Travis County Commssioners Court
February 17, 2004
The Closed Caption log for this Commissioners Court agenda item is provided by Travis County Internet Services. Since this file is derived from the Closed Captions created during live cablecasts, there are occasional spelling and grammatical errors. This Closed Caption log is not an official record the Commissioners Court Meeting and cannot be relied on for official purposes. For official records please contact the County Clerk at (512) 854-4722.
Item 32
32. Authorize working group to move forward in the development of a single family lease purchase program for the housing authority of Travis County.
>> good morning, judge. Members of the Commissioners court. My name is wylie hopkins, the executive director of the housing authority of Travis County. Good morning, to you.
>> good morning. We are participating -- we are anticipating mr. Cliff blunt to be joining us. I want to introduce to you to my immediate right guy bragoon a vice-president with george k. Balm investments group. Keith holtpower the director of housing development for the housing authority of Travis County.
>> good morning.
>> coming before you this morning as stated in the item 32, to move forward authorizing -- authorizing us to move forward with a working group to develop a single family lease to purchase or lease to own program within Travis County. Mr. Guy bragoon has had significant experience in doing this in other communities, in other states and mr. Blunt and mr. Pat patillo has given us direction in forming this lease to own program. We feel that we have done significant studies that will augment the implementation of this program in Travis County. And we would like to at this time field any question that's you might have regarding how we propose to move forward on this matter.
>> you may want to, for the record, in Travis County residents, just briefly describe what your proposal is.
>> mr. Blunt has just come understand joined us -- come in and joined us.
>> describe briefly what the program is about, somebody needs to do that. Anybody.
>> the lease/purchase program is a program whereby people who historically have either felt that they did not qualify for home ownership or reasons of their credit situation or the ability to come up with the amount of down payment necessary to -- to take home ownership can do so. And through this program, the housing authority would purchase homes on behalf of the participants in the program and at the same time we would execute a lease of up to 39 months with the -- with those participants. During those 39 months, the -- the participant would -- would undergo home buyer counseling, credit education, they would also go through a process of cleaning up any outstanding credit items in their credit history. With the idea being that at the end of the lease period that they are not in a position where they have to take subprime loans in order to become homeowners, they can participate in market rate or virtually market rate financing without having to come out of pocket with a large sum of funds in order to become homeowners. There's a significant amount of down payment and closing cost assistance that are part of this issue, seven points to be exact. So that's a real opportunity for people to -- to take advantage of -- of this program without it being a drain on them financially. As they move toward home ownership.
>> during our discussion in my office, I have requested basically information pertaining to the one or two locations where successful programs like this have been implemented. Did I not receive that or --
>> you have not received that yet much one of the things that mr. Bragoon would like to this morning is some information with regard to that, he will follow up by providing additional information to you.
>> yes, sir, my apologies for the miscomun indication. I did not understand that you needed that in writing. You are right in assuming there are two successful programs of the 19 or so throughout the country that have been done in the last five or six years. It was created as a down payment assistance program actually in the mid 90s. Several forms came into being. Then constantly it was -- it was retooled to provide folks who had credit challenges in their past an opportunity to attain home ownership. So having said that, we have gone about the business of putting this in place in those areas that -- that actually are plagued by those certain challenges. One area is tucson, hazard. That is -- tucson, arizona, that is absolutely the most abused subprime lending area in the country. Followed by phoenix and areas in southern california. The second program admittedly I'm not involved in the program in california right now, however the program administrator that is coming to serve in the Travis County transaction has been involved with that one since its inception. To date they have put some 300 homes on the ground successfully, transitioned those folks through the lease period, provided them the education, required the follow-up necessary to help them deal with their financial matters responsibly in preparation for assuming those homes. In tucson, two years of the origination period as opposed to the six years they've had benefit of in southern california. We have about 40 loans on the ground. It would actually -- I will admit that it is such an undertaen taking that we spent about 12 months trying to -- to market effectively in that area and we have learned from those mistakes and constantly are prepared to put those marketing efforts on the ground in -- education efforts on the grounds, well in advance of actually making the proceeds available so we didn't burn precious time with respect to originating the proceeds. That being said, we got another 40 loans in the pipe pipeline. The original appears operation was about 200 loans. Two year origination period it set to expire at the end of next month. The issuer, pima decided to extend the origination period for another year based on the fact that we were late to get origination going, but we have been successful nonetheless as evidenced by the pipeline the number of transactions we can close in the next six months. We were pleased by that obvious limit there were numerous success stories with respect to the individual participants in the program. I would be more than happy to provide that information to you. One thing that we do is try to make great use of the media in those respective areas that we do these programs such that we have developed relationships with the local newspapers and it our practice when we see -- an especially poignant human interest story to share that with the newspaper. They have been kind enough to cover these stories. So we can provide you with those media clippings as well to give you insight of how folks have benefited in the program, in tucson particularly.
