Travis County Commssioners Court
February 24, 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.
Housing Finance Corporation
Now let's call to order the Travis County housing finance corporation. 1. Conduct a public hearing and give interested persons an opportunity to express their views concerning the issuance of Travis County housing finance corporation's variable rate demand multifamily housing revenue refunding bonds, series 2004a (travis station apartments project) in a principal amount not to exceed $3,650,000, the proceeds of which will be used to refinance the cost of construction of a multifamily residential rental housing development known as travis station apartments located at 6600 ed bluestein, Austin, Texas. Thank god for the lawyers of this world. The agenda items that they write.
>> move that the public hearing be opened.
>> second.
>> all in favor? That passes by unanimous vote.
>> good afternoon, I'm cliff blunt council counsel for the corporation. I would like to say I noted this public hearing was published in the Austin american-statesman 14 days ago as required by the internal revenue code. Unless anyone has any question was me --
>> for those who do not watch us on a weekly basis and have no idea what this is about. A one minute summary of this project would be what?
>> I will try to kind under a minute. This is an apartment project called travis station apartments originally financed by the corporation in 1985, I believe. Subsequently refunded in 1994. And e request before the corporation that was approved two weeks ago, a week or two weeks ago, I can't remember, was to refinance the project again in an amount I believe it's $3,585,000 on the bonds that will be issued by the corporation to refinance this project.
>> okay.
>> I know that we have -- we have a regulatory compliance item after this one.
>> yes, sir.
>> but is there any other reason why this should not be approved?
>> no, sir, I think from a financing perspective, I believe lad is here and can vouch to this, but I think that everything looks good. From the document side and from the financing it's a solid financing, I believe the only issues brought up a couple of weeks ago were the compliance issues.
>> was that just in an agreement with -- is that in agreement lad?
>> judge, I'm lad pattillo, I probably shouldn't let counselor blunt speak for me, so I will tell you that I agree with what he said [laughter]
>> that's worth a couple of hours.
>> [laughter]
>> would engine like to give testimony during this public hearing.
>> move to close the public hearing.
>> second.
>> anything else that we need to know.
>> not on this item.
>> all in favor? That passes by unanimous vote. 2. Consider results of compliance audit of travis station apartments, and take appropriate action.
>> good afternoon, I'm harvey Davis manager for the corporation. And with me is tonya east and terena earls representing mid america apartment communities. If you will recall on February the 10th, we discussed the compliance issues at -- at the travis station apartments and you asked if I would go back out to the apartments and see the progress they have made between February the 10th and today. And -- to -- in order to consider the appropriateness of issuing these bonds. There were four items that were listed in a letter that I sent to the apartment owners and I went out to the apartments, yesterday morning, and did a follow-up audit and so I'm here to report on what I found on these four items. The first item was that I -- I thought that the owner needed to do a comprehensive, immediate internal audit of the files. And this apartment complex has 304 units. They had -- when I went out there and had the discussion where the apartment -- with the apartment managers, they told me in fact they had gone through all of the files and they had corrected many mistakes, as far as income certifications not being properly prepared or being not in the files, not -- there not being an income certification or the income certification not having been updated. They told me they had taken corrective action on all but 21 of the apartment units. So I did a sample audit and looked at 22 files and in my opinion from my examination of these files, I could see the difference that they in fact have done a comprehensive internal audit, has spent a lot of time in this short two week period to improve the files of the the second item was that the owner agreed to organize the tenant files in a manner that we could go out and easily do an audit because there was a problem of income certification being in a stack and not in the files and again you found -- I found that the files were in much better shape and I was able to do my audit in a more efficient manner. The third item was that the owner agree to recertify the low income tenants on an annual basis. They -- they sent a letter making that commitment to recertify the low income tenants annually. The letter from mid america is in -- is in the backup in the files. And my examination of the files, I found a couple of files in which they had -- they had gotten the -- they had done the recertifying, had a proper income certification, but had not done the verification of income that would be needed when you recertify somebody annually like for example getting a pay stub to verify that the income that the tenant had submitted is an accurate income figure. The fourth item was that they add to their -- to their tenant contract a section that says in effect that the tenant understands that -- that they are being leased the unit based on the accuracy of the information and income certification and if that information turns out to be inaccurate, that could be a basis for eviction. And they have -- gave me a copy of -- of a lease agreement that had that language in it. I did -- I did suggest that they keep on a permanent basis a -- a tenant -- a list in which they designate each unit or tell us or be able to produce a list that tells us each unit, how they designate it, whether it's a low income tenant, an eligible tenant or - ++++++++++++++++++++++++++++++++++++++++ designate it, whether it's a low income tenant, an eligible tenant or -- or a non-qualifying, they have 10% of the units that can be -- that can be non-qualified. And they -- yesterday morning they didn't have that list. They said they would produce it. They had us come to a meeting with a list that had designated that. But they have made the commitment on a permanent basis they would keep such a list of data so when we go out, when we know if we are looking at a unit they are saying it's low income or eligible or whatever classification they have determined, so that we can audit from that basis. So I do believe that -- that there has been a lot of improvement in the two week period. In my opinion they have not yet qualified for the eligible tenant requirements, which is 90% of the units have to be leased to eligible tenants and eligible tenant is defined as tenants whose income does not exceed 120% of the Austin needian income. There are certainly more than 90% of the attempts that that is the case. It's just they still need to do some more work on the documentation. So -- so I would suggest that -- that I would -- that I should go out and do another follow-up audit and in maybe about three months to give them time to -- to clear up these outstanding issues on some of these files.
