COUNTY FUND FOR HOUSING

FUNDING POLICIES
August 10, 2010

I. INTRODUCTION

A. Purpose and Overview

1. The County of Sonoma (County) established the County Fund for Housing (CFH) in 2003 to provide financial assistance for the development of affordable housing located within the unincorporated areas of the County. 
2. CFH loans may finance predevelopment, site acquisition, acquisition of existing housing, and construction costs of affordable rental and ownership housing. 
3. For purposes of the CFH, rental housing includes emergency shelter, transitional housing, group homes, and other types of congregate facilities that serve special needs populations identified in Section V.B.I.  Unless otherwise stated in these Policies, for these types of facilities, a bed is considered as a rental unit. 
4. Applications for CFH loans will be accepted and reviewed on a continuous first-come, first-served basis, as long as funds are available. 
5. Projects funded with CFH loans must comply with these Funding Policies, the Sonoma County Community Development Commission Loan Policies, and when used in conjunction with projects approved under Article 89 of the Sonoma County Code, the Sonoma County Affordable Housing Program Homeownership Policies.

B. Authority

1. On July 13, 2010, the Board of Supervisors approved these Funding Policies.  Any requests for exceptions to the Policies would require the approval of the Board of Supervisors.
2. The Executive Director of the Sonoma County Community Development Commission is hereby authorized to accept and process loan applications per the provisions of these Policies and applicable funding source rules, to interpret these Policies, and to administer loans pursuant to the criteria established in these Policies, and in the Sonoma County Community Development Commission Loan Policies (CDC Loan Policies) and the Sonoma County Affordable Housing Program Homeownership Policies. 

C.  Source of Funding

The County Fund for Housing is funded from multiple funding sources, each of which generates additional requirements and standards.  Each CFH loan must comply with the requirements of the underlying funding source in addition to these Funding Policies.

II. ELIGIBLE EXPENSES

A. Predevelopment

1. Eligible predevelopment expenses may include, but are not limited to, costs of state- and federally-mandated tenant and business relocation, architecture and engineering fees, soils testing and other environmental review costs, and project management expenses. 
2. The CFH funds are not available to pay for the applicant’s overhead and general costs of operation or site search costs. 
3. Eligible costs initially paid with the applicant’s own or borrowed funds may be reimbursed with CFH loan proceeds without regard to the date on which they were incurred.
4. The applicant must possess site control or own the site at the time of application.  An executed long-term lease, signed option or purchase agreement or equivalent, legally enforceable instrument may satisfy this requirement.

B. Site Acquisition

1. The applicant may request funds to apply toward site acquisition costs such as purchase agreement deposits, option payments, other site control costs, the purchase price of the site, repayment of the loan(s) that originally financed the purchase of the site (i.e., take- out financing), and other purchase costs such as buyer’s share of closing costs (including holding costs such as liability insurance and prorated property taxes, provided the project is not then currently operational), as long as the purchase price does not exceed the appraised value of the land. 
2. Eligible costs may be reimbursed without regard to the date on which they were incurred.
3. The applicant must possess site control or own the site at the time of application.  An executed long-term lease, signed option or purchase agreement or equivalent, legally enforceable instrument may satisfy this requirement.

C. Construction

1. Eligible construction costs include demolition, on- and off-site improvements, construction of new residential units, non-commercial common structures that are an integral part of a residential development, and rehabilitation of existing multifamily units. 
2. Certain construction soft costs are also eligible, including project management, development impact fees, and building permit fees. 
3. CFH loan proceeds may not be used to pay late or penalty fees or the applicant’s overhead and general costs of operation.
4. Eligible costs may be reimbursed without regard to the date on which they were incurred.       
5. The applicant must possess site control or own the site at the time of application.  An executed long-term lease, signed option or purchase agreement or equivalent, legally enforceable instrument may satisfy this requirement.

III. LOAN TERMS AND CONDITIONS

A. Loan Amount

The CFH will provide low-interest loans to eligible projects.  The minimum loan amount will be $100,000.  The maximum loan amount may not exceed the lesser of 100% of the then current available CFH fund balance or the amount needed for project financial viability.

B. Interest Rate

The fixed interest rate for all CFH loans shall be subject to the CDC Loan Policies. 

C. Proceeds from CFH Loans  

Proceeds from the repayment of CFH loans shall be deposited in the CFH and may be made available to provide financing for new CFH loans for any purpose eligible under these Policies. 

D. Loan Security

All CFH loans shall be “non-recourse” loans secured by real estate pursuant to the provisions of the CDC Loan Policies.