>> what size was the issue in tucson.
>> $25 million transaction.
>> $23 million was established for the -- I'm sorry, was dedicated to the acquisition fund on behalf of the authority who would then bite properties. The other 3 -- then buy the properties. The other $3 million was for down payment, closing cost assistance as well as reserve funds to ensure that the issuer had money to cover any unforeseen circumstances related to the program.
>> okay. Tucson 40 loans in the pipeline but none of them done.
>> no, sir, I'm sorry. Just -- we have 38 loans on the ground currently. We have another 40 loans in the pipeline.
>> and the vision is a total of how many?
>> I'm sorry, one more time, please.
>> the vision in tucson is how many?
>> estimated acquisition price on those homes is somewhere around 120 to $140,000 and so we anticipated some 200 units or 200 families to be serviced through the program.
>> how long would it take you to get to 200.
>> we anticipated it would take us two years. We have again -- two years into the origination period and have another year worth of origination, fully anticipate based on the success that we've had recently that we will be able to expand the proceeds. By March of '05 we anticipate having all 200 units on the ground and folks in lease agreements such that they will be assuming over the next two to three year period.
>> two or three years from now will give you a total of how many years.
>> a little different than the typical single family transaction in that we have an origination period such that we in this case originate the loans on behalf of the authority. And then enter into lease agreements which will be in place for as long as another 39 months beyond the ocialg nation date. Origination date. So each home is on the ground for some three years before it's actually owned by the lessee participant. Okay. So [indiscernible] million dollars is what I heard.
>> that's correct. We originally were talking about that amount but then -- it may be between 25 and $30 million.
>> if I may speak to that. The intent toys do a transaction that is reasonably sized. If you will. We've had great response from the lepders that we have talked with, the builders that we have talked with, the realtors, all along the way, the last 18 months that we have been talking with folks, they have all asked us why we wouldn't want to do a transaction twice that size. We simply said to them our intent toys do this the -- toys do this right the first time. If need be we will go back and do it again. The idea would be to serve another 200 families here in Travis County and surrounds. Then again based on the success of that, determine whether it's wise to go back and do another deal.
>> the goal toys do 200 families? -- the goal is to do 200 family.
>> yes, sir.
>> what makes you think that we will get 200 families that actually qualified and wish to participate?
>> well, cursory review of simple information, homeowners disclosure act information, subtle that several times that number of folks are denied annually as recent as 2002, which is the most recent available information. I would suggest that folks are denied for lack of down payment and closing cost assistance as well as insufficient credit. Those numbers alone again it's a cursory review, would suggest that we could service somewhere between 800 and a thousand families. Drilling down obviously in talking with some of the folks in this area who I have experienced, ie lenders, realtors, builders, who actually deal with the client, have suggested that they see this client every day of the week several times over. Having said that we have come up short with this -- of commissioning a demand study, I think actually talking with the stephen group recently who is active in the business of providing the demand studies for the multi-family realm with respect to affordable housing, we have talked to them about putting a significant demand study that on the ground that would justify our claims that we do in fact have a market here well more than the 200 homes that we are trying to put on the ground. I'm very confident between the [indiscernible] data and of course dealing with the relators and their impression that we can serve as many as 200 borrowers. Another way to look at this, we are asking all of these lenders to pay a fee to participate in this program. Having said that, we are assuming that best practices would dictate that they would be willing to spend money on a transaction that they think would be fruitful for them to participate in. With them willing to pay as much as one percent to participate in this program, ie buy a portion of these funds to originate on behalf of the authority, that -- that's -- that certainly speaks to the demand issue. Again they wouldn't want to participate in a program, much less pay money.
