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BACKGROUND The City has worked with housing developers since 1992 to offer homes at below- market prices to first-time buyers in Pleasanton. Starting with the Nolan Farm development in 2001, the City provided second mortgage loans to eligible low and very low income buyers to promote affordability and facilitate the purchase process. The majority of second mortgage loans were provided to buyers of the below-market prices homes that were developed on the Bernal property in 2001 through 2005. In 2004 the City also introduced a Down Payment Assistance (DPA) program and has provided loans to four buyers since inception. To date the City has provided a total of 44 second mortgage loans. These loans were funded primarily through the City's Lower Income Housing Fund (LINE) which is derived from the payment of the in-lieu Lower Income Housing Fee by developers of new residential and commercial projects. (The four DPA program loans are also funded with matching funds provided by the California Housing Finance Agency, or CaIHFA.) The typical loan amount is approximately $20,000, and payments on the loans have generally been deferred for the first five years. During the past year, borrowers began making payments on the first eight loans that were issued. The majority of the remaining loans are scheduled to begin payments over the next three years (10 more in 2007; 9 in 2008; 13 in 2009). In addition, the City anticipates providing as many as 10 new loans through the DPA program during the coming year as projects such as the below-market priced Birch Terrace townhomes move forward. Payments on the DPA loans are not deferred and begin as soon as the loans are issued. DISCUSSION The staff of the City's Finance Department has been providing loan servicing on the first eight loans for which payments have already begun. However, as the administrative function for this program is anticipated to expand, staff has found that it would be more efficient and cost effective to seek consultant services to administer the loan program. The regular monthly housing loan payments will continue as before with Fremont Bank assuming responsibility for invoicing, collection and delinquency notices. Fremont Bank will initiate services with new borrowers as each loan comes on line. The fee paid to Fremont Bank to administer each loan ($60 annual fee per loan) is considerably less than the staff cost currently devoted to the process. This fee would be paid by the City and would not be passed on to the borrower. Therefore, there would be no negative impacts on the borrowers; indeed, staff anticipates that Fremont Bank will be able to provide a higher level of customer service due to its expertise in loan servicing. As the City's loan program continues to expand, a financial institution with loan administration expertise is better suited to provide the customer service necessary to Page 2 of 3