E.  Affordable Housing Agreement – Rental and Ownership Developments

Concurrently with recording of the CFH loan deed of trust, the Commission will record an Affordable Housing Agreement (AHA) with the developer.  The AHA will memorialize the affordability restrictions and other requirements that attach to the CFH loan and shall run with the land.

For ownership developments, the Commission will record the CFH AHA against only the CFH-assisted units.  In the same escrow in which an eligible buyer purchases a CFH-assisted affordable unit, the Commission will record either an affordability covenant or an option agreement with the buyer granting the Commission the first option to purchase the unit at resale for thirty (30) years, and release the unit from the CFH AHA.    

F.   Where the Commission’s Executive Director determines, after consultation with County Counsel, that one or more federal, state and/or local financing programs available to a project will achieve results that are equivalent to, or more effective than, the affordability or other public purpose of the CFH, and that such financing programs are otherwise compatible with the CFH and applicable County and Commission policies and objectives, the Commission’s Executive Director is authorized to modify CFH loan terms and policies to the degree necessary for the project to utilize those financing sources.

“CFH-assisted unit” means a residential unit that is subject to rent or purchase price and occupancy restrictions as a result of the financial assistance provided by the CFH, as specified in the Affordable Housing Agreement.  At a minimum, the percentage of units within a project that are considered to be assisted must be proportionate to the ratio of CFH funds to the Total Development Cost for the project.  

A. Rental Housing

1. Short-Term Loans:    A short-term CFH loan that finances predevelopment or site acquisition costs for rental housing becomes due at the earlier of the closing date of the permanent financing for the development or four years from the date of the CFH loan closing.  A short-term CFH loan that finances construction costs for rental housing becomes due at the earlier of the closing date of the permanent financing for the development or eighteen months from the date of the CFH loan closing.  If an extension is requested, the Commission may extend the due date by up to six months upon receipt of a written and reasonable explanation from the applicant and the applicant’s payment of an extension fee as defined below.
2. Long-Term Loans:    A long-term CFH loan that finances any eligible activity to assist rental housing normally becomes due thirty years from the date of the CFH loan closing, but may be extended to conform to the terms of other lenders.
3. Fees:  The Commission may collect loan origination and modification fees as established by the CDC Loan Policies.
4. Affordability Requirements:  All assisted units in rental developments must remain affordable for a minimum of fifty-five (55) years.

   a.   Income Limits: All CFH-assisted rental units must initially be restricted and affordable to households at or below 60% of median area income (MAI) for Sonoma County as published annually by the United States Department of Housing and Urban Development (HUD).  After initial qualification, a household occupying a 60% unit may have their income increase to 80% MAI.  At least 30% of all CFH-assisted units must be restricted and affordable to households at or below 30% of MAI.

b.   Affordability and Physical Distribution of the Rental Units:  The Commission must approve the affordability mix of the development.  The CFH-assisted units should be distributed by unit size, amenity mix, and income affordability throughout the entire development.
 
c.   CFH-assisted units in the development will be floating units:  Upon recertification of household income, if a household no longer qualifies to occupy a 30% unit, that unit will become 60% unit and the next available CFH-assisted unit shall become a 30% unit.  Upon recertification, if a household no longer qualifies with an income of no more than 80% MAI, the developer may charge that household market rate for that unit, and the next available non-CFH-assisted unit shall designated as a 60% CFH-assisted unit.

d.   Rent Limit Calculation:  The Commission will adhere to the following procedures to calculate the maximum tenant-paid rent for CFH-assisted units:

i.    Assume a household size for the unit equal to the number of bedrooms plus one (e.g., a two-person household size for a one-bedroom unit)

ii.   Obtain from the income limits for Sonoma County that the U.S. Department of Housing and Urban Development (HUD) publishes annually the applicable income limit for the household size.

iii.  Multiply the applicable income limit by 30%.  (Note: for purposes of calculating rent limits for units reserved for tenants with incomes at or below 80% MAI, Commission will use the 60% income limit.)

iv.  Divide the product by 12 to obtain the gross monthly rent limit.

v.  Deduct the appropriate utility allowance as published annually by the Sonoma County Housing Authority from the gross rent limit to determine the maximum tenant-paid rent.

