Report Prepared by: Kimberly Nutt, Housing Program Supervisor, with Dawn Mendonca, Housing Specialist, Housing Division/Development Services Department
Title
SUBJECT: Approval of First Amendment to the Subrecipient Agreement with Self-Help Enterprises for Administration of State of California Department of Housing and Community Development (HCD) CalHome 2021 Programs; and, Acceptance of the Revisions to CalHome 2021 Guideline Documents for the Homebuyer Acquisition Only, Owner-Occupied Rehabilitation, and Owner-Occupied ADU/JADU Programs
REPORT IN BRIEF
Considers approving of the First Amendment to the City of Merced Subrecipient Agreement with Self-Help Enterprises with corrections to align with the HCD CalHome 2021 Standard Agreement; and, considers acceptance of necessary revisions to the program guideline documents for each of the three programs administered by Self-Help Enterprises on behalf of the City (First Time Homebuyer, Owner Occupied Rehabilitation, and Owner-Occupied ADU/JADU construction) to increase the maximum loan amounts to reflect the changes published by HCD in 2024.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving the First Amendment to the City of Merced Subrecipient Agreement with Self Help Enterprises, modifying the program funding details to correctly align with Exhibit E of the executed HCD CalHome 2021 Standard Agreement; and,
B. Approving the Revised CalHome 2021 First-Time Homebuyer Assistance Program Guidelines to match the HCD updated Guidelines; and,
C. Approving the Revised CalHome 2021 Owner-Occupied ADU/JADU’s Program Guidelines to match the HCD updated Guidelines; and,
D. Approving the Revised CalHome 2021 Owner-Occupied Rehabilitation Program Guidelines to match the HCD updated Guidelines; and,
E. Authorizing the City Manager to execute all documents, amendments, or agreements necessary to complete the grant activities stipulated in the 2021 CalHome Standard Agreement #21-CALHOME-17112.
Body
ALTERNATIVES
1. Approve, as recommended by staff; or,
2. Approve, with modifications; or,
3. Deny the request completely; or,
4. Refer to staff for reconsideration of specific items as requested by Council; or,
5. Continue to a future City Council meeting (date and time to be specified in the motion).
AUTHORITY
Charter of the City of Merced, Section 200.
CITY COUNCIL PRIORITIES
Fiscal Year 2024/25 Adopted Goals and Priorities, Affordable Housing and Homelessness.
DISCUSSION
Background and Timeline
Self-Help Enterprises administratively manages the CalHome 2021 program for the City of Merced. The program consists of the following:
1. First-Time Homebuyer Assistance Program - assists income eligible households citywide with down payment, closing cost, and gap financing assistance that ensures a first-time homebuyer’s mortgage payments are affordable.
2. Housing Rehabilitation Program - assists with financing to repair income eligible, owner-occupied homes in need of essential health and/or safety repairs. Common home repairs include but are not limited to roofing, plumbing, electrical, heating, cooling, insulation, foundation, windows, and handicap accessible modifications.
3. ADU/JDU Program - assists with the provision of financing to income eligible households for the construction, reconstruction, repair, conversion or rehabilitation of secondary units located on the owner-occupied property.
In September 2021, the State of California’s Housing and Community Development Department (HCD) announced the availability of new CalHome Program funding, with an application deadline of November 22 of that year (Attachment 3). Earlier that Spring, the City had opened a continuous Request for Qualification (RFQ) through the Purchasing Department to be able to pre-qualify a variety of potential housing development partners that could then be quickly partnered with to apply for new funding such as the CalHome opportunity.
Self-Help Enterprises is a versatile housing developer based in Visalia and had been pre-qualified as part of the RFQ. Self-Help builds new housing as an owner and is also experienced with helping other governmental agencies run successful homebuyer and rehabilitation programs with HCD-issued funding. Applications for CalHome funding are competitive and generally more successful when partnering with experienced subrecipients like Self-Help.
The Director of Development Services and Housing Division staff subsequently met with Self-Help, developed a draft subrecipient agreement, and received Council approval on November 15, 2021, of the draft agreement and for permission to submit an application package to HCD, to request a total of $2.5 million for the CalHome deadline the following week.
The approved and executed original Subrecipient Agreement with Self-Help Enterprises (Attachment 1) included Exhibits A-1 through A-3 and a summary table at Exhibit B-1 which listed the approved types of activities and dollar amounts that would be administered by and reimbursed to Self-Help, contingent on an HCD award.
The City was notified in April 2022 by HCD that the requested $2.5 million of CalHome funds would be awarded, and the Standard Agreement between the City and HCD (Attachment 2) was fully executed In October 2022. Exhibit E of the HCD Standard Agreement lists the specific amounts that were awarded for each activity type.
It should be noted that administrative costs that are referenced in the stated Subrecipient Agreement exhibits were later approved by City Council to be paid from the Housing Successor Agency LMI Asset Fund and are not involved in this amendment.
Necessary Corrections:
Subrecipient Agreement
Because the Subrecipient Agreement with Self-Help was executed prior to the actual HCD award and subsequent Standard Agreement, there was not a definite guarantee that HCD would award each activity type at the exact amounts that the City and Self-Help had agreed upon and applied for.