>> harvey, is it not correct that if we didn't have this refunding issue happening simultaneously that that would have been the normal course we would have done anyway in terms of saying here are the things that you've got, 30, 60, 90 days, whatever the wish is of this body to get it back together and you would come back out with a follow-up on it? Isn't that just like the norm that we would give anybody the opportunity to correct.
>> that's correct.
>> files?
>> that's correct.
>> [indiscernible]
>> next Tuesday, marc 2nd.
>> so already two weeks ago we knew that -- that 100% of the problem could not be address understand a two-week -- addressed in a two-week period.
>> I think the thought was there were some things that needed to be done, you would see what kind of progress was made in two weeks. But I don't think there was an expectation that all of that could possibly have been accomplished in two weeks.
>> to me the most important thing was that they -- they initiate and do a -- an internal audit immediately and I'm comfortable that they have accomplished that.
>> so has the corporation's one person audit team, your opinion is that they have made substantial progress over the two week period?
>> that's my opinion. I do have assistants [laughter] whom I appreciate, also.
>> questions or comments? Any comments from the management team? Leave well enough alone [laughter]
>> in terms of follow-up action, why, would we want to go back out there, say, 90 stays is a sufficient time heard -- days is a sufficient time period --
>> I think that gives them a lot of time to -- to be in dom appliance with -- reach 90%.
>> and you might want to -- to authorize my sending an appropriate letter to -- to tell them that we -- that we are going to do another audit in 90 days.
>> we approve the closing, we authorize the county judge to sign the closing documents last week, right? Three weeks ago.
>> three weeks ago, yes, sir.
>> theroject or to accomplish the financing also requires the county approval of the public hearing that we had just a few moments ago, I think that was the -- the item -- that would still have to be done for the closing, still one hurdle left to get through, I think that's why we are comfortable, the one with the two week period to give them tie to come into compliance, I believe this is an item on the Commissioners court agenda that's still left to do.
>> or the Commissioners court.
>> yes, sir.
>> so today I guess we need to encourage the company to -- who -- to continue to improve compliance. And as the issuing authority we have the responsibility to the Travis County public to ensure compliance with the regulatory provisions.
>> yes, sir.
>> and you think that -- you think that -- that the 90-day follow-up visit and immediate letter notifying the company of that would be appropriate?
>> if you are asking mr. Davis or -- for me --
>> mr. Davis.
>> yes, sir. I do.
>> the audit team.
>> excuse me. I thought that you were asking --
>> second.
>> our attorney, but yes, sir.
>> I second the motion, judge.
>> any more discussion? All in favor? That passes by unanimous vote, thank you all very much.
>> thanks.
>> thank you.
>> we will see mr. Davis again in 90 days.
>> thank y'all. 3. Consider and take appropriate action to establish a working group to initiate a mortgage credit certificate program for first time homebuyers in Travis County.
>> good afternoon, harvey Davis, manager of the corporation. Hopefully with your concurrence I -- we can spend a little bit of time on this issue. I -- first I have invited julia matthews, who is the mortgage credit certificate consultant for the state of Texas's program and for the city of Austin's, I thought it might be good if she gave a short explanation of what is an ncc, so -- to explain to the board and to the public. Go ahead.
>> hi, good afternoon.
>> welcome.