>> the problem where that, though, is that -- having done many of these, everybody is eager on day one. Not everybody actually gets out there and helps implement the program. So we are kind of used to that. So you want to do 200 homes, for an issuance of $25 million.
>> yes, sir. It's estimated to be $25 million today.
>> so the average home price would be how much.
>> we are guessing somewhere between 120 to 140 just as it was in tucson.
>> okay. The monthly note? On a home for $125,000, at today's interest rate is how much? A monthly payment.
>> between 800 and $100,000. I will say for safety's sake, $850,000 -- I mean $850 excuse me.
>> that's what the math would say.
>> without the benefit of my [indiscernible] yes, sir.
>> I would be has tonight run that for you, if you would like.
>> I would like in a.
>> is that piti?
>> yes, ma'am. Full excuse me --
>> I think that's important.
>> I don't need it right now.
>> okay. The presumption here is that there are two hundred families who can afford to pay the monthly note.
>> yes, sir.
>> but because of credit problems, down payment problems, et cetera, it -- never get in a position where they can buy a home.
>> right.
>> the lease period basically enables them families to occupy the home that they want to buy.
>> yes, sir.
>> and to demonstrate the ability to -- to make the monthly payments in a manner that justifies ownership.
>> perfect. Yes, sir.
>> that's the whole -- that's the theory here.
>> perfectly stated yes, sir.
>> if we authorize issuance of $25 million, I promise this will be my last question, how would you issue that? Would we issue $25 million and have the money available or would we basically issue so much a year -- so much first year, use some of that anticipate we are going to run out and issue a second part of it or what?
>> I haven't seen any documentation yet, but I believe the whole amount gets issued up front; is that correct?
>> that's correct.
>> at this point I think that we are still preliminarily or at least some of you talking about the issue of forming a new housing finance corporation to actually issue these bonds. Assuming that you all would like to move forward, we would proceed along those lines and then not guilty and look a little bit more substantially at exactly what the structure is and the document said. It's always been my understanding the bonds are issued up front and the money is held by the trustee.
>> that's right, we have chosen not to move forward with documents --
>> right. We wanted to make sure that it was something that you all wanted to pursue before we --
>> tucson had $25 million in two years, you allment have it for two or lee more.
>> another -- or three more.
>> one year.
>> at what interest rate.
>> 5 and 5/8ths.
>> the interest rate on the bonds.
>> actually they are floating rate bonds, so they reprice weekly.
>> hum.
>> two years ago that wou have been how much, lad, what is it today?
>> weekly floaters, probably down in the [indiscernible]
>> very, very low cost.
>> yes, sir.
>> questions?
>> this finance corporation would be part of the housing authority?
>> I think the proposal is to form a -- the county Commissioners would have to form it. The county would form a new housing finance corporation but the board of directors, you as the county Commissioners can appoint whoever you want to the board of directors, you the would be the same board as the housing authority just to make it easier to proceed. I think if it was a -- if it was a new housing finance corporation similar to the one that exists now there would be an agreement with the housing authority to -- to operate this program anyway. So -- so I think the thought was just to have the board of the new hfc the same board as the housing authority.
>> would you be the counsel or would they have the ability to pick their --
>> I guess that would be up to the board. Same thing with bond counsel?
>> yes, ma'am.
