Tag Archives: sleeping second mortgage

Innovations at Novato’s Skylark project

Marin Independent Journal  Friday, January 31, 1986

By Clark Blasdell and Dwayne Hunn

JUST UP THE ROAD from the Marin Independent Journal, 15 more families soon will be moving in at the Skylark housing project, another development by Novato Ecumenical Housing.

This Ignacio project will set a state record when 19 of its 37 homes are sold at below-market rates to first-time Marin homebuyers who. earn less than 80 percent of the county’s median income of $27,500.

There are several innovations connected with this project. Itemizing them gives us an idea of how difficult it is to build affordable housing in Marin.

With a balance sheet of zero, Novato Ecumenical Housing received a $350,000 California Housing and Community Development loan — one of their largest single commitments. Coupled with Community Development Block Grant funds and in-lieu fees from developers, NEH now had enough funds to purchase the site on Alameda del Prado near the Skylark Motel.

The city of Novato’s Housing Opportunity Program encourages affordable housing development by allowing certain sites to be built at the top of the density range, thereby reducing a developer’s per unit cost. One of these sites, was found.

By using the $350,000 predevelopment loan, NEH was required to make half of the development affordable to low-income households — those with earnings from $19,250 to $27,500. After eight lending institutions rejected NEH’s construction-loan application because of the project’s financial complexity, Citicorp granted a $2.35 million loan in February 1985.

NEH’s contribution was to come from $973,984 in grants it obtained from nine different funding sources.

Also part of the funding package was $2.754 million of first-time homebuyers’ mortgage money through the $22 million Marin County Tax Exempt Bond Pro gram, issued at a fixed 30-year rate of 10.5 percent.

To obtain this money, points (prepaid interest) had to be paid to the bond broker. These fees were paid by another block grant allocation.

Through the process, NEIl was determined to build the best project possible. We began by choosing California’s 1981 Affordable Housing Design winner, Mike Moyer, as project architect. He integrated all-redwood siding, solar domestic hot water beating, all-gas appliances, extremely high-efficiency gas furnaces, thermo-paned windows and edible landscaping into the one and two-bedroom designs. PG&E later awarded Skylark its Energy Conservation Award.

To make we homes affordable and to ensure that pride of ownership would be maintained, NEH created second trust deeds (mortgages) with deferred principle and interest, along with a shared-appreciation program for the below-market-rate buyers.

As an example, suppose such a buyer purchases a unit at $100,000, but can only finance $60,000 (down payment plus first mortgage). The remaining $40,000 in value is carried by NEH as a “sleeping” second mortgage requiring no payments until the unit is sold.

At that time, the first and second mortgage are repaid and the appreciation beyond that is split between the original buyer and NEH. This split, in essence, is NEH’s deferred interest.

For market-rate buyers, NEH provides interest-rate buydowns. For example, suppose a first-time homebuyer purchases a unit at the 10.5 percent interest rate. NEH may do a 2-to-1 buydown, which means it pays part of the interest for each of the first two years.

This means that in year one, the interest is 8.5.5 percent, in year two it is 9.5 percent and for the remaining 28 years it’s 10.5 percent. This often helps the buyer qualify by reducing initial monthly payments.

To cost-effectively carry out the design and ensure hometown accountability, a Novato builders’ consortium of respected builders was formed– Grippe, Parode, and Timmer.

As NEH enters its second full month of marketing, prices start at $88,000 with uniquely designed two-bedroom units available at $105,000. Spacious two-bedroom townhouse design s are priced at $114,950. A few below-market-rate units may also still be available.

Interested people should contact Home and Land Realty (454-9900) to take a look at the spectacular and affordable record-setting project that NEH and the community of Novato are proud to have created for Marin.

More than half the units at Novato’s Skylark housing will be sold at below market rates




Clark Blasdell is executive director of Novato Ecumenical Housing. Dwayne Hunn is assistant director and Skylark’s project manager.