>> thank you. An issuer of tax exempt bond, the corporation has the option to convert a bond issue to a mortgage credit certificate program. That is in that instance no bonds are irissued, no mortgage money raised. Instead of the borrowers receiving the benefit of the lowered mortgage rate on a bond program, they are going to receive the benefit of being able to claim a tax credit. So what they'll be receiving, they qualify just like for the bond program. The rules are exactly the same. Both of these programs are governed by the same set of rules. But -- but once they have received their certificate, they will be able to claim each year a tax credit that's based on a percentage of their annual mortgage interest paid. So if they have a -- if they in my example, if they pay $5,000 of mortgage interest, and if he had a 30% credit rate on an mcc program, that would allow them to take a $1,500 credit. Credit as I know you all know is a direct dollar to dollar reduction of income tax. A mortgage deduction, on the other hand, reduces your taxable income. So a mortgage deduction in the form of interest would be based on -- their savings in taxes would be based on whatever their tax rate is. With a credit it's a dollar for dollar reduction in their income tax. In theness stance of -- instance of -- they claim a credit when they file their tax return. They file a form 8396. The first year after they receive their certificate we will send them a letter that says remember you got a credit, enclosed is your form 8396. This will allow you to claim the credit when you file your tax return this year. Once that is done, that's -- that's really all they need. Each year they'llet a statement from the mortgage company that shows them how much mortgage interest they paid that year. They have their certificate, which gives them their credit rate. With those two items they are able to complete this form 8396 and claim their credit. Because they are going to be paying less income tax, if the borrower chooses to they can reduce their w 4 to have money withheld from income tax, more take home pay. For that reason lenders can use this anticipated credit to help qualify borrowers for loans. This is another added advantage to the program.
>> I just did my taxes yesterday, I actually tried to figure out where on my form that line was and I will tell ya, I can't figure it out. So it may be one of those things that says form 8396. But there's going to have to be some substantial education because, you know, for somebody that's used to itemizing and, you know, knows that form pretty well, for somebody that's not used to claiming those kinds of deductions as a first-time home buyer, there is going to have to be tremendous education, because it is not blatantly obvious.
>> to claim a credit you do have to use the long form.
>> I'm aware.
>> I'm sure you are. But they don't have to itemize, but they will have to use a long form.
>> but it is not obvious --
>> right. Because that's the only form where you have a place to put credits below the line where you calculate your tax.
>> but it is not obvious y'all on that form.
>> what I would like to do is to go over some of the ropes that it would make accepts for the board to do an mcc program and then some of the reasons that it would make sense not to do an mcc program. I also have invited david mcmilan, who is with ctx mortgage, who is, his company was involved in the city of Austin's mcc program. They are also involved in our current bond program. So he can -- he can offer some perspective of, you know, comparing mcc and bonds and whether they compete with each other, if we did an mcc whether it would hurt our bond program. In addition, in the audience is some -- some people from -- from the city of Austin neighborhood housing department who can give the board some perspective of how -- how the city feels about their mcc program that they just completed for two years. So some of the reasons that the board could do an mcc program. One is that I have talked to a lot of lepders and builders and have gotten a lot of positive feedback from them. You know, they really felt that the mcc program was a -- was a good program and one that they were interested in the -- in the county doing a program. The city of Austin has -- has just completed a two-year mcc program. So they have -- they have educated the public lenders, builders, about what mcc's are and so if the county had an mcc program we would be able to, you know, have the advantage of the community having knowledge of the -- of what the city has done. The city, the feedback that I have gotten from the city is that they felt that their mc program was a success, they originated 88% and that was -- that was -- that was they did 158 loans, but they only did threat first year. The first year they just tried to restrict it to -- to teachers and city of Austin employees and it was such a narrow group that it was not a success, but the second year they opened it up and so they were able to originate a lot of loans. They have decided to do a new program. If the county did an mcc program and the city did an mcc program, then we would have the opportunity to offer a -- a sort of a seamless program perhaps to the -- to everybody in the county would make it easier for -- for realtors and lenders and home buyers because they wouldn't have to worry about -- about being in the city or outside of the city limits. The cost I would say is significantly less than a bond program because you don't have the cost of issuance of a bond. You do have some expenses and I think the major -- I think it still has to qualify with the internal revenue code, so you do have to have bound council, tax opinion, some cost of promoting and marketing your program. The mcc program does not require the up front commitment from the lenders. You know, a lot of the costs of issuance of a bond program is because -- because participating lenders purchase an allocation, you know, certain block of money for mortgage money. So you don't have that kind of a expense for a lender to get into the program so you actually could have more lenders, more participating lenders than -- in an mcc program than you could with a bond program because there are some lenders that just, you know, they're not big enough to afford to purchase an allocation in the bond program. And then the mcc program is not interest rate sensitive like a bond program. If -- of course in a bond program you can win or lose in a sense. If interest rates go up and you have a bond program that's set at a certain interest rate, well then it becomes more attractive. You know, if interest rates go up. But if interest rates go down, which they have several years, then that makes it more difficult to -- to have a successful bond program. And quite frankly that's one of the reasons that we are exploring the idea of the mcc program is because of the difficulty in -- in having a competitive bond program in this interest rate environment. Then -- in a home owner stays in a home for a number of years, think in the long term an mcc program will benefit the home buyer more than a bond program because they -- you get this -- this credit every year for as long as you are paying on the mortgage. So if you paid on the mortgage for 30 years, you would get an income tax credit for 30 years, of course it would be declining because the amount of your interest as you pay off on the