American Dream Downpayment Initiative (ADDI)

ADDI Basics  American Dream Downpayment Act (PL ) 12/16/03 - $86.9 million appropriated for FY2004  Consolidated Appropriations Act (PL 108-7) 2/20/03 – appropriated $74.5 million for FY2003  Some requirements differ for FY2003 & FY2004 ADDI funds

ADDI Basics Cont.  Dedicated source of homeownership funds  Limits assistance to first-time homebuyers  Limits subsidy amount but allows blending with HOME funds  Requires housing counseling plan  Requires outreach plan to underserved populations

FY FY2007 Formula  Based on percentage of rental housing occupied by low-income households (State & local PJs)  Local PJs must have either: Population of 150,000 or Receive an allocation of $50,000 or more  Non-qualifying PJs’ allocations revert to State pool of funds  Puerto Rico and its local PJs are excluded

FY2003 Formula  Same as FY2004 – FY2007 formula except: State and local PJs must have demonstrated prior commitment to homeownership Puerto Rico and its local PJs are included

Consolidated Plan Requirements  Must address use of ADDI funds in 2004 Consolidated Plan or amendment to the 2004 Plan  Action Plan must include: Description of planned use of ADDI funds Plan for targeted outreach to residents and tenants of public and manufactured housing Description of actions taken to ensure suitability of families receiving ADDI assistance to undertake and maintain homeownership

Eligible Households  Low-income At or below 80% of area median income  First-time homebuyer Individual and his/her spouse who has not owned a home during the most recent 3-year period Exceptions for: Displaced homemaker Single parent

Displaced Homemaker  May not be excluded on the basis that the individual, while a homemaker, owned a home with his or her spouse or resided in a home owned by the spouse Adult Not worked full-time, full-year for a number of years but during such years worked primarily without remuneration to care for the home & family AND Is unemployed or underemployed and experiencing difficulty in obtaining or upgrading employment

Single Parent  May not be excluded on the basis that the individual, while married owned a home with his or her spouse or lived in a home owned by the spouse Is unmarried or legally separated from a spouse AND Has one or more minor children with custody or joint custody OR Is pregnant

Homeownership  Fee Simple Title  99-Year Leasehold Agreement  Other equivalent form of ownership approved by HUD  Cooperative or mutual housing projects that constitute homeownership under State law

Eligible Properties  Single-family units (1 - 4 unit dwellings)  Condominium units  Cooperative units  Manufactured housing with lot  Manufactured housing lot

Eligible Activities  Downpayment assistance  Rehabilitation completed in conjunction with the home purchase assisted with ADDI funds (Except for FY2003 ADDI funds)

Eligible Costs  Acquisition Costs  Rehabilitation Costs (Except for FY2003 ADDI funds) Cap is 20% of PJ’s ADDI FY formula allocation  Related soft costs Reasonable & necessary costs incurred by homebuyer or PJ and associated with the acquisition/rehab. project

Related Soft Costs  Processing & settlement costs  Private lender origination fees  Credit reports  Title fees  Recording fees  Appraisal fees  Attorney fees

Related Soft Costs Cont.  Professional services (e.g., A&E, spec. writing)  Information services to prospective homeowners  Project delivery costs directly related to carrying out the project (but not admin. costs)  Project specific environmental costs

Ineligible Costs  Administrative Costs  Development hard and soft costs for new construction  Costs related to rental housing  Rental assistance

Property Standards  Acquisition only All applicable State & local housing quality standards and code requirements If no such standard exists use § (HQS)

Property Standards Cont.  Acquisition/Rehabilitation Applicable local codes, rehabilitation standards, ordinances and zoning ordinances. Must have written rehab. standards If no local standard, one of three model codes  All projects must comply with the lead-based paint requirements of Part 35

Forms of Investment  Grants  Interest bearing & non-interest bearing loans  Interest subsidies  Deferred payment loans  Other forms of investment approved by HUD

ADDI Subsidy Amounts  $1,000 Minimum HOME + ADDI investment  Maximum ADDI investment (Except for FY2003 ADDI funds) is greater of: 6% of purchase price $10,000  Total HOME + ADDI investment cannot exceed FHA 221(d)(3) limits for non-profit elevator construction

Affordability, Value, Residency  Acquisition Only – purchase price cannot exceed 95% of area median purchase price  Acquisition/Rehab. – post rehab. value cannot exceed 95% of area median purchase price  Primary residence requirement

Periods of Affordability  Based upon total ADDI + HOME investment Homeownership assistance HOME/ADDI amount per-unit Minimum period of affordability Under $15,0005 Years $15,000 to $40,00010 Years Over $40,00015 Years

Long-term Affordability  Affordability is typically assured through the PJ’s use of deed restrictions and/or covenants running with the land  PJ must impose one of two options to ensure affordability: Resale Recapture

Resale  Requires resale of unit to low-income household  Affordability period based on total HOME + ADDI investment  PJ must ensure the sales price allows: Home to remain affordable to reasonable range of low- income homebuyers Seller to receive fair return on investment  Affordability period continues with new owner  Presumption available based upon market study

Recapture  Subsidy recapture options Recapture the entire amount Reduce over period of affordability Shared net proceeds Owner investment returned first  Amount subject to recapture = direct subsidy HOME/ADDI funds that enabled homebuyer purchase Funds reducing the purchase price from fair market value  If no direct subsidy, resale must be used

Limitation on Subs/Contractors  PJ may not provide ADDI funds to any entity that provides downpayment assistance if the activities of the entity are financed in whole or in part directly or indirectly by contributions, service fees, or other payments from sellers of housing

Repayment & Program Income  Repayment in cases of noncompliance  Repayment for non-completion  ADDI program income is considered HOME program income and must be used accordingly

Other Requirements  Match is not required (Except for FY2003 ADDI funds)  URA is not applicable (Except for FY2003 ADDI funds)  Other cross-cutting Federal requirements apply to ADDI unless specifically excluded by statute

American Dream Downpayment Initiative (ADDI)