COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Office of Housing

DATE:

December 29, 2004

BOARD MEETING DATE:

January 11, 2005

SPECIAL NOTICE/HEARING

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

Maureen Borland, Director, Human Services Agency

Steve Cervantes, Director, Office of Housing

SUBJECT:

Resolution Authorizing an Increase from $20,000 to $75,000 for the Revolving Fund Established to Cover Costs Associated with Foreclosure of Properties where San Mateo County Housing Rehabilitation Loan Funds or First-Time Homebuyer Loan Funds are at Risk

Recommendation:

Adopt a resolution authorizing:

1.

An increase from $20,000 to $75,000 for the revolving fund established to cover costs associated with foreclosure of properties where San Mateo County housing rehabilitation loan funds or first-time homebuyer loan funds are at risk; and

2.

The Director of San Mateo County Office of Housing to utilize these funds to cure defaults of senior mortgages and protect the County’s junior deeds of trust on properties where it has provided housing rehabilitation loan funds or first-time homebuyer funds.

Vision Alignment:

Commitment: Offer a full range of housing choices.

Goal 9: Housing exists for all people at all income levels and for all generations of families.

This action contributes to this goal by ensuring that the County will be able to prevent the loss of housing rehabilitation and first-time homebuyer funds through foreclosure by senior mortgage holders, thereby ensuring the availability of these funds to be re-loaned to other lower income homeowners and first-time homebuyers.

Background

The County Office of Housing offers housing rehabilitation and first-time homebuyer loans to qualifying households. The loans are secured by junior deeds of trust recorded against the property. Occasionally, situations arise where the property owner becomes delinquent on their senior mortgage and the lender initiates foreclosure proceedings. In the event of such a mortgage foreclosure, the County funds would be at risk since foreclosure sale prices are often inadequate to retire all of the debt recorded against the property including the Office of Housing loan.

In 1996, the Board of Supervisors authorized the establishment of a revolving fund, using Office of Housing program income that could be used to cure the default on a senior mortgage thereby forestalling the foreclosure proceedings initiated by the senior lender. After curing the first mortgage default, the County would immediately initiate its own foreclosure process. Since the Office of Housing would then be in charge of the timing of the foreclosure process, it would have the opportunity to work with the homeowner to prevent ultimate loss of the home. However, should the County-initiated foreclosure process proceed to the final stage, the property would be sold and the proceeds would revert to the County; the new buyer would assume responsibility for repayment of the first lender. Because the County would set the initial price, it would increase the likelihood that its loan funds would be recaptured with a minimum cash outlay.

Discussion

The amount of funds necessary to cure a default has increased dramatically because the cost of homes has gone up so much since 1996. Often the senior lender does not start foreclosure proceedings until the loan is many months delinquent resulting in significantly higher delinquencies and fees accruing before we are even notified of the default.

All costs to San Mateo County for curing the senior mortgage defaults would be repaid to the foreclosure fund when the County’s junior mortgage foreclosure is completed or the homeowner is able to cure the default through the County. This would make the funds available for additional use as necessary. The recommended amount is based on the assumption that, as our loan portfolio grows, there could be multiple defaults occurring in the same time period. The source of funds for the revolving fund is a set-aside of program income generated by the Office of Housing.

County Counsel has reviewed and approved the Resolution as to form.

Fiscal Impact

There are no General Funds used in this activity. The proposed funding source is program income generated by the San Mateo County Office of Housing. As a revolving fund, the foreclosure account does not represent a permanent draw down of money.