>> okay. When you mentioned 19 a moment ago, who works -- two are successful. The 19 programs, the two programs are successful. What about the other 17? -- looking for one or two words that describe them. [laughter]
>> the easiest way to describe those, then I will defer to you, is to say that those transactions were done by people with different motives. The intent toys serve affordable housing community as opposed to generate fees. These deals are relatively labor intensive. A lot of folks associated with these getting the deals on the ground successfully. Constantly there are a lot of fees associated with them. Some of the banking institutions that have done these deals prior to my having done this actually saw the opportunity to take the money out of them and not put the money back in to support the infrastructure. Speaking today the issue that you mentioned a moment ago about everybody's fervor at the outset. They actually were pretty gung ho, took those fees, ran. Unfortunately I have to distance myself from those programs because we go to great lengths to make sure that the infrastructure is in place. These things -- well, without getting into sentimental, they become a labor of love. You have to absolutely live and breathe these programs, as a matter of fact we have the team together. All of the best providers from -- from those two transactions together in dallas last week talking about the roleout of this program. Rollout. That's the best way to speak to those that have gone before us that have been less successful.
>> you were not part of the other 17.
>> no, sir, I was not.
>> which is really a reason to bring in somebody like the housing authority that has as its mission to deal with getting folks into -- into safe and affordable housing.
>> indeed.
>> mr. Davis, enlighten us.
>> okay. First of all, I had to ask -- I had asked for the contact information for the atlanta and phoenix projects. I was never given that. So I -- I didn't have a chance to talk to those entities to see how the program was going. People -- in new orleans, that program started March of last year, he said that they had -- as of now, they have done -- they were trying to do 500 loans, they have done 14 in the first year. Some of the problem that's they encountered was that right at the beginning they got all of this publicity, they have 6,000 applicants in the first couple of weeks. So they were overwhelmed with people and they had a lot of people that were disappointed because a lot of people applied for the program that had no credit history and had extremely bad credit and did not understand that you -- that you -- that, you know, you would not be able to qualify in the first 39 months. If you had those -- those, you know, significant credit problems. So there was -- he said there was some disappointment, a lot of disappointment in people applying and realizing that they would not qualify for the program. He did say that the underwriter was a different underwriter, morgan keegan was -- presented the program. He said that they thought that their -- ey did not realize how much work they were going to have to do to implement the program because they did -- they did hire I think the -- the most of these programs are set up where non-profit comes in and is -- supposed to manage the program. So know you had to be -- the housing authority certainly has to be ready to -- to devote a lot of hands on time to the program.
>> go out and does the work every day, this is not a paid position? It seems to me with this much money you would want somebody who earns compensation hourly or monthly doing this work.
>> right. They hire -- they pay a non-profit organization to -- to do the work. So it's not --
>> still got every expertise and what you are saying is -- love --
>> even with your ad strairt running the program, there's still a lot of involvement with the housing authority or whoever is the issuer of the bonds. So -- so this -- the -- the people in new orleans just -- he just said he didn't realize how much work they were going to have to put into the program. I also talked to a county that served little rock arkansas, they had the problem for two years. They decided not to continue the program. The problem that they encountered was that the people that leased the homes were paying above market for their lease of it and so people were getting in the homes and then they were in it a while and say I'm paying above market for the lease, you know, I would rather get out of the lease, get into a less expensive home then I can save quick forea down payment. So there was some -- some -- there were issues with the -- union how much they were having to pay for the lease and they -- they said that they -- they felt the program was somewhat successful but they did not, you know, they chose not to continue the program. Another housing, southeast housing finance corporation who serves as -- serves several counties surrounding the houston area. They are very, very active in -- in housing finance corporations to do a lot of good things, so I had -- I contacted the executive director and asked him if he had considered a lease purchase program. He said yes that he had considered it. Looked into it very carefully, but he could never -- he had a problem with the lease period being -- being so long and that he would -- he felt that he would get people into a house that would be ready for mortgage but they would be stuck with a lease. And so he -- he felt that -- that he couldn't ever quite get over that hurdle to -- to -- to do a program and so they -- he told me that was the main reason why they chose not to do the program. So -- so I just bring this to some -- some caution of, you know, these programs are very -- I get the impression that they are very difficult, very labor extensive and intensive and --
>> let me ask you this then. We believe we can identify several hundred people who ought to qualify. We believe that we know the specifics of out of program good work. What would keep us from surveying these people and trying to figure out the level level of entry.
