Community Frameworks encourages a policy or policies that cover all mortgage subsidy sources, not just SHOP, but we require at minimum a Subsidy Policy for SHOP when our revolved SHOP is loaned for mortgage assistance to an eligible buyer. The following is intended as an example of policy and procedure wording to be tailored by SHOP Affiliates to their organizations’ circumstances, i.e. program model, sources, lending terms, etc. An organization operating more than one homeownership program model or multiple mortgage assistance sources may incorporate all into one policy statement with separate sections as needed or develop separate documents. The mandatory policy components are:

1.  SHOP Revolved Funds may only be used to for the benefit of program participants earning 80% of AMI or below.

2.  Maximum mortgage assistance available (per borrower and/or per group)

3.  How mortgage assistance amount is determined (i.e. need basis, front ratio vs. back ratio)

4.  Sources of subsidy available (HOME, SHOP, etc)

5.  Terms (interest rate, recapture or forgiveness, etc)

6.  SHOP mortgage assistance cannot exceed the market value of the lot in any single transaction

7.  Any use of SHOP Revolved Funds for this purpose requires CF concurrence

8.  Mortgage documents associated with SHOP Revolved Funds must be reviewed and approved by CF (this includes any subsequent changes made to already approved mortgage documents)

Mortgage Subsidy Policy and Procedures

[SAMPLE]

Background

______is a 523 Mutual Self Help /Acquisition Rehab / New Construction affordable housing developer, which provides purchase financing assistance to qualified homebuyers in the form of [deferred / forgivable / monthly payment] mortgage loans [or grants]. Applicants seeking homeownership assistance are qualified on a case by case basis and are pulled from a waitlist (or are served on a first come first serve basis, whichever applicable). Supplemental mortgage sources for this program are typically new and/or revolved FHLB, HOME, and SHOP.

Policy

It is critical that every applicant desiring a home have an equal opportunity to qualify for the program and for the purchase of a home regardless of race or color, national origin, religion, gender, familial status, disability, and age. [There are age and child restricted communities and subject to review of those restrictions SHOP may remain an eligible mortgage source]. In order to provide guidance to staff for loan qualification and lending consistency, to assure the equitable distribution of subsidy resources, and to meet the intent of the Fair Housing Act, staff shall become familiar with the Fair Housing Act, the guidelines of each mortgage source, and the policy and procedures herein.

  1. All mortgages shall have clearly defined rates and terms which are to be properly represented on related legal instruments (i.e. Deed of Trust and Promissory Note).
  2. All program and mortgage eligible applicants shall be underwritten to the maximum first mortgage available, with supplemental mortgage assistance provided on a needs basis (gap financing for front-end ratios, except as noted in #7 and #8 below).
  3. *Mortgage assistance may only serve applicants earning 80% of AMI and below.
  4. The maximum total mortgage assistance available to any one applicant shall be defined and consistently applied, based upon our mission and area to be served, and will not exceed an amount that is necessary to try to serve the most number of applicants while meeting the needs or goals of a particular project and/or program.

5.  The maximum total mortgage assistance available to any one applicant shall be approved by the Board of Directors and shall not change without Board approval.

  1. Staff shall determine the total amount of mortgage funding available based upon the number of homes across one or more upcoming projects and document that amount and the total number of applicants to be served, and set-aside or earmark that funding. A project is defined as the number of households/homes to be served over a predetermined time period.
  2. Maximum mortgage exception: Some first mortgage funding sources will conflict with our policy to underwrite to maximum first mortgage. An example of this is USDA-RD 502 RHLP which requires a minimum leverage of 15% or 20%, depending upon the source of funds, to be used to reduce the total loans needed.
  3. Maximum mortgage exception: Some lower mortgage funding sources will conflict with our policy to underwrite to maximum first mortgage. For example from time to time we may receive a Federal Home Loan Bank (FHLB) award or other funding that requires each qualified applicant to receive a predetermined mortgage regardless of whether it is needed to fill a gap between the sales price and the maximum first mortgage determination. We shall include those sources in the maximum mortgage assistance available to any one applicant.
  4. Mortgage terms (interest rate, recapture or forgiveness, etc) should provide clear guidance to the person(s) that must calculate repayment and or forgiveness at the time the mortgage comes due.
  5. In the event net proceeds from the sale of a home are not enough to cover the entire amount of mortgage(s) due and payable, the Note should address what is to take place.
  6. Any use of SHOP Revolved Funds for mortgages must be approved by Community

Frameworks unless it originated from a different source.

  1. New SHOP may not be used as mortgage financing.
  2. Staff shall not make changes to this policy and procedures document, or the Notes and Deeds, without Executive Director approval and concurrence by Community Frameworks.
  3. No applicant shall sign a mortgage Note or Deed without counseling being provided on the critical points of the documents and it shall be recommended to each the right to seek independent counsel prior to signing.

Procedures

Once the set-aside is determined, staff shall use the following guidelines to determine individual subsidy.

  1. All mortgage lending must meet specific funding source requirements.

2.  The maximum total mortgage assistance available to any one applicant (when available and as approved by the Board) shall not exceed $______and is subject to:

  1. If Revolved SHOP, the amount of SHOP funds may not exceed the market value of the lot.

b.  If FHLB…

c.  If HOME…

d.  If etc…

  1. Pre-Screened applicants shall be placed on a waitlist and will be served by
  2. Place on the waitlist
  3. First mortgage eligibility
  4. And if required to meet funder requirements, Very Low Income may be served first
  5. The set-aside for mortgages is to be divided by the total number of units to be covered by the funding; this determines the initial maximum subsidy available to the first family to be qualified.
  6. Any family that would qualify for a home if the maximum total mortgage assistance were available, but does not currently qualify because the initial maximum subsidy is not

enough to fill the gap between the sales price and the first mortgage, shall be placed in a Holding Pool Waitlist in hopes that enough subsidy may become available later in the process to qualify for a home.

  1. After the first family to qualify for a home is determined and their subsidy needed is clear

then the maximum subsidy available to members of the remaining project applicants shall

be recalculated by dividing the remaining set-aside available by the number of remaining

units to determine the a new maximum subsidy available to each remaining family. This

process shall be repeated after each after each additional family qualifies for a home.

  1. At some point the maximum subsidy available to each of the remaining families may be greater than the initial maximum subsidy originally available.
  2. At this point and at succeeding points when the new maximum subsidy available to any applicant is greater than the initial maximum subsidy it is time to go back to the Holding Pool Waitlist to see if any of those applicants, in order of place on the Holding Pool Waitlist, might now qualify and the process shall be repeated after each new family is qualified for a home.
  3. At no time will subsidy be offered to a new applicant that would serve an applicant already on the Holding Pool Waitlist.
  4. Once the predetermined number of units and families are served the process begins anew for a future project.
  5. From time to time there may be mortgage funding left over and in those cases that amount shall be included in the next set-aside.
  6. All mortgage sources shall be clearly identified on each Promissory Note and Deed of Trust.