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HomeMy WebLinkAbout29A - NSP2 AMEND TARGET AREAREQUEST FOR COUNCIL ACTION CITY COUNCIL MEETING DATE: APRIL 1, 2014 TITLE: NSP2 SUBSTANTIAL AMENDMENT CITY MANAGER RECOMMENDED ACTION CLERK OF COUNCIL USE ONLY: ❑ As Recommended ❑ As Amended ❑ Ordinance on 1" Reading ❑ Ordinance on 2n° Reading ❑ Implementing Resolution ❑ Set Public Hearing For CONTINUED TO FILE NUMBER Approve a substantial amendment to the Neighborhood Stabilization Program 2 Application revising the Neighborhood Stabilization Program 2 Target Geography Area, and authorize its submittal to the U.S. Department of Housing and Urban Development. DISCUSSION The City of Santa Ana was awarded $10 million in the second round of Neighborhood Stabilization Program (NSP 2) which is to be used to purchase foreclosed or abandoned properties. Since that time, there have been insufficient foreclosed and abandoned homes within the initial area. The proposed substantial amendment for NSP 2 will amend the Target Geography Area to include adjacent census tracts to allow the City to expend additional NSP2 funds. Revision of the Target Geography Area requires submittal to the U.S. Department of Housing and Urban Development (HUD) for approval. NSP2 regulations require that the draft Substantial Amendment be made available for a 10 -day public comment period. Public notice for the NSP2 substantial amendment was published in the Orange County Register, La Opinion and Nguoi Viet News on March 22, 2014, as well as on the City's website. The 10 -day public comment period concluded on April 1, 2014 at noon. All comments received will be included in the final document when it is submitted to HUD. FISCAL IMPACT There is no fiscal impact associated with this action. 29A -1 NSP2 Substantial Amendment April 1, 2014 Page 2 Shelly La ry -Bayle Housing pager Community Development Agency SLB /NV /kg Exhibit: 1. NSP 2 Substantial Amendment 29A -2 EXHIBIT 1 CITY OF SANTA ANA NSP 24 SUBSTANTIAL AMENDMENT SUBMISSION The City of Santa Ana proposes to modify its target geography initially identified in its NSP Application submitted in July 2009. Due to continual changes in the housing market, particularly the supply of foreclosed properties available on the market, the City of Santa Ana is proposing to add four higher producing census tracts and remove a census tract that has not provided any properties for the program. RATING FACTOR 1: NEED /EXTENT OF THE PROBLEM (a) Target Geography With the addition of the four census tracts (890.04, 992.48, 992.02, and 750.04), the City of Santa Ana is targeting additional census tracts that correlate with areas of the City in which there is an interest in redeveloping. The City has elected to remove one census tract that has not provided any properties for the program and to focus efforts in the new target areas. Since the City's NSP 2 Application, the City has identified opportunities for more affordable housing along key transit corridor of Harbor Boulevard. The Harbor Boulevard Mixed Use Transit Corridor Plan created a vision for the Harbor Blvd for housing opportunities and created the North Harbor Boulevard Specific Plan. In late 2013, the City approved a project along this corridor which utilized NSP funds. With the revisions to the target area, the City of Santa Ana has identified twenty -one census tracts which are listed below. The four new census tracts are highlighted in red in the table. Taken together, these census tracts have an average maximum score of 18, a number that clearly indicates excessive rates of foreclosure and abandonment that, if left unchecked, will have a debilitating impact on real estate values, crime rates and neighborhood stability in the area. The attached map depicts the City's boundaries, the target census tracts and their corresponding maximum score. NSP 2 Substantial Amendment - City of Santa Ana Page 1 29A -3 Census Tract State FORECLOSE VACANCY MAX 6059089004 CA 18 12 18 6059074803 CA 18 11 18 6059074701 CA 18 a 18 6059074802 CA 19 13 19 6059074805 CA 18 5 18 6059074801 CA 18 14 18 6059075202 CA 17 12 17 6059075100 CA 17 11 17 6059075003 CA 18 11 18 6059075002 CA 20 13 20 6059074602 CA 19 12 19 6059074200 CA 19 15 19 6059074103 CA 16 12 16 6059074102 CA 19 7 19 6059074702 CA 18 10 18 6059074601 CA 18 14 18 6059074901 CA 18 14 18 6059075004 CA 16 10 16 6059089105 CA 17 12 17 6059099202 CA 18 9 18 6059099248 CA 19 11 19 Average Max Score 18 Qualified (b) Market Conditions and Demand Factors (1) Market Absorption During the City's initial NSP 2 Application, these four census tracts had similar market conditions and demand factors and the initial target geography area. At the time of application, the City selected a random sample of abandoned and foreclosed homes that were on the market in its target area as of October, 2008. Staff then reviewed data on these same homes as of June, 2009 and determined that, on average, the real estate market in this area is capable of absorbing each month approximately 10 percent of the existing inventory of abandoned and foreclosed homes. An analysis of a random sample of homes sold during this period indicated that, on average they were