mortgage becomes less and less. But you do get a return for a long period of time. Whereas especially now with the bond program the main benefit is the down payment assistance. Which for example in our current bond program is 4% of the amount of the mortgage. So those are the reasons that I saw that -- that would be good reasons to have an mcc program. Some of the reasons that it would make sense to perhaps not have a program is first of all it is difficult to understand. I think the most problematic part of it is will the home owner remember to take the credit after the first year. You would assume they would the firs year. But if they are not reminded or they just don't understand the program, they may be eligible for the credit or may not realize that they can take it over the life of the loan. Then it would not really benefit the person. Another difficulty is that the mcc program is sorted of a long-term benefit. With our bond program you get the down payment assistance at closing so you are coming out ahead. The down payment assistance is a grant, it doesn't have to be repaid. But with the mcc program, the home buyer at closing is actually going to be paying some fees to have the mcc that will help reimburse the corporation and pay our consultant those costs, so at closing they are really behind and then they start getting the benefits when they file their tax return in the future. So you don't get the immediate benefits that you would with the bond closing. There is the -- there is a recapture tax that if the home buyer sells their home, within the first nine years, they could be subject to the recapture tax. However the recapture tax is -- it's the same tax and the same formula with the bond program as with the mcc program. It is somewhat of a complicated calculation, but it is -- would be -- would be from what I have talked to other people with these programs, it is -- well, people tell me that have done these programs nationwide that nevada never seen a -- they have never seen a case where somebody has had to recapture tax be applied, but the retaptured tax is certainly something that has to be considered. I get calls, you know, people asking about how do I calculate this and get the forms and that kind of a thing. The mcc program, if the corporation did an mcc program and it was successful, we did not originate, then what we hope to have then, we would be penalized by the Texas bond review bored when we -- board when we wanted to do a bond program and our mcc program the next go around because you -- you are -- you get an allocation for the private activity bonds based on your utilization percentages. So you know you are taking a chancend if you do an c and it doesn't work -- do an mcc that it doesn't work out and you would be penalized in the future. In the bond program we have often had situations when we've had, when the program has closed many years down the road, we've had significant ridul funds. Sometimes in excess of $300,000. And of course this is -- this is nice money that -- that comes through the corporation to be used for what the corporation -- what the board directs it -- the money for. This opportunity to residual funds would not be something that would be viable with an mcc program. Still lenders are not as used to mcc's as they are with bonds, bond programs. This corporation and the city's corporation have had bond programs since the east and almost on a continuous basis, since the 80s. So the lender community is comfortable and used to the bond programs. The mcc's are a little bit newer, they vice-president been here or marketed or used on -- on quite as much. So -- so you know those are the kind of the pros and cons that -- that I saw and -- and evaluating the benefits of the mcc program and you know I think it would be nice if david could come up and give the board a little bit of his experience with the mcc. If that's okay with you, judge.
>> that's fine.
>> thank you. Mic mc.
>> good afternoon.
>> good afternoon.
>> we have done both programs quite extensively.
>> david mcmill lynn with ctx mortgage, run by centex homes. We do a lot of these programs, first time home buyers, down payment assistance bond money, a lot of julia's issue about five years ago I believe. They both have great benefits. The mcc program I feel -- I'm fond of saying it's one of the best first time home buyer programs out there. It really is an ongoing benefit to the buyer. Benefit to the home owner, lasts a long time. Down payment assistance, bond money, you get help in getting in the house with the on down payment which is great, a lot of people need that, but there are many avenues for that nowadays, there's a couple of grant programs, 100% loans and even fha is coming out with a 100% loan. It's almost like being able to use two programs when generally you can't use two bond issued programs, you can a lot of times use mcc in conjunction with another program to help the borrower not only get in for no money but also help them get this tax benefit. Probably is a little bit confusing to them maybe. But the way we explain it, now I haven't gone through helping anybody do their tax returns, but in explaining it it's pretty easy to explain and the benefit he is there. -- the benefit is there. We get to use that savings to help qualify the people, too. It truly is a real, good program.
>> judge, could I invite roger from the city to maybe explain and answer any questions about the city's experience with the mcc program.
>> okay. We would love to hear from roger.
>> my name is roger ariaga with the city's neighborhood housing community development office. We did administer an mcc program as was indicated by mr. Davis over the last two and a half years. We did consider it a success. We had challenges at the beginning. The idea at the beginning of the program was that we would try to benefit public employees and it wasn't -- it wasn't city of Austin. Public employee or school district employee. Also said we wanted it to be not only new construction but to meet certain city guidelines corght to smart -- according to smart housing. At the time it was a brand new program. What we found was there weren't enough new construction homes at the time to benefit the folks out there. Then we looked at it, opened it up, made sure there was plenty of opportunity for everyone. We allowed new and existing construction, anybody that you could find an existing home or new construction home and it was opened up to anybody that was income eligible according to our bond guidelines, 115% of the median income. For a family of four, that's roughly [indiscernible] total income. By the end of year three, we had gotten into a much more heavily instituted a marketing program outreach program, we made sure that our down payment assistance program was visible in conjunction with it. Available. We were able to have a good number of families he will jill for the program. At the end of the program as mr. Davis indicated able to serve 158 families and we are hoping to do it again and this time we have learned lessons of things that worked and didn't work. We are instituting all of those things that were beneficial and keeping it going. Currently we are at the beginning process of that and won't be able to to start our program until probably April or may of this year. But we are hoping to do it over the next two and a half years again. I'm happy to answer any questions.
