Travis County Commssioners Court
April 6, 2004
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Item 29
29. Consider and take appropriate action on request to create a new housing finance corporation for the purpose of implementing a single-family lease-purchase program and other related matters. Good morning.
>> good morning, judge. Good morning, judge, members of the court, my name is wylie hopkins, executive director of the housing authority of Travis County. A little background. We are -- we appeared before this court February -- to get authorization for a working group for this particular program. Suddenly we came back on March 2nd, with -- with -- with the questions and concerns and answering some of those. And we provided members of the court on March 11th supplement terri responses to -- supplementary responses to questions and concerns. Might also state for the record that we have been the housing authority for the city of Austin in November because this program is a joint jurisdiction program of city of Austin and jurisdictions as well as Travis County. And they approved a resolution and -- and cooperative agreement in that regard. We are coming before you today after doing very comprehensive and in depth study and research about -- about the program as requested by members of the court and we feel that we -- that we are better in having done that. We -- we feel stronger about the program than even we did early on. We were very excited and -- about the program and we remain that way. We are -- winter at the point now -- we are at the point now that we would like to clarify any question that's you might have about the program as -- as you recall we described the promise matic side of it -- programmatic side of it in detail. If you have other clarification that's we need, we would like to welcome that. Before that I would like to reduce immediate right keith holpower, my able staff. The first staff person will be administering from the staff perspective. The director of home ownership and development for the housing authority of Travis County. We are ready to move forward with this issue and see if we can get where we need to be to and he could it this. Expedite this.
>> there are a couple of things that I think we ought to get on the record. The first one would be assuming the proposal is approved and bonds are issued, what effect, if any, will have they have on the county's financial position?
>> we -- we early on addressed that issue with the -- with the assistant county -- county auditor. And she had gotten a response from the county attorney's office. The impact of those questions was -- was actually these corrections were directed to that office by harvey Davis. The response was based on the information that's been provided, does not qualify as component or gasb 14 development sections that are noted below. In conjunction with that, as regarding liability, since there's not -- this organization would not be a -- a corporation would not be a component of the county, there would be no legal liability. This memorandum is dated February 13th of this year.
>> mr. Blunt, do you have a legal position on that? For the record? Mr. Blunt it not here. Mr. Blunt needs to talk to the Commissioners court.
>> he was just here. While we're waiting for him to get back in here, relating the city of Austin's approval to occur within their jurisdiction, did they overlay any requirements in terms of stipulations related to their agreement that this could occur in their jurisdiction? This is the smart housing question, how does that figure in terms of their insistence --
>> a point of clarification, Commissioner, that's a good question. What I was hall lewding to earlier -- what I was alluding to was the city of Austin housing authority.
>> ah housing authority.
>> but to answer your question regarding the smart housing issue. That we had ongoing dialogue in that regard. Our specific position is that we will continue to work with them in that regard. This is not in any way adverse to smart housing. In fact it would probably promote their program significantly. We do not anticipate it being a requirement because we feel that it would be too stringent on the participants as well as the institutions that -- that are administering the program.
>> okay. But in terms of your counter part the Austin housing authority, we have said cool, not a problem.
>> that's correct.
>> the issue of smart housing is not one that is an Austin housing authority issue in terms of an overlay.
>> no, ma'am.
>> okay.
>> correct.
>> so would homes inside the Austin city limits be eligible.
>> yes, they would, under the precept of forming the corporation.
>> without any kind of supportive action from the city of Austin or the city of Austin housing authority?
>> we already had the supporting documentation, support from the housing authority, the city of Austin. It would have precluded the necessity of having a resolution with the city of Austin regarding --
>> so you did get the support of the city of Austin housing authority and you have it already.
>> yes, that's correct.
>> okay. Do you have it in a form that cannot be taken back?
>> it's actually a joint corporation agreement, the authority -- gives them the authority to do home ownership in our jurisdiction as well as theirs.
>> okay. My question went to potential legal liability. For Travis County as a result of issuance of $25 million by the new corporation.
>> this new housing finance corporation would be a separate corporate entity under chapter 394 of the local government code. As such the county would not have any legal liability for any of the debts or obligations of that new hfc. In addition we haven't gotten far enough to really review the documents that will actually be on this transaction, but it's my understanding the way it's been described to me that another entity will actually be taken, the ultimate -- taking the ultimate financial risk on these obligations in addition.
