Changes to the Teacher Housing Program (THP) are needed in June to take advantage of the peak summer real estate market. The Housing Department wants to provide funding to as many teachers as possible in the coming months.

The Housing Department recommends that the City Council adopt a resolution:

• Modifying the Teacher Homebuyer Program (THP) adopted by the City Council on June 29, 1999 and revised on April 4, 2000 as follows:
  • Provide teachers with a grant of up to $15,000 to cover expenses related to the rehabilitation of their new home.
  • Provide incentives to buyer’s agents by providing an additional 3% commission to those successfully matching a teacher with a home; and provide incentives to buyer’s lenders by providing an additional 1% commission to those successfully assisting a teacher in obtaining a loan.
• Provide bridge financing to teachers using funds from the Low and Moderate Income Housing Fund.
• Authorizing the City Manager to negotiate and enter into any agreements with real estate service providers necessary to administer the THP Program.

On June 29, 1999, the City Council approved the creation of a $2 million Teacher Housing Program (THP), which provides no-interest deferred loans to income-qualified public school teachers wishing to purchase a home in San Jose. On April 4, 2000, the City Council approved changes to the THP to address changing market conditions and to make the Program more attractive to teacher homebuyers. After evaluating the potential for success and interviewing teachers who had been pre-qualified to purchase homes, the Department believes that more far-reaching changes are needed.

The Department has made significant efforts to market and staff the THP, eight loans have closed to date, with an additional five expected to close within the next 30 days. Eight of the 13 loans have or will close under the new, revised Program.

• Financing Rehabilitation--Some teachers have indicated a reluctance to buy homes within their price range because the units are fixer-uppers, requiring rehabilitation that they cannot afford. Possible expenses may be: replacement of appliances, painting, new carpeting, and bathroom/kitchen updating. Up to $15,000 per teacher homebuyer would be available for this purpose.



• Realtor and Lender Incentives--Because teachers are buying homes in the lowest price ranges in the City (with less than 20% of all homes, condos and townhouses priced at less than $300,000), there is concern that realtors might not have the incentive to spend time assisting teachers in their housing search and lenders may not have the incentive to work with teachers. The Department proposes providing an incentive in the amount of 3% of the purchase price to realtors successfully matching a teacher with a home, and an incentive in the amount of 1% of the purchase price to lenders assisting teachers in obtaining loans.



• Bridge Financing--One of the difficulties teachers are having in securing a home is that they are being outbid by others, particularly those who can offer cash payment. The Department proposes that the City provide bridge financing from the Low and Moderate Income Housing Fund to address this situation. These funds would enable teachers to identify a property and quickly react by making an "all cash" offer with limited or no conditions. In so doing, it would allow the teachers to close escrow in 30 days or less, an improvement over the 45 to 60 day closing process typically required. The Department will provide the cash payment in escrow, and will be taken out when the private loan closes. Any funds remaining in the deal will be handled the same way as the general second mortgage assistance now offered by the THP Program. One of the key provisions of this recommendation is that all of the necessary transaction work be handled by third party underwriters, as described below.



• Third Party Service Providers--The Department recommends that third party real estate service providers be utilized to assist in the administration of the THP Program. Department staff would continue to provide marketing assistance, monitor the contract, and compile needed reports. To implement this recommendation, the Department proposes that the Administration be authorized to select a contractor(s), negotiate terms, and enter into an agreement. This agreement may need to be finalized in July when the City Council is on recess.

The Department has conducted numerous workshops and meetings to educate teachers, lenders and realtors about the Program. At these meetings, substantial feedback has been received about the Program’s terms and conditions as well as the current real estate market. The Department elicited the assistance of Capital Properties to contact more than 30 teachers who had been pre-qualified for loans from private lenders to determine how they were doing in their search for a home. In addition, the Department used the input of several real estate professionals in making these recommendations. Outreach efforts will be on-going to ensure that the private market-oriented real estate community provides the Housing Department with their professional input and advice.

This memo has been coordinated with the Office of the City Attorney.

Funds for this Program are available in the Housing Department’s FY 2000-01 Budget.

ALEX SANCHEZ
Director, Housing Department