>> ballpark numbers how many participants do you think that you all experienced with the mcc program with the city of Austin.
>> we were able to serve 158 families.
>> how many.
>> 158.
>> 158.
>> over 2.5 years.
>> okay.
>> the bonding program you go to the state and get your allocation.
>> that's correct.
>> how do you start the mcc program.
>> kind of the same way, we work it through the Austin housing finance corporation. The city's corporate subsidiary that has bond authority through the state much like Travis County has the housing finance corporation.
>> the corporation actually issues bonds in a certain amount?
>> that's correct. Actually I would let --
>> we would go to the Texas bond review board, pay the application fee offed 500 to get on the list actually for the year 2004, the deadline to get on the list was back in the fall. However, because there is more money available than people on the list, when I talked to the Texas bond review bored, they said well if you got on the list now you would get an allocation for 2004 because we need -- we have more money than we have people on the list. If Travis County wanted to -- an allocation, then we would have to pay the $500 to get on the list and then we could get an allocation and make the decision we are going to do an mcc program instead of a bond program.
>> the city of Austin, I may need a legal clarification of this, this -- if Travis County was to take this up, what about the other cities in the county outside of the city of Austin, if they do not have an mcc program on board, does that allow the cities that -- outside of the city of Austin in Travis County an opportunity to participate under the county's program or --
>> the county only has two housing finance corporation, the Austin housing finance corporation and Travis County housing finance corporation [multiple voices] we can serve the whole county if the city says you can come into the city. But they have an mcc program, so they are going to say we want to serve the city and we would serve all of the county including Pflugerville or all of the incorporated towns in the county excluding the city of Austin.
>> do we have to get authorization from those cities, though, to do it.
>> no.
>> we don't necessarily have to do that.
>> right. That's what I wanted to get real, real clear.
>> that's the case with the bond program.
>> exactly. I wanted to make sure it followed the same guidelines. Right, okay.
>> in response to my question though the Travis County house financing corporation would still go to the state for an allocation.
>> yes, sir.
>> let's say we got an allocation of 20 million dollar, we would issue $20 million worth of bond.
>> we would -- well, our allocation amount is about 11,000 according to the formulas. But we would not issue bonds. We would -- we would issue I don't know what they call it at the Texas bond review board, but you would convert your private activity bond authority to mcc credits and then as you make mortgage loans that use the mcc, then you are using your $11 million allocation based -- you know what I'm told is that if you had -- if you had to -- if you had a percentage of 25% of the mcc, in other words 25% was applied to the amount of the morning interest, then when you made a -- somebody made a $100,000 mortgage loan, for example, that would be subtracted from your $11 million allocation and the same manner that if -- if you had made a mortgage loan in that amount.
>> okay.
>> my family and I meet the eligibility requirement that we total $70,000. I show up at closing with my down payment and the home owner provides 100,000. I turn to my down payment, somebody is sitting there waiting on $100,000, right, how is that accomplished.
>> with the mcc, we are not involved in the home buyer obtaining the mortgage. They obtain the mortgage and it's not bond money. So they -- they obtain a mortgage through the lender.
>> any type of loan program, fha loan, v.a. Loan, a connection withnal lope, you would get your -- conventional loan, you would get your mortgage like you normally would get it. Then the mcc, whatever interest, you are going to get mortgage credit as 25% of that mortgage loan. It's not restricted to any type of loan. So it doesn't really have anything to do with the loan process itself. We get -- you get whatever loan you want.
>> I qualified for a loan from Leander, I qualified for the Travis County housing corporation's mcc program.
>> exactly.
>> your participating lendners the mcc program would facilitate this. For example, if -- in david was a lender, we would a program manual that would give him the documents, at the time that his loan officers were sitting down for the borrower to apply for a loan they could also introduce them to the mcc. There's in program documents there will be an information guide that will give them information about the program. They will explain to the borrower where they can decide if they want to pursue that. If they do they fill out an application affidavit. Then that form is sent to us by the lender. We review say oh, yes this person, this family qualifies, we send back a commitment to the -- to the participating lender that says, yes, when this loan closes, we will issue a certificate to this borrower. And then -- then the regular loan process just goes right -- right along as if we weren't even involved. But at closing, some additional forms are signed. And then those come back to us or to whoever your ad strairt is after closing and then we issue a certificate directly to the borrower.
