The Homeownership Through Public Housing Assistance (“HOT-PHA”) is a transformative program developed by NACA for public housing authority Housing Choice Voucher (“HCV”) recipients (“Participants”). This innovative initiative allows Participants who seek to become first-time homeowners to combine their HCV with all the benefits of the NACA Mortgage and local government assistance to purchase a home. Participants can own their home – free and clear – without a mortgage in 20 years or less, resulting in a significant wealth gain for the homeowner and long-term financial independence for the homeowner. It is a truly groundbreaking program that housing authorities nationwide are now starting to use, and at no additional cost to them, to permanently transition families from housing assistance. The existing homeownership program has had very limited success and the few successful homebuyers had higher incomes.
The HOT-PHA program overcomes the existing program obstacles providing Participants with the opportunity to become homeowners on a large scale. Participants receive NACA’s comprehensive pre- and post-purchase counseling ensuring their readiness for homeownership. They also can access NACA’s Best in America Mortgage with these extraordinary terms without consideration of their credit score: no down payment, no closing costs, no fees, no mortgage insurance at a below market fixed rate. The NACA Mortgage is the perfect mortgage product to overcome the existing obstacles particularly with NACA’s below market fixed rate 20-year mortgage and character-based underwriting criteria.
This is the ideal program for families to permanently transition out of public assistance for housing and begin to build generational wealth. The approved Payment Standard that currently is paid to the lender now goes to the lender paying the Participant’s monthly mortgage payment. The lender receives a monthly payment each month from the PHA and Participant. The lender applies the combined payment first to the mortgage payment (i.e., PITI) for a 20-year term and then the remaining amount (i.e., the Accelerated Principal Payment) to the outstanding principal to reduce the mortgage term. In addition, the PHA may increase the Payment Standard to account for increase costs of living and changes in the housing market.
The Payment Standard is a virtually guaranteed payment of the Participant’s mortgage payment for 15 years. The Housing Choice Voucher pays the difference between thirty percent of the recipient’s income and the mortgage payment (i.e., PITI) plus any Accelerated Principal Payment to reduce the mortgage term. If the Member’s income goes down, the Housing Choice Payment from the PHA increases thereby virtually eliminating risk. The Participant’s portion is the same whether the Payment Standard is used to pay rent to a landlord or a mortgage payment to the lender. Elderly or disabled Participants would receive the Payment Standard up to 30 years to pay off the mortgage since they would receive the Standard Payment for the life of the mortgage (i.e., 30-years).
The Payment Standard is based on the number of bedrooms required by the Participant depending on family size, composition, and the neighborhood (e.g., zip code) where it is applied. NACA will pre-approve the Participant for their maximum purchase price based on the PHA approved Payment Standard and a 20-year or 30-year loan term. The HCV payments will pay for 15 years or up to 30 years for elderly or disabled Participants. If the Participant purchases a home with a mortgage payment (e.g., principal, interest, taxes, insurance) less than the Payment Standard, the remaining amount is applied to the principal which accelerates the loan amortization reducing the mortgage term. Since the HCV pays for 15 years, except of elderly or disabled Participants, the accelerated principal reduction would decrease this gap. If there is no additional principal reduction, after 15 years the Participant would have over 75% equity with the 20-year amortization and a conservative two percent increase in annual property value. The Participant is well positioned to own their property with no mortgage payment in less than 20 years.
NACA PURCHASE PROGRAM & MORTGAGE
The HOT-PHA is the most effective use of NACA’s Best in America Mortgage for low-income individuals and families. Major lenders have committed $20 billon to the NACA Mortgage with $15 billion in commitments coming from Bank of America. NACA uses character-based, full documented underwriting guidelines. Over more than twenty years, NACA has originated over 75,000 mortgages through its Purchase Program with an exceptionally low foreclosure rate currently at 0.012% (i.e., about one-hundredth of one percent). This demonstrates the effectiveness of providing an affordable mortgage and comprehensive counseling to low- and moderate-income borrowers.
Participants must adhere to NACA’s requirements for homebuyers, which includes comprehensive counseling and full-documentation underwriting. The Participant’s mortgage payment is supplemented with the HCV. Participants who are not disabled must work full-time as defined as defined in the HUD Guidelines. While the NACA mortgage does not require down payment, closing costs, mortgage insurance or other fees, Participants need minimum required funds for pre-paids (i.e., property insurance, taxes and mortgage interest) and reserves. This can come from the Participant directly, from the Participant’s personal savings through the Family Self-Sufficiency (“FSS”) program, or from other government programs. In addition, HOT-PHA can be combined with grants and assistance by government and other entities to increase the Participant’s access to available properties in the local real estate market. This can be used to permanently buy-down the interest rate or reduce the mortgage principal allowing the Participant to purchase a higher priced home or reduce the mortgage term with a lower monthly mortgage payment.
