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The DPA loan bridges the gap between a minimum down payment (usually 3%) and the amount of the primary mortgage a buyer can afford. The funds loaned through the DPA program are at a very favorable interest rate of 3.5%. Each loan is "partially deferred," i.e., split into two separate loans, one of which runs for the first ten years and one the second ten years. This reduces the payment that is included in the buyer's initial qualifying ratio, thereby reducing the housing cost and/or providing greater "buying power." An example of the positive impact of the DPA program is shown below (the figures used in the example represent a typical moderate income household of four persons at 120% AMI): Without With DPA Loan DPA Loan Annual household income exam le $99,000 $99,000 Max. monthly income available for housing costs $3,300 $3,600 PITI + debt; based on 45%debt-to-income ratio Maximum house sales price $400,000 $435,000 assumes 3% down a ment; 30 ear axed rate loan at 6.5% The example shown above is very simplified and is based on a specific set of assumptions (e.g., a DPA loan in the amount of $60,000 split into two loans of $30,000 each, one of which is deferred for 10 years). However, the example illustrates the approximate increase in buying power (roughly $35,000) if a borrower benefits from a DPA loan. Alternatively, the buyer may choose to keep the price of the home at an affordable level (e.g., $400,000) and enjoy a lower monthly housing payment that would be reduced by approximately $300. Proposed Program Modifications In its action at the April 17 meeting, the City Council directed staff to pursue Option C (see page 5 of the attached staff report). In addition to providing interim funding to the program (pending word on the Ca1HFA application), Option C identified several potential areas in which changes could be made to the DPA program: 1. Eliminate the existing provision preventing co-signers 2. Extend the loan term beyond 20 years 3. Increase the maximum loan amount(s) 4. Remove the first-time buyer restriction The Council also discussed transferring the administration of the DPA program to the Tri-Valley Housing Opportunity Center (TVHOC). Staff has had preliminary discussions with the TVHOC regarding this matter. We are in the process of formulating a "master agreement" for services with the TVHOC and will be bringing this back to the Commission for review within the next Page-3-