>> once a year you send them a certificate, too, that is correct.
>> single.
>> in the beginning.
>> it's a piece of paper, a certificate that has specific language on it. And information about the benefits of -- of having the mcc. And it's going to show the rate, whatever their credit rate is on it. That coupled with their statement from the mortgage company about how much interest they pay that year allows them to claim their credit every year.
>> under what conditions would a person -- you mentioned earlier about the penalty under the private activity bond usage. Under what conditions would you be penalized? Give me an example of what -- of what a penalty would be, something that we got to look out for offer safeguard ours against.
>> it's called a recapture tax. Not a penalty.
>> you said penalty.
>> you haven't done anything wrong. My understanding of the tax is that then the first five years, you are making a little more subject to it, then the formula sort of decreases from year five through nine. You have to -- some of the variables, tough make a profit. You have to have income that exceeds the income limits in the program. Which -- which are 120% of median income. In the case of the Austin program it's 115% of median income. And then -- then it's -- then the amount of the tax is based on how much profit you made on the home, I think the limit is 50% of the profit on the home. And then -- also a percentage of the amount of the mortgage which is -- I believe that it's six and a quarter or six and three quarters of a percent of the amount of the mortgage, so there are several variables that go into this -- this calculation. Quite frankly I have never gone through the -- through the -- the form to -- to make, you know, a calculation for somebody. But the -- but that's -- what knowledge I know about the recapture tax.
>> cld I say something? [one moment please for change in captioners] .
>> > three thins have to have to apply. First, the borrower has to sell their house in nine years, they have to sell at a gain and their family income has to exceed a threshold income amount. And what that is is you start out with whatever your qualifying income is at the time that they receive their certificate. 115% of median. And each year you increase that by 5%. So what tends to happen is if our income limits here are -- for a family of three, they were about 80,000. And so -- but we didn't have bar rowers who made $80,000. Our borrowers tended to have incomes that averaged more around $40,000. So if they sell their home in five years, the income that they would have to exceed would be the 80, increased by 5% a year, which would get you up to 95, $100,000 or something. So that's the reason I think it fairly comes into play because of this income limit is to high.
>> okay.
>> I do think another maybe consideration that I didn't bring up as far as reasons not to do the m.c.c. Is we have a bond program going on right now. If the -- if we did a n.c.c. Program, are we hurting the bond program because it's competing with the m.c.c. Program. And -- and lenders have put some money up to participate in the bond program, and mark o'brien has come here from morgan key kg keegan.
>> did we give you a chance to finish what you had to say?
>> I think so.
>> thank you, judge, Commissioners, mark o'brien with morgan keegan. We intend to give you in one of the up cummings meeting an update on our 2002 program started January of last year so we're about a year into it. We didn't have the city of Austin for those first 12 months. They said we're going to wait until our n.c.c. Program gets done. We don't want Travis County's bond program starting in January of last year to compete with Austin's m.c.c. Program. They said -- lenders told us this time they needed Austin so rejection was slight and starting January 1 we're able to lend within the city of Austin. So we're able to kick off the program and get lenders refocused on it and we have other things including maybe adding a point of downpayment assistance. The only thing harvey wanted me to address will this compete with our current bond program. It should pick up with the inclusion of city of Austin. The rates srae every several months we set a new rate. We only set it in one $2 million chunks. What harvey asked me to address is whether we can compete wit. I don't know. It's not going to help it, whether it hurts it, borrowers have the same limit, first time home buyer. The purpose of m.c.c. Program isn't the question is will it hurt it. I will say Austin thought it would because they excluded you from their program last year for the same reason. Our bond program couldn't be lent there because they viewed that -- we'll probably in the next several weeks be giving you a brief update and some of the things we think might help the bond program to move more quickly, but we have the program, we're about 12 months into it, it goes about 24 months and we're hoping to kick it off stronger. That is one factor to consider by doing this program right now it will compete with our existing bond program. Secondly as harvey said, the other issue is this utilization percentage. Right now we have good utilization percentage. Our program we did in -- 2002 program was all recycled proceeds so it's not [indiscernible] but the last program was 2001 and we used about 80% of it, that program. So we have a good utilization percentage right now. So whenever we go to the state and ask for money we'll get a good chunk whether it's 12 million, 14 million, but we'll get a good chunk. If we do this program, the other other down side, let's say we only do 10% of the loans or 25% of the loans, that would almost kill you next time because it would be such a small kphupbg you would get. Those are the only two things I bring up. If it -- we have a poor utilization percentage and it hurts us next time. I might just ask lad to --
>> well, the -- I'm just concerned from the commitments we've made and that the lenders have made in the bond program that we would do anything that potentially could compete with it. And I think mark made that point fairly well. The other thing is just as comparative, and harvey touched on most of these points, but I want to reemphasize, he think he did a good idea of the pros and cost, but the costs go to the home buyer. There's a one point closing fee to get the m.c.c. Plus $225. Is that correct?