B. Ownership Housing

1. Short-Term Loans:    A short-term CFH loan that finances development of ownership housing will become due at the earlier of four years from the date of the CFH loan closing or the sale of each CFH-assisted unit to an eligible buyer.  When the developer repays the CFH loan as the developer sells the units, the developer shall repay to the CFH an amount equal to the pro-rata share of the principal amount of the CFH loan attributable to the unit being sold, plus a proportionate share of the accrued interest on the CFH loan.
2. Long-Term Loans:    A long-term CFH loan that finances development of affordable ownership housing will convert to deferred payment subordinate loans from the Commission to eligible buyers of the affordable units that are subject to these Funding Policies.  When making deferred payment subordinate loans to both the initial buyers and the subsequent buyers of the affordable units at resale, the Commission shall comply with the requirements of the CDC Loan Policies and, when used in conjunction with a homeownership development approved under Article 89 of the Sonoma County Code, the Sonoma County Affordable Housing Program Homeownership Policies.  The CFH deferred-payment subordinate loan to an eligible buyer shall become due and payable in accordance with the provisions of the Homeownership Policies and the promissory note in evidence of the CFH loan.
3. Fees: 

   a. Upon the close of escrow for the initial sale of each affordable ownership unit subject to the requirements of the CFH Funding Policies, the Commission shall receive from the developer through the escrow an administrative fee, as follows:

   i. $100 for each unit for which the Commission does not  make CFH-financed deferred-payment subordinate loan to the homebuyer;

   ii. $200 for each unit for which  the Commission makes a CFH-financed deferred-payment subordinate loan to the homebuyer

   b. Upon any subsequent resale of the unit, the Commission will receive from the seller an administrative fee equal to a percentage of the affordable sales price; as determined from time to time by the Sonoma County Board of Supervisors; as of August 10, 2010, the percentage is three percent (3.00%).

4.   Affordability Requirements:

a.   Occupancy and Income Limits: CFH-assisted ownership units must be reserved for and sold to first-time homebuyer households at or below 120% of the median area income (MAI) for Sonoma County as published annually by the State Department of Housing and Community Development (HCD).  Further, at least 20% of all CFH-assisted ownership units must be restricted and affordable to households at or below 80% of MAI, adjusted for household size.

For example, to meet the minimum affordability requirements of the CFH program, an ownership development containing 10 CFH-assisted units would have the following affordability profile:

• 20% or 2 of the assisted units restricted and affordable to households at or below 80% MAI, adjusted for household size.
• The balance of the assisted units restricted and affordable to households at or below 120% MAI, adjusted for household size.

b.   Affordable Sales Price Calculation:  The Commission shall calculate the affordable sales prices of CFH-assisted homeownership units using the following assumptions and calculations:

i. Use the interest rate for a fixed-rate, 30-year fully amortized mortgage available to the buyer.

ii. Assume a 10% down payment.

iii. Assign a presumed household size to each unit size. The assumption is that the number of persons in the household equals the number of bedrooms plus one.  For example, one person will occupy a studio, two persons will occupy a one-bedroom unit, three persons will occupy a two-bedroom unit, etc.

iv. Calculate the maximum eligible annual income (low- or moderate-income limit) for the presumed household size and divide the figure by 12 to obtain the maximum monthly income.  Low-income households shall have incomes not exceeding eighty percent (80%) of median income, as published annually by the United States Department of Housing and Urban Development (HUD), adjusted for presumed household size; moderate-income households shall have incomes not exceeding one hundred twenty percent (120%) of median income, as published annually by the California Department of Housing and Community Development (HCD), adjusted for presumed household size.

v. Multiply the maximum monthly income by thirty percent to establish the maximum monthly housing expense.

vi. Subtract the estimated costs of homeowner’s insurance, property taxes, homeowner association dues and private mortgage insurance, if any, to arrive at an amount that would be available for monthly mortgage payments.

V. PROJECT EVALUATION

A.  Guiding Principles

All projects will be evaluated on how well they satisfy the Guiding Principles that the Board adopted on August 13, 2002:

1. Highest priority should be accorded to activities that have the greatest potential to achieve the Quantified Objectives identified in the Housing Element.

2. Special emphasis should be given to increasing the supply of rental housing for low- (80% of MAI or lower) and very low-income (50% of MAI or lower) households and maintaining the long-term affordability of these units.

3. Programs and projects that meet special housing needs should be given a high priority.

4. The County should seek to leverage its limited financial resources with other available funding consistent with these policy guidelines and in ways that will help implement the County’s policies and programs.

B. Priorities

The CFH Program includes the following priorities:

1. Affordable rental projects at risk of becoming market rate housing, serving families, or serving the special needs populations identified in the Housing Element: elderly, disabled, large families, single-parent households, farmworkers, and homeless persons shall be given top priority in receiving funds.