on the market for 135 days prior to being sold. The City obtained this foreclosure data from First American Corel-ogic, Inc., a subsidiary of First American Company that specializes in real estate data collection and analysis. NSP 2 Substantial Amendment - City of Santa Ana Page 2 29A -4 If one were to assume that the number of homes being foreclosed and abandoned each month in this area will return to historic norms in the near future, these data would suggests that the private real estate market might be able to largely eliminate the problem in no more than three years. The analysis below demonstrates that this is not true. (2) Over - Building, Over Valuation and Unemployment as Causative Factors Overbuilding of housing is not a factor contributing to abandonment and foreclosure problem in Santa Ana. In preparing its new Housing Element as required by the State of California, the City of Santa Ana determined that very little new construction of residential housing has occurred in the past five years. Over - valuation, assumed here to mean the establishment of artificially reflected values due to the availability of subprime and adjustable loans affordable to homebuyers interested in buying in Santa Ana, is a factor. Household income estimates produced by SRC, LLC (SRC) a national firm specializing in demographic research, suggest that between 2000 and 2008 median household incomes in Santa Ana and in its target geography increased at an average annual rate of approximately 1.5 percent. By contrast, and as shown in Chart 1, Santa Ana residential sales prices started going up dramatically in 2002, and by 2006 had gone up by 123 percent. The year 2007 saw the beginning of an equally dramatic decline. Many Santa Ana homebuyers who bought during the intervening years now find themselves owing far more on their homes than they are currently worth. Many homeowners in such situations react by abandoning their homes. Conversely, as home prices have fallen, home sales in Santa Ana have increased in response. NSP 2 Substantial Amendment - City of Santa Ana Page 3 29A -5 Chart 1 Median Home Price Treads Comparison —a—us saaq,on9 , -... — m— canr„m�a S3U0.9UU !. .. �- Ormehc {aunty I »- �-YnnM1a Ana 2002 2003. 2000 zoos 2006 2007 2003 Source: California Association of Realtors and National Association of Realtors The apparent disconnect between the modest increase in household incomes and the dramatic increase in home sales prices during the 2002 — 2007 period was almost certainly a result of the availability of subprime and adjustable loans. Chart 2 below shows a huge increase in the numbers of subprime loans originated in Santa Ana during this same period. Chart 2 $0 Subprime Loans Originated in Santa 40 -I-- I 0 Jan -01 Jan -02 Jan -03 Jan -04 Jan -05 Jan -06 Jan -07 Jan -08 Source: First American Core Logic NSP 2 Substantial Amendment - City of Santa Ana Page 4 29A -6 Despite the resurgence in home sales spurred by the decline in housing prices, it is almost certain that the rate of foreclosures will increase dramatically in the next one to three years and overwhelm the market's capacity to absorb them. In addition to the continuing impact of use of subprime lending in previous years, the primary reason for this is increased unemployment. At least in part as a direct result of the huge downturn in the housing market and in new home construction, the California unemployment rate has gone up dramatically. As of April 2009 it stood at 13.1 percent. Chart 3 demonstrates that the City is disproportionately affected by unemployment as compared to other geographical regions including the nation, state, and county. Chart 3 Unemployment Rates - April 2009 Source: State of California Employment Development Department Increases in unemployment are forcing many California residents into foreclosure, including those with conventional loans. Santa Ana residents are generally of lower income than those of other Southern California cities, and are more frequently employed in industries such as construction that have been most affected by the decline in the housing market. The greatest losses of jobs in the City occurred in the construction, manufacturing, trade and transportation, financial services, and business industries according to preliminary information for April 2009 released by the State of California Employment Development Department. As a consequence, Santa Ana residents have been harder hit by unemployment than residents of many other California cities, and are more susceptible to foreclosure. Although the economy has improved throughout the County, Santa Ana residents are still faced with higher unemployment than other California cities. As of August 2013, the City had a 9.9% NSP 2 Substantial Amendment - City of Santa Ana Page 5 29A -7 unemployment rate compared to the County at 6.2 %. In California, after 17 consecutive months of annual decreases in foreclosures, the state of California experienced an increase of 57 percent (year- over -year) in January 2014 (RealtyTrac). This increase was counter to the national trend. There are currently 726 properties in Santa Ana that are in one of the stages of foreclosure. The zip code 