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several months. The master agreement will address specific services such as administration of the DPA program. In the meantime, staff will continue to administer the program directly. The four areas of modification listed above are addressed individually in the following section: 1) Eliminate the Co-signer Restriction The DPA program guidelines currently permit borrowers to use a co-signer. However, the co-signer's income must be included in determining program eligibility. This would preclude most applicants from using a co-signer. Staff believes that it would be acceptable to eliminate this restriction except in cases where the DPA program is used in conjunction with specific below-market priced homes that are sold through the Pleasanton Homeownership Assistance Program (PHAP). PHAP homes are typically priced significantly below-market, and the income eligibility restrictions are directly related to the established below-market sales prices for these homes. The unrestricted acceptance of co- signers for these homes would jeopardize the purpose of the PHAP program by creating an unfair advantage for some buyers (i.e., those who have access to co-signers). Therefore, staff recommends retaining the existing language for persons purchasing PHAP homes but increasing the flexibility for persons using the DPA program to purchase homes on the open market. In the latter case, the assistance of a co-signer (without including the co-signer's income in determining program eligibility) may be necessary and desirable in order to afford the cost of a typical market-rate home. 2) Extend Loan Term The program guidelines currently establish a 20-year loan term for DPA loans. As discussed earlier, the actual structure consists of two loans split into two 10-year terms, the second of which is deferred for the first 10 years. Amortized payments on the first 10-year loan begin as soon as the loan is closed. Keeping the first loan to a 10-year term is significant because the HELP funds that have been allocated to the City from Ca1HFA are actually in the form of a 10-year loan at 3.5% (hence, the City is actually loaning the Ca1HFA funds to DPA borrowers based on the same terms for which Ca1HFA is loaning the funds to the City). If the loan term is extended beyond 10 years, then the City will be required to absorb the loan costs after the original Ca1HFA funds are required to be paid back to Ca1HFA (i.e., at the end of the 10-year period from which the funds were first allocated by Ca1HFA). The second 10-year loan is funded through the City's "matching fund" (i.e., the Lower Income Housing Fund); therefore, there is no concern for paying back funds to Ca1HFA. In order to make the program more desirable and beneficial for borrowers, the Commission could consider deferring all payments with no accrued interest for the first two years of the Page - 4 -