2. Projects building at the maximum density permitted under the Sonoma County General Plan, Zoning Ordinance, and other relevant regulations shall also be given a priority.

3. The County encourages the use of Green Building features.  Priority will also be given to projects with the highest ratings from the “Green Points” rating system established by the Sonoma County Waste Management Agency, or equivalent.

4. Readiness to proceed: projects that appear ready to proceed to the construction and then occupancy stage in a timely fashion will also be provided a priority in the approval consideration process. This can be gauged by the status of land use entitlements as well as the degree to which other funding commitments have been secured.

For each CFH loan, the applicant shall submit a schedule and other information that the Commission may reasonably request supporting the applicant’s ability to demonstrate readiness to proceed.

VI. LOAN APPROVAL PROCESS

A.  Loan Approval

Loans shall be approved pursuant to the provisions of the CDC Loan Policies. 

Once the Commission receives the applicant’s complete application, including demonstration of site control and all required attachments, the Commission shall endeavor to complete the approval process within 90 days, including Board review and approval of the CFH loan and Affordable Housing Agreement to memorialize the affordability requirements attaching to the loan. 

 B. Loan Closing and Disbursement of Funds

Loans to Developers:  The Commission and borrower will close escrow on the CFH Affordable Housing Agreement and the CFH loan in the same escrow and in that order.

Upon receipt of satisfactory documentation from the applicant, the Commission will disburse CFH loan proceeds either to escrow to pay site acquisition costs, to the applicant to reimburse the applicant for site acquisition, predevelopment, and/or construction costs, or upon written instructions from borrower, to pay borrower’s vendors directly upon submission of invoices for completed work in excess of $5,000 for predevelopment and/or construction costs.  For construction costs, the Commission will disburse CFH loan proceeds for construction progress payments that the borrower’s appointed representative has approved as an accurate statement of work completed.

A. Rental Housing

If a CFH-assisted development is subject to monitoring by another agency, such as the California Tax Credit Allocation Committee, the California Housing Finance Agency, the U.S. Department of Housing and Urban Development, and other federal, state or local public agencies, and the other agency’s affordability requirements are the same or more restrictive than the CFH affordability requirements, the borrower may be able to reduce or avoid paying CFH monitoring fees.  Annually, during the term of the affordability period, the borrower will submit evidence of the other agency’s affordability requirements and the development’s compliance with those requirements.  The submitted documentation must be sufficiently detailed for the Commission to confirm whether the CFH-assisted development or units are in compliance with the CFH affordability requirements. 

For all CFH units not subject to the same or more restrictive requirements, or if evidence of another agency’s monitoring is not submitted by the date due to the Commission or is not sufficient for the Commission to monitor compliance with CFH Program affordability requirements, the Commission shall charge the borrower an annual monitoring fee of $25 per monitored unit, or $100 per monitored emergency shelter, transitional housing, group home or other congregate special needs facility.  The developer shall submit annual compliance reports and tenant rosters on forms that the Commission shall provide.  The annual compliance report that the borrower submits to the Commission will include a tenant roster listing household size, income and rent for each tenant in a CFH-assisted unit.  The Commission shall review reports for compliance with the CFH Program requirements, shall require the developer to correct violations of those requirements, and may request additional documentation from the borrower, as the situation dictates.

The Commission may conduct periodic site visits to CFH-assisted developments.  During the visits, Commission representatives may interview the resident manager, review a sample of the on-site tenant files, inspect a sample of the units of varying size and affordability, and tour the common areas and grounds of the development.  The Commission will prepare a written report of each site visit.

B. Ownership Housing

Prior to the initial sale of a CFH-assisted ownership unit, the Commission will approve the income-eligibility and first-time homebuyer status of the purchaser and the affordable sales price and fair market value of the unit.

When the ownership unit is sold under an affordability covenant, or the Commission exercises its option to purchase a CFH-assisted ownership unit at resale, the Commission will approve the income-eligibility and first-time homebuyer status of the new buyer.

The Commission may contract with a third-party contractor to perform these functions.

C. Staff Reporting

Commission staff will submit to the Board of Supervisors an annual progress report on the CFH.  The report will include a narrative report of the activities that the CFH undertook during the previous calendar year, the funds the CFH disbursed during that year, funds available in the CFH at the close of the year, and the developments and units assisted during the year.  The Commission will submit the report for each calendar year to the Board by January 31 of the following year.