>> how best to do that. I would be open to suggestions, anything other than a demand [indiscernible] study akin to those that are done in keeping with multi-family transaction, that's the best that comes to mind. We have been with this issue six to nine months now, trying to figure out how to get our hands around a specific number, which would justify the exact dollar amount of the transaction. Again I'm open to suggestions. Please.
>> that's one the other thing is that we are not new to trying to get people who now rent into home ownership. It is not only labor intensive but can be disheartening. We have tried everything imaginable from trying to help our employees to trying to help Travis County residents. We have got a few success stories, but we probably have more stories that are not quite as successful. We pat ourselves on the back for making the effort, but for not -- not for achieving extraordinary results. I'm not giving my speech to conclude that this is the time to stop. But I think that the due diligence is probably a lot more important now than ever before. Especially if we create add new corporation and authorize the issuance of a substantial amount of money. Even if it's not on Travis County's financial record. Or annual financial statement. It is still a creature of ours. Also we want to do the necessary due diligence to try to make it successful anyway. If we think that other communities have run into obstacles, the challenge would be for us to identify ways that would enable us to get around those obstacles or jump them, we may as well plan, structure our program in such a way that give ourselves the best opportunity for success. It -- if you are out there trying to get home ownership in Travis County -- and Travis County comes with the good news of a new program and you don't qualify for it, I guess it could be kind of dishartening, seems that the bad news spreads a whole lot faster than good news. So --
>> 14 -- 14 who were successful probably not talking as loud as 14 who were not.
>> uh-huh.
>> okay.
>> to me it's -- we need like a whole menu of options. There's not one way to keep people into home ownership. There's not three ways. There's probably 49 different ways, they are going to go through different people. To me I'm interested in this because it may be yet another tool in the proverbial tool box. I never thought anybody would pay the property taxes on a credit card because of how much they tagged on. But for some people, that is an option that works for them and so that's -- I'm glad we have that in our tool box. This, too, is interesting. I want to learn more. Think that what I am hearing what you are asking for right now is a working group. Let us do that due diligence, learn more about this. Let us try to nail down what our issues are, which ones are real, what are perceived, what is the interest. To me I think that's what this whole time period is all about. I do have a couple of questions. Do we need the permission of any other jurisdiction to proceed with this program? Say somebody wants to buy a house in Pflugerville. Does Pflugerville have to give us permission? To do this kind of program?
>> as you are awall aware of in Travis County, part of it in Williamson county, this issue would be directly through residents of Travis County. Under the concept that has been alluded to forming another housing finance corporation to be the issuer, it would not require any jurisdictional interlocal agreements.
>> there may be other jurisdiction that's say hey we want to you do these kind of houses or those kind of houses I'm trying not to mention specific jurisdictions, it's really our program isn't it? Terms of what we can overlay or not.
>> let me just clarify. We believe this will be viewed by the attorney general's office as a multi-family program. If so it does not require the permission or approval of any other jurisdiction. That is an issue assuming that, you know, it -- give us the go ahead as something that you want to pursue further today that was on our agenda to have that discussion with the attorney general's office in the next few days. And make sure that they agree with our interpretation of the statute and with the structure of this program. But assuming that the -- that everyone is in agreement that that's the case, then, no, we do not need the approval of any other jurisdiction in trav county.
>> would there be annual fees paid to this corporation?
>> it can be structured a number of ways. We have talked about a fee at closing, we are talked about ongoing fees. There are several human services, ie home buyer ed commission and credit counseling, property management. A long list of things provided for the program. That the -- that the excuse me hfc housing finance corporation could benefit from.