92705, where the proposed addition of census tract 750.04 is located, has the highest foreclosure rate in the City (1 in every 784) — much higher than the City (1 in 1130), the State (1 in every 1047) or Orange County (1 in every 1344). Pre - Foreclosures are up in the City — 2.1% from the prior year and 4.3% from the prior month. Overall, the City of Santa Ana is still higher than the County trend for foreclosure filings. (3) Household Income Characteristics and Housing Cost Burden According to SRC data (Chart 4), in 2008 the median household income in the City's target geography was $48,469, while the City's median was $53,203. In 2009, the four new census tracts were all below the County's median household income and continue to be below the median household income compared to the State and Orange County. Because the City's current residents, and especially its target area's current residents represent a very important pool of potential homebuyers, their comparatively lower incomes represent a significant obstacle to the private market's ability to absorb foreclosed properties. New Census Tract 2009 ACS Median Household Income 2012 At S Median Household Income 750.04 $41,521 $40,000 890.04 $45,721 $51,058 992.02 $68,814 $59,336 992.48 $43,980 $44,576 Orange County $73,738 $75,566) California $60,392 $61,400 Source: ACS 5 -year Estimates (2012, 2009) Chart 4 NSP 2 Substantial Amendment - City of Santa Ana Page 6 29A -8 Source: SRC, L-C. Cost burden is a serious issue as well. The term refers to a situation where a household pays more than 30 percent of their gross income for housing costs. The 2007 American Community Survey reports that 47 percent of the City's homeowner population pays 30 percent or more of their gross monthly income on housing costs while the percentage for the renter population is 55. Overpayment is an issue in Santa Ana for both homeowners and renters alike which cause serious housing costs burden for families with lower incomes. Due to high housing cost, many families have no choice but to live in overcrowded conditions. In these four census tracts, over half of renters (64 percent) pay over 30 percent of their household income towards rent. While nearly half (46.3 percent) of homeowners pay more than 30 percent towards housing costs. (4) Other Relevant Factors Contributing To Local Market Conditions or Neighborhood Decline These four proposed census tracts have the following other factors contributing to the local market conditions and the City's substantial amendment: • High Foreclosure Risk Score - These four census tracts have high foreclosure risk scores, according to HUD as of 2009. • Percent of High -Cost Mortgages and High Leverage — these four census tracts had high rates of HMDA mortgages made between 2004 to 2007 that are high cost and high leverage, according to HUD as of 2009. This factor is a good predictor of foreclosure problems in the area. NSP 2 Substantial Amendment - City of Santa Ana Page 7 29A -9 Proposed Census Tract Rate as of 2009 992.02 19.06% 992.48 27.21% 890.04 26.91% 750.04 18.75% • Low Cost Mortgages and High Leverage: These four census tracts have high rates of HDMA mortgages made between 2004 and 2007 that are low cost and high leverage, according to HUD as of 2009. This is a good factor as a good predictor of foreclosure problems in the area. Proposed Census Tract Rate as of 2009 992.02 38.76% 992.48 22.06% 890.04 29.49% 750.04 30.56% As discussed in the City's initial application, a factor impacting market conditions in the City's target geography is investor purchases. CoreLogic data on recent sales in the City's target geography suggest that while the market is capable of absorbing about 10 percent of available foreclosed properties each month, roughly 33 percent of the purchases are made by investors as opposed to households intending to occupy them as their principal residences. The general practice among investors is to make only repairs that are absolutely essential, and then resell the homes at the highest possible sales price. In a continuing down market, they may rent out homes until the market changes and they can sell at a good profit. In such cases they tend not to worry about overcrowding or about keeping their properties in good repair. When investors are not able to sell their homes at a profit they tend to make minimum repairs and rent the substandard houses at market rental prices. In those instances where the housing market suffers a prolonged slump, and they are unable to sell or even rent, investors may abandon the homes they bought out of foreclosure. As unemployment levels rise and the pool of potential homebuyers decreases, investors can be expected to allow at least some of their properties to go back to their lenders. The Wall Street Journal is reporting that most economists are predicting a prolonged period of high unemployment. NSP 2 Substantial Amendment - City of Santa Ana Page 8 29A -10 A third additional factor likely to negatively affect market conditions in the City's target geography is future rate adjustments. The City's data indicates that, throughout the City, there are approximately 6,875 more Adjustable Rate Mortgages (ARMS) due