TO: Mayor and Members of City Council
THRU: Kelly Olivera, Assistant City Manager
FROM: Christopher Cauley, MPA, Director of Economic and Community Development
Jeffrey Morin, Housing Program Manager
DATE: May 6, 2024
RE:
Title
Down Payment Assistance Program Expansion - Homebuying HERO
end
COUNCIL DISTRICT(S):
Council District(s)
All
b
Relationship To Strategic Plan:
GOAL IV: The City of Fayetteville will be a highly desirable place to live, work and recreate.
• 4.5: To ensure a place for people to live in great neighborhoods
• 4.6: To reduce poverty and homelessness
Executive Summary:
At the March 4, 2024 City Council Work Session, City Council directed staff to explore opportunities to expand the City’s downpayment assistance programs to all local government employees. Staff has conducted a legal analysis, funding requirements, and benchmarked peer cities. City Council is asked to consider the presentation on downpayment assistance and give consensus direction to staff based on recommendations.
Background:
City Council has made great strides in recent years to provide resources to residents aimed at making First Time Homeownership a reality. In 2020 City Council implemented a “Good Neighbor” program to incentivize Law enforcement recruitment and retention by providing $20,000 in financial assistance to purchase a home within one of the City’s target redevelopment areas. In 2021, City Council authorized funding for and subsequently approved the City’s first affordable housing study. This study recommended 14 key strategies to address housing affordability that were adopted by City Council. In 2022, after 12 years without a downpayment program, the City re-established a grant funded program for households under 80% of the Area Median Income (AMI). In that same year, the Good Neighbor program was increased to $30,000 and expanded to all employees in all areas of the City. The Economic and Community Development Department was able to hire dedicated staff and expand the program to households making 120% of the AMI in 2023.
Issues/Analysis:
The City has three current funding sources for downpayment programs, and each one has certain legal limitations to consider:
Good Neighbor Program - Employer sponsored program to incentivize recruitment, retention, and homeownership. The $30,000 in assistance is treated as taxable income for each of the five years that it is forgiven. Council Policy has capped the household income for this program at 140% of the AMI. This program is governed under the broad authority that the City Council possesses to determine the compensation and benefits for City employees. The $30,000 in assistance is provided irrespective of the household’s income and ability to pay a larger or greater amount with their primary mortgage.
Grant Funded Downpayment - Initially funded with the Community Development Block Grant, this program is limited to households earning below 80% of the AMI and requires a 50/50 match. This match is typically provided by the North Carolina Housing Finance Agency in the amount of $15,000. This leaves a potential gap of $5,000 for each homebuyer to contribute through cash, costs paid outside of closing, or seller concessions. This program can be funded with HOME Investment Partnership funds and would no longer require a match per grant regulations. Assistance is provided up to $20,000 based on the homebuyer’s debt-to-income ratio to ensure their primary mortgage is affordable. Some clients have only needed a few thousand in support to close on a home. This program could be increased to $30,000 for qualified public servants such as employees of the Cumberland County Board of County Commissioners, Cumberland County Board of Education, Cape Fear Valley Medical, and other public institutions.
State Funded Downpayment - This program is funded by a one-time grant of $1M from the State’s Capital Infrastructure Funding Program as “seed funding” for a Housing Trust Fund. The program is limited to households earning between 80% and 120% of the AMI and is one of a handful of programs that assist workforce income levels in North Carolina. The program is constructed identically to the above, aside from the higher income allowances. This program can also release the match requirement as it is not statutory in nature. This program could also be increased to $30,000 for qualified public servants such as employees of the Cumberland County Board of County Commissioners, Cumberland County Board of Education, Cape Fear Valley Medical, and other public institutions.
Peer City Comparison - A comparison of peer cities shows that downpayment assistance ranges from up to $10k in Greensboro to $80k in Durham but of the cities surveyed none require a match. Not all cities have a program that spans from 80% to 120% of the AMI.
Workshops and Counseling - The City and other funders work in partnership with Kingdom Community Development Corporation to host monthly workshops at the Fayetteville Technical Community College. These workshops are required to receive downpayment assistance and lead to one-on-one counseling with a HUD certified housing counselor. This program is currently funded by the State’s Capital Infrastructure Funding Program as “seed funding” for a Housing Trust Fund.
Increase in Marketing - The Economic and Community Development Department, along with Marketing and Communications, is recommending a rebranding of this program as the “Homebuying HERO” program. HERO stands for “Homebuyer Education and Readiness Opportunities” to encompass our Workshops, counseling, outreach, and Downpayment Assistance.
Budget Impact:
The City receives an annual allocation of HOME funds that can be utilized for the grant funded program and can be adjusted between programs annually based on demand. The Good Neighbor Program was initially funded with $450,000 and currently has $360,000 available. The State funded program was initially funded with $500,000 of the total $1M and after staff costs has a budget of $404,000 with $370,000 remaining.
Removal of the match and increasing the programs will likely make each program more impactful and more attractive to prospective homebuyers but spend the limited funding much faster especially the State funded program. Ultimately, participation in the program is very hard to estimate due to changes in interest rates, employment rates, credit scores, housing prices, and inventory. Staff is working diligently and proactively to ensure all stakeholders are informed of this program through extensive outreach and marketing.
Options:
Council may elect one or more of the options below:
• Remove the match requirement and increase the amount to $30,000 for public service employees.
• Retain the match requirement but increase the amount.
• Retain the amount but remove the match requirement.
• Remand to staff for additional study.
• Direct staff to some other option.
Recommended Action:
Staff recommends that Council provide consensus to remove the match requirement and increase the amount to $30,000 for public service employees.
Attachments:
Down Payment Assistance Expansion Presentation