>> just any time we talk about fee, we get a lot of fees coming off of housing finance corporation, which our friends share with the Travis County Commissioners court. There's good things that happen on both side of the electric, it's just walking through working through if there is a new corporation and that board of directors is not the five of us, it's just working through those kinds of talking points as to what happens with -- with fees. And who decides what happens with those kinds of fees. Last thing, while you and I spent some time talking about this while somebody is kind of in this proving period in terms of how to get their life and their finances in order, one. Things that was very important to me is that these folks be required since the housing authority would physically own these things no. The disposal point, purchase point, is that they be required to have rental insurance. I think pass part of being a grown up. When you buy a house, you don't get to say I'm only going to have insurance on my home and blow off the contents. It doesn't work that way. It seems that if we have to protect the asset, while folk living in a house that belongs to somebody else, it seems like we ought to be able to require rental insurance. It is not very expensive. But it is -- it is tragic when bad things happen with rental property and my mother always made me have it. Not so much that I would do anything wrong, but some idiot next door would try to burn down the apartment complex.
>> yes, Commissioner. He did note your concern and have dialogue with him, that is component from my understanding that could easily be inserted into the program. You might want to --
>> certainly. Insurance is a very significant component for these reasons that you mention. Both to the lessee tenant, as importantly if not more so to the corporation itself. Having said that in the past as a part of the home buying education, in other programs we have counseled folks that would be the most appropriate thing to do in terms of being responsible for their financial position. I can see that it makes good sense to require that. Because we can do it on a programmatic basis, your comment on the fees and reasonability of the fees is well taken. We could certainly accomplish a more reasonable rate if we could provide it program mathematically and intend to do so programmatically.
>> to me that's a -- what a working group is all about to vet the discussion and to really get down to whether we want to proceed with this or not. I'm certainly interested to --
>> so two questions. One who is now on the working group? Two is who do we need on it? Not to imply the answer to two is not the same as one. But leave open that possibility.
>> I think our perception that you are looking at the working group at this table along with mr. Lad patillo and this would be the working group as we perceive it. We would look for additional direction for the -- from the Commissioners court if you would like.
>> I will have a list of due dim against questions, part of -- due diligence questions, part of which surfaced today. You but I do think we ought to proceed and try to put together a program that we think will work here with the appropriate safeguards. Now, if we are dealing with lenders, it seems to me they ought to know about individuals who are borderline eligible but who failed. I don't know why you wouldn't start out trying to work with those individuals. It would certainly reduce your work and help those that you already know have a genuine interest in home ownership.
>> almost to each of the lenders that we have talked to, five, six, maybe seven lenders, every one of them spoke to what you alluded to, that they had a portfolio of clients that needed another item in the tool box to refer them to. But they were told no at this time but under this program they properly would qualify, at least be worthy of bringing in and seeing if they meet the criteria of the lease to own during the time period.
>> where is your home office.
>> mine? Denver, colorado.
>> who would be here locally helping us implementing the program.
>> I would be here, I also maintain an office in dallas, I lived there 25 years prior to that, Texas is still home fortunately. In addition to that we have a program administrator the one that I referred to earlier, mr. Davis referred to, laurie johnson of southern california has a daughter with the identical experience that makes her relevant to this type of transaction, which is going to establish an office here in Texas, in Austin specifically, to be here some two to three days of a week to help with the processing of these particular files.
>> the name of your company again.
>> george k.baum and company.
>> and company.
>> yes, sir.
>> headquarters is denver.
>> actually kansas city. Our housing group is centralized in denver, yes, sir.
>> I would be happy to murder information regarding our firm to your offices. Be happy to.
>> that would make question number 5 unnecessary.
>> very good. [laughter]
>> move that we proceed with those questions or comments, get those to the working group immediately. Can we give ourselves another week or two to have this back on the agenda?
>> I think probably within two weeks.
>> Commissioner Daugherty is going to be out for the whole week.
>> second. In in two weeks back on the comption agenda as well as our own. Corporation agenda. Any discussion? All in favor? That passes by unanimous vote. Show Commissioner Davis absent for the rest of this meeting, also. Anything further? Thank you very much.
Last Modified: Tuesday, February 17, 2004 5:44 PM