to reset in the next few years. Many of these loans can potentiallyjump in interest rate from introductory teaser rates to an adjustable market rate, which will make it very difficult for many homeowners to make their payments. With the sharp increase of foreclosures on the market during the next few years coupled with further increased unemployment, the ability for the housing market to absorb these additional homes will decrease. While it may not impact the capacity of the private market to absorb foreclosed properties, overcrowding is a serious issue affecting neighborhood decline in Santa Ana's target geography. Due to a mismatch between income and housing price increases over the last several years and our community's historical lower wages, families have resorted to doubling up with other families in one residence to decrease their housing cost burden. Another reason for overcrowding in Santa Ana is larger family sizes. According to the 2000 Census, the average Santa Ana household size is 4.7 persons; the largest in the county. The result is that, according to the 2000 Census, at least 50 percent of Santa Ana households live in overcrowded conditions that damage housing units, disrupt family life, and make neighborhoods less attractive to potential homebuyers. It also manifests itself in dilapidated infrastructure, increased numbers of illegal additions and garage conversions. A fourth factor that contributes to market conditions and neighborhood decline is the age of existing housing in Santa Ana's target geography. Currently there are 75,856 housing units located throughout the City. Approximately 81 percent of the housing stock was built before 1980. While Santa Ana residents work hard to keep their homes in good condition, homes require repairs as they age, and due to the lower incomes of residents they do not always have the financial resources to pay for such repairs themselves. The sight of older homes in need of repairs, and possibly harboring deteriorated lead based paint, can and does negatively impact neighborhood property values, homeowner willingness to make necessary and expensive repairs, and neighborhood attractiveness to potential homebuyers. The age of Santa Ana housing is associated with other potential problems. HUD and the U.S. Environmental Protection Agency have determined that homes built before 1978 often have NSP 2 Substantial Amendment - City of Santa Ana Page 9 29A -11 lead -based paint hazards. Young children are particularly susceptible to these hazards, and lead poisoning can have long term, deleterious consequences for them and their families. In this regard it is important to note that Santa Ana has a very young population, and so more children at risk of lead -based poisoning. According to the 2000 Census, children under the age of 18 and family forming adults between the ages of 25 and 44 each comprised more that 34 percent of the City's population. A final contributing factor is gang activity. The poorer neighborhoods in the City of Santa Ana, many of which are in the NSP 2 target geography, have long been negatively impacted by gang activity. Gangs are prone to congregate in vacant buildings, causing disruption in the neighborhoods and in most cases physical destruction of the homes they take over. They also are a deterrent to attracting new homebuyers. (5) Activity Categories The City will continue its NSP2 activity categories in these four proposed census tracts. The City has determined that the NSP2 activity category most likely to achieve neighborhood stabilization in the City's targeted neighborhoods is the establishment of financing mechanisms for the purchase, redevelopment, resale and /or rent foreclosed upon residential properties. The City believes that through its proposed programs it will be able to address the destabilizing impact of most of the factors identified above. The Downpayment Assistance and Single Family Acquisition and Rehabilitation Programs will have the following positive benefits: • Over Valuation. Properties will be purchased at prices established in accordance with appraisals. Buyers will not be assisted to purchase homes at inflated prices. • Subprime Mortgages. Buyers will be required to obtain homebuyer counseling and conventional, fixed rate affordable first mortgages. • Lower Household Incomes. Buyers will be provided with silent second mortgages. NSP 2 Substantial Amendment - City of Santa Ana Page 10 29A -12 • Investor Purchases. Assistance will only be provided to homebuyers committed to using the home as their principal residence. Continued use of the property for that purpose will be monitored. • Overcrowding. Affordable financing and realistic purchase prices will enable homebuyers to purchase homes that are adequate to their household needs. • Disrepair and Lead Based Paint. Homes purchased through the Single Family Acquisition, Rehabilitation, and Resale Program will be free of code deficiencies. Homebuyers using the City's Downpayment Assistance Program will be encouraged to take advantage of the City's affordable rehabilitation loan programs to address code deficiencies, Those programs allow for forgiveness of funds necessary to address