifts received from organizations or from persons not residing in the dwelling. All regular pay, special day, and allowances of a member of the Armed Forces (except as provided in number 8 of Income Exclusions). 15

Part 5 exclusions This table presents the Part 5 income exclusions as stated in the HUD Technical Guide for Determining Income and Allowances for HOME Program (Third Edition; January 2005). General Category (Last Modified: January 2005) 1. Income of Children 2. Foster Care Payments 3. Inheritance and Insurance Income 4. Medical Expense Reimbursements 5. Income of Live-in Aides 6. Income from a Disabled Member 7. Student Financial Aid Income from employment of children (including foster children) under the age of 18 years. Payments received for the care of foster children or foster adults (usually persons with disabilities, unrelated to the tenant family, who are unable to live alone). Lump-sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and worker's compensation), capital gains, and settlement for personal or property losses (except for certain exclusions, listed in Income Inclusions, number 5). Amounts received by the family that are specifically for, or in reimbursement of, the cost of medical expenses for any family member. Income of a live-in aide (as defined in 24 CFR5.403). Certain increase in income of a disabled member of qualified families residing in HOME-assisted housing or receiving HOME tenant-based rental assistance (24 CFR 5.671 (a)). The full amount of student financial assistance paid directly to the student or to the educational institution. 8. "Hostile Fire" Pay The special pay to a family member serving in the Armed Forces who is exposed to hostile fire. 9. Self-Sufficiency Program Income a. Amounts received under training programs funded by HUD. b. Amounts received by a person with a disability that are disregarded for a limited time for purposes of Supplemental Security Income eligibility and benefits because they are set side for use under a Plan to Attain Self-Sufficiency (PASS). c. Amounts received by a participant in other publicly assisted programs that are specifically for, or in reimbursement of, out-of-pocket expenses incurred (special equipment, clothing, transportation, childcare, etc.) and which are made solely to allow participation in a specific program. d. Amounts received under a resident service stipend. A resident service stipend is a modest amount (not to exceed $200 per month) received by a resident for performing a service for the PHA or owner, on a part-time basis, that enhances the quality of life in the development. Such services may include, but are not limited to, fire patrol, hall monitoring, lawn maintenance, resident initiatives coordination, and serving s a member of the PHA s governing board. No resident may receive more than one such stipend during the same period of time. e. Incremental earnings and benefits resulting to any family member from participation in qualifying state or local employment training programs (including training not affiliated with a local government) and training of a family member as resident management staff. Amounts excluded by this provision must be received under employment training programs with clearly defined goals and objectives, and are excluded only for the period during which the family member participates in the employment-training program. 10. Gifts Temporary, nonrecurring, or sporadic income (including gifts). 11. Reparation Payments 12. Income from Full-time Students 13. Adoption Assistance Payments 14. Social Security & SSI Income 15. Property Tax Refunds Reparation payments paid by a foreign government pursuant to claims filed under the laws of that government by persons who were persecuted during the Nazi era. Earnings in excess of $480 for each full-time student 18 years old or older (excluding the head of household or spouse). Adoption assistance payments in excess of $480 per adopted child. Deferred periodic amounts from supplemental security income and social security benefits that are received in a lump sum amount or in prospective monthly amounts. Amounts received by the family in the form of refunds or rebates under state or local law for property taxes paid on the dwelling unit. 16. Home Care Amounts paid by a state agency to a family with a member who has a developmental disability 16

Assistance 17. Other Federal Exclusions and is living at home to offset the cost of services and equipment needed to keep this developmentally disabled family member at home. Amounts specifically excluded by any other Federal statute from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under any program to which the exclusions set forth in 24 CFR 5.609(c) apply. A notice will be published in the Federal Register and distributed to housing owners identifying the benefits that qualify for this exclusion. Updates will be published and distributed when necessary. The following is a list of income sources that qualify for that exclusion: The value of the allotment provided to an eligible household under the Food Stamp Act of 1977; Payments to volunteers under the Domestic Volunteer Service Act of 1973 (employment through AmeriCorps, VISTA, Retired Senior Volunteer Program, Foster Grandparents Program, youthful offender incarceration alternatives, senior companions); Payments received under the Alaskan Native Claims Settlement Act; Income derived from the disposition of funds to the Grand River Band of Ottawa Indians; Income derived from certain submarginal land of the United States that is held in trust for certain Indian tribes; Payments or allowances made under the Department of Health and Human Services Low- Income Home Energy Assistance Program. Payments received under the Maine Indian Claims Settlement Act of 1980 (25 U.S.C. 1721); The first $2,000 of per capita shares received from judgment funds awarded by the Indian Claims Commission or the U.S. Claims Court and the interests of individual Indians in trust or restricted lands, including the first $2,000 per year of income received by individual Indians from funds derived from interests held in such trust or restricted lands; Amounts of scholarships funded under Title IV of the Higher Education Act of 1965, including awards under the Federal work-study program or under the Bureau of Indian Affairs student assistance programs; Payments received from programs funded under Title V of the Older Americans Act of 1985 (Green Thumb, Senior Aides, Older American Community Service Employment Program); Payments received on or after January 1, 1989, from the Agent Orange Settlement Fund or any other fund established pursuant to the settlement in the In Re Agent Orange product liability litigation, M.D.L. No. 381 (E.D.N.Y.); Earned income tax credit refund payments received on or after January 1, 1991, including advanced earned income credit payments; The value of any child care provided or arranged (or any amount received as payment for such care or reimbursement for costs incurred for such care) under the Child Care and Development Block Grant Act of 1990; Payments received under programs funded in whole or in part under the Job Training Partnership Act (employment and training programs for Native Americans and migrant and seasonal farm workers, Job Corps, veterans employment programs, state job training programs and career intern programs, AmeriCorps). Payments by the Indians Claims Commission to the Confederated Tribes and Bands of Yakima Indian Nation or the Apache Tribe of Mescalero Reservation; Allowances, earnings, and payments to AmeriCorps participants under the National and Community Services Act of 1990; Any allowance paid under the provisions of 38 U.S.C. 1805 to a child suffering from spina bifida who is the child of a Vietnam veteran; Any amount of crime victim compensation (under the Victims of Crime Act) received through crime victim assistance (or payment or reimbursement of the cost of such assistance) as determined under the Victims of Crime Act because of the commission of a crime against the applicant under the Victims of Crime Act; and Allowances, earnings, and payments to individuals participating in programs under the Workforce Investment Act of 1998. 17

