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City Committee Could Revise Loans Made Under City’s Home Ownership Opportunity Program

Published on Monday, September 14, 2020 | 3:00 am

Members of the Pasadena City Council’s Economic Development and Technology (EDTech) Committee will discuss a proposal by the Department of Housing to modify repayment provisions for loans by new or prospective homeowners under the city’s Homeownership Opportunities Program (HOP) at a special meeting Tuesday, Sept. 15.

If approved, proposed changes to repayment terms would reduce monthly installment amounts, making homeownership more affordable. 

A report by city Housing Director William K Huang showed his department is recommending 61 HOP loans currently in the city’s homebuyer assistance loans portfolio be modified in order to bring them into alignment with present HOP loan repayment provisions and Federal National Mortgage Association – Fannie Mae – underwriting guidelines.

In addition, borrowers whose HOP loans will be modified as recommended would have the opportunity to consider Fannie Mae mortgages, which may have more advantageous terms than non-Fannie Mae financing, including broader debt-to-income ratios and lower credit requirements. 

The report said the recommendation was formulated in response to a request by Vice Mayor Tyrone Hampton to review HOP guidelines.

Pasadena’s HOP has provided financing to assist low- and moderate-income persons and families to become first-time homebuyers since 1982. Funding for the program is sourced from the city’s redevelopment and inclusionary housing dollars, the federal Home Investment Partnerships Program (HOME), the Building Equity and Growth in Neighborhoods (BEGIN) Program, and CalHOME, a statewide program that provides grants to local public agencies and nonprofit developers to assist individual first-time homebuyers. 

Currently, the city’s HOP inventory consists of 199 outstanding loans with a principal balance of approximately $12.2 million, the report said. 

The program assists homebuyers by providing a trust deed loan, which is recorded in a junior lien position to the conventional first mortgage. 

Depending on when the HOP loan originated during the program’s 40-year history and/or the funding source utilized, the term of the HOP loans is either 30 years or 45 years. Loans carry either a fixed interest cost (a promissory note rate in the range of 1.5 percent to 4 percent), a contingent Interest cost (also known as shared appreciation), or both. 

Funds received by the city from the repayment of principal, fixed interest, and contingent interest are deposited into the applicable housing fund. Also, in keeping with recorded covenants, HOP-assisted properties are subject to the city’s right of first refusal to purchase the property upon resale by the borrower. 

In 2009, Fannie Mae, one of the nation’s largest purchasers of mortgages on the secondary market, adopted new underwriting policies, generally referred to as “community soft seconds,” which impacted the type of subordinate financing that local governments could provide to homebuyers. 

Specifically, conventional mortgages that are underwritten to Fannie Mae guidelines could not be utilized in home purchase or refinance transactions if the local agency’s subordinate homebuyer assistance loan, such as Pasadena’s HOP, were to impose both a fixed interest cost and a shared appreciation cost, such as the city’s contingent interest cost. The local agency loan may require either fixed interest or shared equity, but not both.

Fannie Mae-underwritten mortgages offer a number of advantages for borrowers who seek to purchase a home or to refinance, including lower down payment and equity requirements and expanded borrower eligibility provisions. In addition, Fannie Mae loans can also easily be paired with additional federal and state down-payment and closing cost grants and loans, which help enable borrowers without large amounts of cash or savings on hand to purchase homes. 

If approved, the Housing Department’s recommendation will also include authorizing the city manager to execute loan modification documents to put into effect the revised repayment terms of specified outstanding HOP loans. 

Explaining the fiscal impact of the recommendation, the Housing Department said approval of the revisions would result in the estimated reduction of approximately $87,372 in annual interest revenue from scheduled HOP loan monthly payments.

To access the online special meeting, visit or

Public comments may be submitted in advance through this email address: before the meeting, or through when the meeting is in progress. 

The special meeting begins at 4 p.m.

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