NACA provides the best mortgage in America with these extraordinary terms and character-based criteria:
- Down-payment – None
- Closing costs – Lender Paid
- Fees – None
- Mortgage Insurance – None
- Loan-to-value -100% for purchase and 110% for purchases with a rehab
- Credit Score – No consideration
- Interest Rate – Below market fixed rate
- Term – 20 or 30-years fully amortizing
- Interest-rate buy-down: each one-and-a-half percent permanently reduces rate by 0. 25%.
- Property Types: Single family, condos and co-ops, new construction or existing.
- Renovation: Finance the cost of repairs to be completed after mortgage closing.
- Credit Score – No consideration of the credit score.
- Payment History – Reasonable on-time payment history for payments Participant has reasonable control over the past 24 months with a focus on the past 12 months.
- Mortgage Payment – Payment Standard based on the Participants required number of bedrooms and other PHA factors.
- Participants’ Payment – Participant’s 30% of their gross income less allowable deductions.
- HAP Payment – Mortgage payment minus the Participants’ Payment.
- Debt Ratio – Participant’s Payment plus Participant’s monthly liabilities divided by the Participant’s gross monthly income not exceeding 43%.
- Minimum Required Funds – Participant funds for the home inspection, reserves and pre-paids
- Employment – Steady employment for at least the past 24 months (unless retired or disabled).
- Income – Income for at least the past 24 months with likelihood of continuation.
- Charge-offs – Do not need to be addressed.
- Collections – Resolved if within past 24-months or in an approved payment plan.
- Inspection – Must pass HUD inspection requirements with a licensed inspector.
Below are the requirements for all the parties participating in the HOT-PHA.
- Must have met and continue to meet the requirements.
- Cannot be in default on the rental/ housing payments. Must have a minimum of 12 months on time rental/ housing payments.
- Participants must have steady rental occupancy without frequent changes demonstrating responsibility and readiness for long-term homeownership.
- Minimum hourly wage multiplied by 2,000 hours.
- Minimum average of 30 hours per week for at least a year.
- Attend a NACA homebuyer workshop.
- Applied to mortgage payment for principal, interest, taxes, insurance, and HOA fees regardless of mortgage amount.
- Payment Standard divided into two mortgage payments with the PHA and Participant sending their payment shares separately to the lender.
- If Payment Standard is greater than the mortgage payment, the remainder is applied to the principal which reduces the 20-year term.
- FSS Participation is encouraged but not required.
- Communicate to HCV Recipient including emails, texts, flyers and other outreach to lean about the program by attending a NACA Homebuyer Workshop.
- Access to grants funds to benefit Participants in permanently reducing the interest rate and/or reducing mortgage principal.
- Provide access to NACA’s Best in America Mortgage.
- Provide free Homebuyer Workshop.
- NACA Housing Counselor provides comprehensive budget and housing counseling preparing Participants for homeownership.
- NACA post-purchase counselor provides ongoing support for homeowners including budgeting, foreclosure prevention and other assistance.
- NACA dedicate staff through the HAND department to assist the homeowner with repairs or renovation of their property.
BENEFITS FOR ALL PARTIES
Participants move from financial dependence to affordable long-term homeownership and greater financial independence. This is a private sector initiative that utilizes the existing HUD homeownership regulations without the need for additional government assistance. It is truly one of the few programs that people across the political spectrum can support because of its benefits to Participants, public housing authorities, lenders, and communities. It moves people off public housing assistance and into homeownership providing neighborhood stabilization with more inclusive and diverse neighborhoods. This program is a national model that will become a major part of housing authorities’ policies and a true game changer for recipients of public housing assistance nationwide.
Participants are likely the first in their families to become homeowners and have real opportunities to provide stability and accumulate wealth for themselves and generations to follow. Participants can build significant wealth through home equity. Participants now have the means to break out of the cycle of public dependency and become financially independent.
Public Housing Authority (“PHA”)
The program will significantly reduce the costs of lifetime HCVs borne by the PHA and achieve its ultimate mission of ending dependence on government housing assistance. Currently, PHA/HUD is obligated to make rental payments for the lifetime of the Participants. The HOT-PHA ends government assistance within 15 years or less and saves the government hundreds of thousands of dollars in rental payments for that Participant. It also makes additional vouchers available without requiring additional government assistance. In compliance with the Quality Housing and Work Responsibility Act, this assists the PHA in achieving the goal of making homeownership available for public housing recipients.