PART 5 ANNUAL INCOME NET FAMILY ASSET INCLUSIONS AND EXCLUSIONS This table presents the Part 5 asset inclusions and exclusions as stated in the HUD Technical Guide for Determining Income and Allowances for HOME Program (Third Edition; January 2005). Statements from 24 CFR Part 5 Last Modified: January 2005 Inclusions 1. Cash held in savings accounts, checking accounts, safe deposit boxes, homes, etc. For savings accounts, use the current balance. For checking accounts, use the average 6-month balance. Assets held in foreign countries are considered assets. 2. Cash value of revocable trusts available to the applicant. 3. Equity in rental property or other capital investments. Equity is the estimated current market value of the asset less the unpaid balance on all loans secured by the asset and all reasonable costs (e.g., broker fees) that would be incurred in selling the asset. Under HOME, equity in the family's primary residence is not considered in the calculation of assets for owner-occupied rehabilitation projects. 4. Cash value of stocks, bonds, Treasury bills, certificates of deposit and money market accounts. 5. Individual retirement, 401(K), and Keogh accounts (even though withdrawal would result in a penalty). 6. Retirement and pension funds. 7. Cash value of life insurance policies available to the individual before death (e.g., surrender value of a whole life or universal life policy). 8. Personal property held as an investment such as gems, jewelry, coin collections, antique cars, etc. 9. Lump sum or one-time receipts, such as inheritances, capital gains, lottery winnings, victim's restitution, insurance settlements and other amounts not intended as periodic payments. 10. Mortgages or deeds of trust held by an applicant. Exclusions 1. Necessary personal property, except as noted in number 8 of Inclusions, such as clothing, furniture, cars and vehicles specially equipped for persons with disabilities. 2. Interest in Indian trust lands. 3. Assets not effectively owned by the applicant. That is, when assets are held in an individual's name, but the assets and any income they earn accrue to the benefit of someone else who is not a member of the household and that other person is responsible for income taxes incurred on income generated by the asset. 4. Equity in cooperatives in which the family lives. 5. Assets not accessible to and that provide no income for the applicant. 6. Term life insurance policies (i.e., where there is no cash value). 7. Assets that are part of an active business. "Business" does not include rental of properties that are held as an investment and not a main occupation. 18

Exhibit 2: Appraisal Guidelines Guidance on NSP Appraisals Voluntary Acquisitions Acquisitions financed with NSP grant funds are subject to the URA and its implementing regulations at 49 CFR Part 24, and the requirements set forth in the NSP Notice that was published in the Federal Register on October 6, 2008. In the case of the City of Modesto resale units, the URA appraisal requirements of 49 CFR 24.103 must be met. The following guidance on appraisals pertains to the applicable voluntary acquisition requirements of 49 CFR 24.101(b) and reflects applicable URA requirements and the NSP requirements, including the URA appraisal requirements of 49 CFR 24.103. 1. If NSP funds were used to acquire a foreclosed upon home or residential property (other than through donation), the grantee must ensure that the purchase price includes a discount from the value established by an appraisal that meets the following requirements: a. The appraisal must meet the URA definition of an appraisal (see 49 CFR 24.2(a)(3) and the five following requirements (see 49 CFR 24.103(a)(2)): i. An adequate description of the physical characteristics of the property being appraised, including items identified as personal property, a statement of the known and observed encumbrances, if any, title information, location, zoning, present use, an analysis of highest and best use, and at least a 5-year sales history of the property. ii. All relevant and reliable approaches to value. If the appraiser uses more than one approach, there shall be an analysis and reconciliation of approaches to value used that is sufficient to support the appraiser's opinion of value. iii. A description of comparable sales, including a description of all relevant physical, legal, and economic factors such as parties to the transaction, source and method of financing, and verification by a party involved in the transaction. iv. A statement of the value of the real property to be acquired and, for a partial acquisition, a statement of the value of the damages and benefits, if any, to the remaining real property, where appropriate. v. The effective date of valuation, date of appraisal, signature, and certification of the appraiser. 19