>> yes.
>> whereas what we have found in the past the rain reason we have done the downpayment assistance program is we have found the big epl pedestrianment for people at this level getting in a home was the downpayment assistance, not having the money for the down pavement tpaor $100,000 loan, they were getting a $4,000 granted that helps them at the closing table. That they don't have to -- as harvey said, they don't have to repay. That is not subject to any type of recapture. The other thing was when harvey and I first talked about this, and we've been talking about it for several weeks, I began and I found it interesting that this lady mentioned earlier that the average home buyer that used the m.c.c. Was around $40,000. From just a quick analysis, and I think harvey did this too, I'm not sure how much income tax liability people have that level. This may be a losery benefit because they really don't at that level, especially if you have some kids, you pbably don't have an income tax bill big enough take that off from.
>> I calculated that for a family with two children, their income would have to be greater than about $40,000 to incur a tax liability, and that's assuming they are going to take the child care credit.
>> but was that a tax liability big enough to use this entire $1,500 credit?
>> no, it was like between 40 and 60 they were using --
>> to be able to fully utilize the credit have you to have more income.
>> but that's with two children. A single person they are probably going to use it fairly easily.
>> I just wanted to bring that up. I guess mark mentioned the utilization. And the other thing harvey also pointed out and i've been there to watch the smile on your face over years when we have money left over at the end of programs and we can present with you a big check, sometimes up to 300 grand. That can happen in a bond program. It cannot happen in a m.c.c. Program.
>> frankly, one of the things i've always liked about housing bonds is that when the lenders put their money up for it, then you've got some partners to help you push it. It's because they put something into it so they've got an investment in making it work.
>> how much money and I guess fund authorization combined do we have in the present program? Have left.
>> we have -- it was a $16 million program we did in December of 2002. And we have 14 million of it left. On that existing program that we --
>> are we able to do a m.c.c. Program with our [indiscernible] program?
>> you mean convert some of this money over to m.c.c.
>> no, can the same program use both at the same time.
>> no, you can only do one. You can't have both on the same house.
>> but our current bond program is using the recycling funds so the bond program is not using an allocation from the state. So the corporation could have a m.c.c. Program using an allocation from the state and also continuing with the bond program.
>> which we're probably not eligible for until '05 or 'on 6, right?
>> they have so much surplus they've told haeufrb we could probably get some this spring.
>> oh, okay.
>> is there agreement we could not use m.c.c. Program with our present program because we're using recycled fund authority?
>> you are talking about one $70,000 family can't get both the m.c.c. Or the bond loan. Can't get both. That has nothing to do with the tpabgd it's recycled pro seed. That's under federal lacks law. You can't get both on the same house.
>> and I also remind thaw not that this is a heavy point, but we've been issuing these recycled -- we've been doing these so we're able to reset the rate, how often?
>> about every four months.
>> we can reset the rate back towards current market conditions. The rates on our bonds are probably up to or very close to conventional rates. But that's with the four points of downpayment assistance. Rather than asking them to come up with money at the table.
>> harvey, this is a question that when you and I were discussing it it came up, I always have had the impression that what was standing in the way of a lot of homeowners and what really gave our program an edge was the downpayment assistance. It's not the idea that a year from now, two years from now, oh, I can take this off my income tarbgs it just isn't together driving somebody that I can take a deduction on an income tax in a year or two and have to have more money up front. Sometimes what stands in the way is what do you have to bring to closing and what is standing in the way at closing and you deal with the rest of it later. I think lad's point, you know, at that level of income -- somebody who just did her taxes yesterday, the tax tables are not taking out as much and that's not as big of a deal as compared to somebody at a higher income bracket and not that kind of money at the last --
>> right, and i've listed that as one of the cons is that you don't get the many benefit. But like david mcmillan said, the credit -- because you do have the credit, it does help in the qualification process and they are able to qualify somebody for easier or they can qualify for a larger mortgage because they qualify tore the m.c.c. Credit. Because it, you know, goes into the calculation of -- it's the loan to debt ratio and how much debt they are carrying.
>> a question back for the city of Austin, will you all have simultaneously going m.c.c. Program and some allocation through your single-family, through your Austin housing corporation?
>> no, we -- [inaudible].
>> it's almost like we could have had a lab experiment. If they were doubling up, we could see how well it would government but I have to take note of the fact that the city d not have both of them going on. They are doing one or the other and not both. I'm sensitive to what mr. Mcmillan is saying because you want to move product. We all have the same end goal, we want to get folks into housing, but it seems like what I have heard more is that what stands in the way is what you bring to closing, the amount up front, and since talking to you, harvey, I don't believe this is the kind of thing you can roll into the cost -- roll into kind of a no-cost closing kind of thing like we've been able to roll a lot of fees in. So it really is money up front out and more substantial. And no downpayment assistance, which is huge.