Unfortunately, there are discrepancies between the agreements, and the City/Self-Help Subrecipient Agreement now needs to be amended to adjust Exhibits A-1, A-2, A-3, and the summary table at Exhibit B-1 to match the actual amounts awarded by HCD.
The amounts involved and necessary amendments are as follows:
|
Currently: Subrecipient Agreement (Exhibits A-1, A-2, A-3, and B-1 summary table): |
|
Activity Type |
Amount |
|
First Time Homebuyer Mortgage Assistance (A-1) |
$ 1,000,000 |
|
Owner Occupied ADU/JDU Program (A-2) |
$ 250,000 |
|
Owner Occupied Housing Rehabilitation (A-3) |
$ 1,250,000 |
|
Amend to Match: HCD Standard Agreement #21-CALHOME-17112 (Exhibit E) |
|
First Time Homebuyer Mortgage Assistance |
$ 1,125,000 |
|
Owner Occupied Rehabilitation Program with or without ADU/JDUs |
$ 1,375,000 |
|
Total CalHome 2021 HCD Award = $ 2,500,000 |
Each of the above-referenced exhibits in the current agreement with Self-Help will be replaced by new exhibits of the same name in the “Draft First Amendment to City of Merced Subrecipient Agreement” (Attachment 8).
Program Activity Guideline Documents
On May 30, 2024, HCD issued Administrative Notice No. 24-02 (Attachment 4 - see page 6 for relevant language), which gave notice to CalHome (and other HCD fund) awardees that HCD had been authorized to amend the initial program requirements and guidelines that had previously been issued by the Department.
Notice 24-02 makes changes to Article II (Program Requirements) Section D (Funding Amounts and Limits) of the original NOFA that was issued in September of 2021 (Attachment 3 - see page 7). The Notice essentially increases the maximum loan amounts that borrowers can obtain for each of the activity types.
The CalHome-assisted loan funds fill the “gap” between a low- to moderate-income homebuyer’s ability to buy a home that suits their needs and what a first mortgage is limited to with their lower income. The CalHome loan is subordinated to second in line behind the first mortgage that the buyers obtain from a typical mortgage company of their choosing. Once the homebuyer begins making payments on the CalHome loan, these payments come back to the City and eventually are re-used into new FTHB loans for new buyers.
Each activity type has its own guidelines to follow. Accordingly, each guideline document has been revised as follows (changes in italics):
First Time Homebuyer Activities (Attachment 5):
The maximum loan amount by an award recipient to an eligible Borrower for First-Time Homebuyer Assistance will be 40% of the Borrower’s purchase price for the property, up to a maximum of $200,000 [previously $100,000]. For Mortgage Assistance provided as part of a Homeownership Development Project Loan, the maximum Loan amount to a Borrower will be 40 percent of the Borrower’s purchase price for the property, up to a maximum of $250,000. The minimum Loan to a Borrower will be not less than $1,000.
Owner Occupied ADU/JADU Activities (Attachment 6):
The maximum Loan amount by an award recipient to an eligible Borrower for ADU/JADU construction will be $250,000 [previously $100,000]. The minimum Loan to a Borrower will be not less than $1,000.
Owner Occupied Rehabilitation Activities (Attachment 7):
The maximum Loan amount by an award recipient to an eligible Borrower for the Owner-Occupied Rehabilitation Program will be $200,000 [previously $100,000], unless the home is in need of reconstruction. If the home is in need of reconstruction, the maximum Loan amount will be $250,000 [previously $150,000]. The minimum Loan to a Borrower will be not less than $1,000.
Housing Division staff has worked closely and diligently over the past year with both Self-Help Enterprises and HCD to coordinate and receive HCD pre-approval on these changes.
HCD’s maximum loan amount increases are fantastic news for potential program applicants, especially in light of the increased costs of homes and construction materials. Self-Help Enterprises is currently assisting one such client, who is waiting for these revised guidelines to be approved so that they can sign final loan documents with the (pending) increased maximum amounts.
IMPACT ON CITY RESOURCES
No appropriation or adjustment of the total amount of HCD CalHome 2021 funds is needed.
However, there may be budget adjustments needed within the same fund to correct activity type subtotals to accurately align with those in the HCD Standard Agreement. Interfund budget adjustments can be approved by the City Manager.
ATTACHMENTS
1. Executed Subrecipient Agreement with Self-Help Enterprises
2. Executed HCD Standard Agreement 21-CALHOME-171122
3. September 2021 CalHome Program NOFA
4. HCD Administrative Notice No. 24-02 “Notice of Program Guideline Amendments”
5. Revised CalHome 2021 Homebuyer Program Guidelines
6. Revised CalHome 2021 Owner-Occupied ADU/JADU Program Guidelines
7. Revised CalHome 2021 Owner-Occupied Housing Rehabilitation Guidelines
8. Draft - First Amendment to City of Merced Subrecipient Agreement (Self-Help Enterprises)