>> this will not be listed as conduit debt on the county's financial record.
>> we have spoken with the auditor's office, they have told us what needed to happen inside the articles of incorporation or how the corporation is structured and we have drafted those articles of incorporation to match those requirements so that it would not need to be included.
>> okay.
>> yes, sir.
>> let's say we issue the bonds, we use $3 million of it and it becomes clear that the program is not working. So you would use unexpended balances to -- to satisfy bond holders.
>> yes.
>> but then there is that $3 million and I assume there would be some security in the form of homes.
>> homes and there will be certificates from -- is it freddie mac.
>> freddie mac certificates, which would affect those.
>> so any shortfall would be covered by freddie mac?
>> yes, sir.
>> the -- beg your pardon?
>> that's my understanding, yes, sir. I haven't reviewed all of the documents yet, we haven't gotten that far from the process yet.
>> would this issue be insured, also.
>> you mean from bond issue? Or is freddie mac is that just with the freddie mac certificates.
>> just credit in the hands of the freddie mac certificates, some of deals that we have done from time to time there's triple a bond issue behind it that will not be there, just the freddie mac certificates, which will cause the bond to be triple a I?m sure.
>> so the deputy pockets would not be Travis County or the new corporation, it would be freddie mac.
>> that's correct.
>> we have every assurance that freddie mac will be supportive.
>> yes, sir, and if for some reason that doesn't work out, I don't think this transaction will work from a financial and underwriting perspective if freddie mac were not --
>> okay. We -- you did address the questions that we asked about -- about step that's we have taken to -- to increase the likelihood of success in this community. It would just get those on record, can we get just a brief statement of them?
>> yes, sir, i'll be happy to do that.
>> okay.
>> we have taken several steps to make sure that this program is successful over the time it would be in operation. One of those things is that we have insured that we have a first class program administrator that's being brought in to oversee this program on a day-to-day basis. That program administrator will be on this job not just for origination, but also through the lease overseeing the lease and the credit repair of the participants and getting them into the homes themselves and taking assumptions so that they eventually have home ownership. We have also built a very strong infrastructure of providers, service providers, both for home buyer education and for credit rehabilitation. We have also already begun, we have laid the ground work now for a strong relationship with the lending community and with the reality community to go along hand in hand with the education providers. Those -- those are key components in making this program successful. We also have -- have a mortgage product that will keep in pace with the market as opposed to having a rate set at the beginning and running the risk of the market leaving the rate. That rate can be adjusted on a quarterly basis. So with those factors put in place, we think that we have answered the concerns that have been addressed to us and we feel that we have a team in place that will make this program successful.
>> just three more and i'll be done. We have in mind a [indiscernible] person manager that has experience and we'll be able to call on. What if she hits the lottery or comes into some other fortune some other way and decide I?m through with working, I?m moving on. Do you think that we would be able to get an appropriate person to basically step understand keep working?
>> step in and keep working?
>> she has those people on staff if she were to decide to step out of the business herself. In the veentd if she were -- owe vent if she were -- event if she were not to have the company at all, I will be going through training with her as we bring this program on board and will be able to administer the program if need be directly from the housing authority.
>> okay. How can we ensure that the participating lenders who have shown interest will in fact actively participate.
>> we will be asking for letters of commitment from those lenders. Also along with that, comes a price of a full point of their commitment amount. We have put information before the court previously of just five of the lenders interested in participating in the program. They provide a conserve -- they provided conservative estimates, also letters of support regarding the program. Based on their conservative estimates, it would already use up the amount of the issue that we are requesting to come out with. And along with that, it's also important, I think, that we have the ability to adjust that rate. That also keeps our lenders at the table and helps them feel like they have a product that is marketable.
>> one issue or problem that mr. Davis ran into, or discovered, was that some of the persons doing the leasing were leasing at a rate that was higher than market. Where they were. And I guess the reason for that is that we were trying to -- trying to charge enough to set a little bit aside for down payment assistance, a little bit aside for other things that have to be funded. But some of these lessees concluded in the middle of the program, I can lease somewhere else for less, so financially it makes more sense to me right now to lease elsewhere. I mean, how do we deal with that issue?