The mortgage issued through this program is of high quality and will easily meet a lender’s CRA obligations. The mortgage payment is virtually guaranteed by the PHA. The Participant is approved based on stable income, on-time payments and full documentation underwriting. In addition, the 20-year or less amortization results in very fast equity growth that can cushion the Participant’s financial obligations. Thus, even if mortgage payments are interrupted or stopped because of extenuating circumstances, loss, default or foreclosure can be avoided.
The Housing Authority can implement the HOT-PHA within the existing HUD guidelines, including the following:
1. Section 982.635 – Homeownership option: Amount and distribution of monthly homeownership assistance payment
This section defines the mortgage payment and includes the following: principal, interest, taxes, home insurance, allowance of maintenance expenses, allowance for costs of major repairs and replacements. Importantly, this section does not limit the amount of the principal payment. It also states that the HAP payment can be paid by the Housing Authority directly to the lender.
2. Section 982.632 – Homeownership option: Financing purchase of home; affordability of purchase
This section allows the PHA to “establish requirements or restrictions concerning debt secured by the home.” The PHA can thus require that the Participant’s Mortgage Payment include the accelerated principal payment. All PHA financing or affordability requirements would need to be described in the PHA administrative plan.
3. Section 982.634 – Homeownership option: Maximum term of homeownership assistance
The maximum term of assistance is fifteen years if the initial mortgage has a term of twenty years or greater, or ten years if less. The accelerated principal payment with the NACA mortgage allows for full pay-off within this term. The elderly or disabled receiving 30 years of assistance would not require the accelerated principal payment.
4. Section 982.625 – Homeownership Options: General
This section allows for NACA’s no down payment mortgage if the PHA can demonstrate in its Annual Plan that it has the capacity, or will have the capacity, to successfully operate a HUD/PHA homeownership program. There is no requirement for a minimum credit score, minimum savings, or other limitations. This allows NACA’s Best in America Mortgage to be effectively utilized.
5. Section 982.627 – Homeownership option: Eligibility requirements for families
This section defines the minimum income and employment that are incorporated in the program requirements.
6. Section 982.628 – Homeownership option: Eligible units
Property types can be single family, condos or coops. Properties can also be new construction if the unit is under construction or already built.
7. Section 982.631 – Homeownership option: Home inspections and contract of sale
This section requires a home inspection by a licensed inspector to determine that the unit passes Housing Quality Standards (“HQS”). The HQS utilizes either the HUD or PHA standard. This standard should consist of what the private sector currently uses when the required repairs will be completed after the mortgage closes. In such cases, the inspector will verify that the rehab escrow funds are sufficient to complete the required repairs and the funds would only be released upon verification by the inspector of the completed work. The lenders holding the mortgages have approved and support this process and will determine whether the unit passes the HQS.
8. Section 982.630 – Homeownership option: Homeownership counseling
NACA is the largest HUD approved counseling intermediary and provides about twenty percent of the counseling in the country. NACA provides both pre and post-purchase counseling that far exceeds HUD requirements. NACA’s comprehensive housing counseling has been recognized as the national standard.
9. Section 982.640 – Homeownership option: Recapture of homeownership assistance
Participants will not have to repay any of the homeownership assistance since they would be receiving the HAP for ten years, and at the end of ten years the homeownership assistance subject to recapture will be zero.
Maximum Mortgage Amounts – Examples
The following maximum mortgage amount example uses the Standard Payment, based on number of bedrooms, as the mortgage payment. It shows the maximum purchase loan amount using NACA’s 20-year one and one-half percent (150 basis points) below market fully amortizing conventional market mortgage. It also shows for disabled and retired Participants NACA’s 30-year one percent (100 basis points) below market fully amortizing conventional mortgage. The maximum purchase price can be increased with government, other grants and support.
- Grant / government support of 3% of the loan amount applied to interest-rate buy-down
- Below market current interest rate before NACA buy-down
- 20-year term: 5.00%
- 30-year term: 5.50%
- Property Tax and insurance:
- 20-year 19% of total PITI
- 30-year 23% of total PITI
|Bedrooms||Studio||1 BR||2 BR||3 BR||4 BR||5 BR||6 BR|
|Standard Payment – Low||$625||$737||$915||$1,145||$1,261||$1,450||$1,667|
|Standard Payment – Medium||$745||$881||$1,060||$1,326||$1,466||$1,658||$1,906|
|Standard Payment – High||$1,313||$1,509||$1,860||$2,327||$2,564||$2,948||$3,333|