>> yeah. Big deal.
>> so this is [indiscernible].
>> this is on the joined because I felt that -- on the agenda because I felt it was an option the board needed to be informed about and to consider, and I must say that in my looking at this, and I have been looking at m.c.c.s for quite awhile. I've been impressed with what the city has been able to do and what the feedback i've gotten from lenders as far as their desirability of the m.c.c. Credit, I do believe that there are -- there are plenty of homes in these income categories and buyers in these categories that could use -- that there's -- a much larger pool of people than there are -- than there is m.c.c. Credits we could be getting plus bond mortgage loans that we could be making. So in a way there's room for both programs, in my opinion.
>> does our current housing program, mark, can you do it within the city of Austin right now?
>> starting January 1 we could. They prohibited it throughout all of 2003 because of the -- their m.c.c. Program. They wanted to make sure they got good utilization on that.
>> so this would be a competitive experiment for some of this year inside the city. [laughter]
>> that's kind of where I'm heading. The city of Austin is the largest population out there and if we have a program that is going to be in our program -- our program that is going to be eligible within the city of Austin, the city of Austin is going to have a m.c.c. Program within the city of Austin, mr. Mcmillan can still be sitting there trying to figure out what's going to work best in terms of moving that centex home, at least within the jurisdiction of the city of Austin, if the m.c.c. Works, you go see mr. Ariega. But if it meets the downpayment assistance, come meet the folks at Travis County, we get to the same good end and we could see what happens during this next year of whether their program hurt ours or vice versa depending what happens with the interest rates, as on opposed to we have to make some kind of decision today to let our program run its course and we'll see what happens with the city having theirs and our having a different kind of program. We'll see what kind of results mr. Mcmillan and other lenders get related to what works best for the client. And I think that's what we're all interested in.
>> anybody else on this item before we move on? Last opportunity.
>> judge.
>> yes, sir.
>> I guess we needed to go through all this. [laughter] I think. It kind of felt like back at u.t., That 101 class. Probably would have rather, you know, our financial adviser come up and said early on about, you know, there is some potential jeopardy for the bond program or some potential harm to that, I mean which is -- I'm hearing loud and clear. And really all of these are mechanisms to get people in homes. I mean, that -- that's what, you know, this whole thing is about. But, you know, I'm certainly not very comfortable -- I think there's still a little bit of a guinea pig deal out there right now with regards to what we need to do and we know that our bond program is working. I think all of us agree that downpayment is -- that is -- it doesn't make any difference if you are low income, middle income, high income, the downpayment is a big deal.
>> it really is.
>> I mean I think I get it. It's the part that follows it first. I mean I think, you know, get to a point where you really understand it is when it all gets laid out. Aim incorrect, lad?
>> no, Commissioner, I think you are right. There is still until the end of this year on our commitment period on the recycled bond program we have, that could be extended if we had unused proceeds. I went to the same business school you did and -- in our society in a capital stickic city compete from competing with other people, you can at least keep from competing with yourself. Mark didn't have a straight answer for whether or not it would be a competitive program, but our only evidence on the table is that the city didn't want us to do tonight the city while they had theirs going.
>> yeah,en I do think this was wise for harsh toy present. It was an option. -- wise for harvey to present.
>> I think we certainly needed to hear it and those are the kind of things we needed to look at. I certainly don't want to squelch the creativity out there because after all that's really what you are looking at. I mean is variations of what it takes. I appreciate that.
>> julia told me that the city did a m.c.c. And a bond program in 1997, asked them -- hopefully somebody is over there that was there in 1997. I think paul hilgers was.
>> martin gone goon.
>> yeah, more than continue gonzales. Were you there ropblger in 1997?
>> no.
>> so get an idea of them well was this competition -- you know, was it really a factor in hurting one or the other program.
>> I actually did that bond program and what happened was they lagged -- m.c.c. Waited until the bond program was just about finished then they kicked off the other.
>> so they really went going at the same time.
>> we can always revisit this as we get to the end of our program and make a decision at that point of do we want to go after and try and --
>> they have a lot of cap right now at the state.
>> you know, the appeal to me, considering it at this time was that the city was going to -- is going to move ahead with a m.c.c. Program and how nice it would be to offer a m.c.c. For the whole county, mack it easier for the lenders and the whole community that you would have one program -- you would have two programs, but very similar programs for the whole county.
>> thank you very much.
>> thank you.
>> number 4, approve minutes of board of directors meetings of December 16, 2003, and February 10, 2004.
>> so moved.
>> all in favor? That passes by unanimous vote.
>> move adjourn.
>> all in favor? That passes by unanimous vote.
Last Modified: Wednesday, February 25, 2004 6:44 AM