>> I think there's really two components to that, your honor. The first component is I think that there may have been instances in past programs where -- where organizations may have wanted to utilize that lease payment to generate additional fee income back to the originator. That is not the case in this transaction. The -- any premium that's associated with the lease payment is set to cover costs that were already incurred at the beginning of the transaction. In addition to that, it's also important I think to look at this program from the stabbed point of -- standpoint of this is not a program for people looking for a cheap place to rent. This is a home ownership program. We work very hard to make sure that any participants understand that the goal of this program is not to provide you with the lowest rent in town. It's to provide you with a mortgage rate that is right at market or market and, excuse me, give you an opportunity, if you can make the lease payment for 39 months, to then own that home as opposed to continuing to lease payments. It also provides the individuals time and an opportunity to repair their credit history as well. So there's a very -- very kind of encompassing set of benefits that come with this program that -- that far outreach just looking for affordable rent. And we need to make sure and participants need to make sure that they are making that commitment to home ownership.
>> my final, final question, at this time is I had suggested maybe the court appoint one or two people with a special expertise that might be able to assist the current authority' board in implementing the program if the court approves it. And the answer you all gave me was that you all would not have any objection to take.
>> that's correct.
>> if the courtesies fit. F the court sees fit.
>> we would welcome that scenario.
>> okay. Commissioner Davis?
>> I just have a couple of questions, thank you, judge. Leaning towards home ownership to this lease program, the educational aspect, I think you brought up a good point with a couple of comments about this is not a lease, this is leading, going toward home ownership. I think it's very important what you just said. But be that as it may, what -- what are the -- what other tool will you use to impress on the individual that are going through this program that that is really just a -- just the case. In other words there's a certainly responsibility that goes along with home ownership and let's say at the end of the period where a person can go into the ownership aspect of it, let's say that they are still not ready. There's an opportunity for them to continue to lease until they are ready. I?m just really concerned about those two aspects of the program, can you help me out with that, please.
>> i'll be happy to. To the points of someone nearing the end of their lease term, needing to raise their credit score in order tocal phi, there is an opportunity to do an extension to give them additional time to get their --
>> okay.
>> -- from the other question that you had, regarding what do we do to impress upon them the importance of understanding that this is a home ownership program, one of the things that we do is we impress upon them through the prequalification process, when they come to us, there are certain questions, certain information that we seek from them so that our administrator knows that they are good for this program. There are things -- the program is explained to them up front before they get enrolled. So that they understand this is a commitment toward moving to home ownership. We also have service, which I mentioned service providers, one of the things that is mandatory is home buyer education, which has been certified through freddie mac. Every single participant has to do that first as part of going through this process so that they clearly understand and although it may seem like a small thing, one of the other things that we will be requiring is that let's -- be present -- let's the tenant be present and they sign the lease agreement at that time. That way they are at the closing table when that transaction takes place, that can be a pretty sobering moment if you have never been there. And on top of that, it also makes sure that when they get ready to do the assumption, it's not someplace they haven't been before.
>> thank you for those comments.
>> board members?
>> I would say I think that they have done a great job of answering the questions. Those were really good questions that you had. Obviously this is just another great mechanism to get home ownership --
>> ownership.
>> -- for people that for some reason, let's face it, we know a lot of people that are not bad people, I mean,, you know, credit issues have hit a lot of people in this community of the last five years. So really what this is, you still have to go through a very stringent exercise to participate and be part of the program like this. I think that it's great that -- that we have the opportunity to extend this kind of opportunity.
>> thank you. We do, too.
>> now --
>> I think that it is, too. The thing, though, that -- the -- I can't stress the educational part of it, be up front. In making sewer that people understand -- making sure that people understand. It's amazing the things that people say they understand and they don't. Like I didn't know my payment was going to go up when taxes go up. They -- that seems to be the question that always comes up more a lot. I thought my payment was going to remain this amount throughout the 30 years or however many years. So -- so it's really crucial, if you all would do that education up front and for them to understand so that there's no disappointment whatsoever and no misunderstanding of what that commitment met -- meant when they signed on the dotted line.
>> all right.
>> to be a home owner.
>> right.
>> so it's really, really crucial that that occur.
>> we'll do that.
>> we do get -- we did get answers to the question in writing.
>> yes.
>> these answers were provided by the company? Who provided these answers?
>> it was a joint effort between the staff of the housing authority and our representative from george k.bauman & associates.
>> can we state for the record the names of the people.
>> yes.
>> that we can depend on in the future to stand behind them.
>> yes, that would be mr. Guy [indiscernible] with [indiscernible]
>> he is here today, right?
>> yes, he is.
>> anything from you before we take action? You are being kind of quiet. Eloquent in your --
>> thank you. I appreciate the opportunity to [indiscernible] [inaudible - no mic] obviously a very extensive set of questions, an all encompassing program [inaudible - no mic] ensure that it goes correctly. With that having said, I will sit back down and let you all --
>> one final question.
>> we need you to sit in front of that mic.
>> if you could help me out, this final question. [indiscernible] several citizens here in the community are renters, of course they love to have home ownership. This program will probably be able to help a lot of folks. However, folks out there right now may not know about the program. Any existing programs. How will that be achieved as far as word of mouth I know is one thing we talk about a lot. But what type of effort will be -- [indiscernible] blah blah blah blah, at lease to purchase, own your own home, da-da-da, this is what we are going to do, blah blah blah blah blah. How will you actually just do that advertising? I know [indiscernible] how it will be done effectively in a lot of areas that really do need home ownership, all across the county.
>> is that -- we will do that a number of ways. Our program administrator which she comes on line, she and I will be going out to community and neighborhood groups to put on training, we will also be working with faith based organizations, church groups --
>> you say faith based?
>> is this -- I said faith based.
>> okay.
>> also we will be doing lender training and relator training so our lending partners and realtors in this market will be aware of that program. That will be ongoing marketing through different media sources such as not just the city newspaper, Austin statesman, but also community newspapers as well. We also will be doing announcements over local radio stations. To get -- to get word out about this program. The -- the marketing component, it will be continuous as we go through this process.
>> I guess my concern, if there wouldn't be an objection from the court if this is approved and we go forward with it, because I?m pretty excited about a lot of folks having some opportunities they have never experienced before, that's home ownership, if that could also maybe end up going, within the rules and regulations on -- on our county, on channel 17.
>> sorry --
>> something that you can look at and folks look at channel 17 and they maybe can see an opportunity of home ownership which I think would be freight. Be great.
>> we welcome that.
>> judge. In your list of questions you had given to the housing authority to answer, at the bottom of page 30 there was one that referred to me and it says that I would have commentary. Since you have been so diligent to include everything on the record that you wanted to include. I didn't want to not comment on the variable rate nature of the bonds. Variable rate bonds are used for these types of things quite often. But setting the variable rates you are at the bottom end of the yield curve. You are really at low rates. I think on the bond rate today on the end -- in the index, the formula that would be used here would be around 1.6. So that gives the -- gives the space in there to make sure that we don't have the problems that we have talked about under some of the other county housing finance corporation problems with -- with negative arbitrage and that sort of thing. That's what makes it -- variable rate makes this deal really work. The credit facility that backs it is from a french bank. They are in new york city. They are huge, they are double a plus rated, just about a half a notch below what our county rating is. Maybe they will catch up with Travis County's rating some day. But they are very good at providing this sort of thing. For any reason the remarketing agent could not remarket the bonds due to whatever situation in the market, when they remarket weekly, then that credit facility would make the difference. So that's the strength of the deal with the -- with the freddie mac backing.
>> so if we approve it today, the next step is the attorney general and then putting together the official documents that have come back to the court for approval?
>> I believe the next step would be to actually form the housing finance corporation and talk with the attorney general about I think there's a couple of issues that we need to make sure that we are all on the same page with. And then put together the documentation for the program, the actual bond issuance and come back at that point.
>> okay. Move tentative approval of the program, authorize proceeding with -- with steps necessary for implementation.
>> second.
>> that's new york city and [indiscernible] the branch [indiscernible] [laughter]
>> Commissioner, couldn't get adjournment if there, I?m sorry, we tried.
>> that's a double whammy.
>> judge, with that motion, would it be friendly that the advertisement as was mentioned earlier --
>> no problem. No problem.
>> channel 17 be included. So folks will know that they can have an opportunity for home ownership in Travis County.
>> thank you.
>> that's friendly.
>> all right, thank you. Any more discussion? All in favor? That passes by unanimous vote. Thank you all very much.
>> thank you.
>> thank you for your diligence, dedication, patience.
>> appreciate that.
Last Modified: Wednesday, April 6, 2004 9:31 AM