lead based paint hazards. • Gang Activity. Homebuyers using these programs will reduce the number of vacant homes susceptible to gang takeover. The City's Acquisition and Rehabilitation of Rental Housing Program will have different, though equally important positive benefits as follows: • Cost Burden. Rents will be fixed at levels affordable to very low- income households. The City will calculate rents in accordance with HOME regulations. Owners will be required to reduce them in accordance with an allowance for tenant paid utilities. • Overcrowding. The City will require that property owners comply with Federal guidelines regarding occupancy. • Disrepair and Lead Based Paint. Owners will be required to maintain their properties in accordance with HOME Program regulations. The City will conduct periodic physical inspections to insure that this is done. • Gang Activity. Owners will be required to adopt and enforce appropriate house rules prohibiting such activity. Central to the City's achievement of these benefits will be its commitment to work only with nonprofit or for profit buyers of rental units with an established track record of effective property management. NSP 2 Substantial Amendment - City of Santa Ana Page 11 29A -13 RATING FACTOR 2: DEMONSTRATED CAPACITY AND RELEVANT ORGANIZATIONAL STAFF (a) Past Experience of the Applicant Substantial Amendment does not change the substance of the original application. (b) Management Structure Substantial Amendment does not change the substance of the original application. RATING FACTOR 3: SOUNDNESS OF APPROACH (a) Proposed Activities Substantial Amendment does not change the substance of the original application. (b) Project Completion Schedule Substantial Amendment does not change the substance- of-the original application. (c) Income Targeting Substantial Amendment does not change the substance of the original application. (d) Continued Affordability Substantial Amendment does not change the substance of the original application. (e) Consultation, Outreach, Communications Substantial Amendment does not change the substance of the original application. (f) Performance and Monitoring Substantial Amendment does not change the substance of the original application. RATING FACTOR 4: LEVERAGING (a) Leveraged Funds Substantial Amendment does not change the substance of the original application. (b) Rubric Substantial Amendment does not change the substance of the original application. NSP 2 Substantial Amendment - City of Santa Ana Page 12 29A -14 RATING FACTOR 5: ENERGY EFFICIENCY IMPROVEMENTS AND SUSTAINABLE DEVELOPMENT FACTORS (a) Transit accessibility These proposed census tracts provide further transit accessibility to the region. The proposed fixed guideway, connecting to the Santa Ana Regional Transportation Center and regional train system, will have the final stop on Harbor Blvd. The Harbor Corridor Plan creates mobility for all transit modes along Harbor Blvd. In addition, the County's first rapid transit bus line (Bravo! Route 543) which provides quick service to major transport points between Costa Mesa and the Fullerton Transportation Center and is located on Harbor Boulevard. (b) Green building standards Substantial Amendment does not change the substance of the original application. (c) Re -use of cleared sites Substantial Amendment does not change the substance of the original application. (d) Deconstruction Substantial Amendment does not change the substance of the original application. RATING FACTOR 6: NEIGHBORHOOD TRANSFORMATION AND ECONOMIC OPPORTUNITY Substantial Amendment does not change the substance of the original application. NSP 2 Substantial Amendment - City of Santa Ana Page 13 29A -15 ATTACHMENT 1 NOTICE OF PROPOSED ACTION TO BE TAKEN BY THE CITY COUNCIL OF THE CITY OF SANTA ANA RESPECTING A PROPOSED SUBSTANIAL AMENDMENT TO THE CITY OF SANTA ANA 2013 -14 CONSOLIDATED PLAN ANNUAL UPDATE AND A PROPOSED SUBSTANTIAL AMENDMENT TO THE CITY OF SANTA ANA'S NEIGHBORHOOD STABILIZATION PROGRAM 2 APPLICATION The City of Santa Ana will be submitting a substantial amendment to the City's Neighborhood Stabilization Program 2 Application. On April 1, 2014 on or about 6:00 p.m. at the City Council Chambers, the City Council will take action on a request to authorize submittal of the substantial amendment to the U.S. Department of Housing and Urban Development (HUD). The proposed amendments will revise the City's Target Geography Area for its NSP2 grant funds. The draft substantial amendment will be available for public review from March 22, 2014 to April 1, 2014 at the following locations Monday through Friday during normal business hours: Community Development Agency, 20 Civic Center Plaza, 6'h Floor; Office of the Clerk of the Council, 20 Civic Center Plaza, Room 809; and the Main Public Library, 26 Civic Center Plaza, Santa Ana, California. Written comments on the proposed amendment must be submitted to the Housing Division on or before April 1, 2014 at noon. Published: March 22, 2014 NSP 2 Substantial Amendment - City of Santa Ana 29A -16 i-Anffy:WNOW Revised Map NSP 2 Substantial Amendment - City of Santa Ana 29A -17 891.04 a \? �K 141.66 N l4Q y-0a I R GROVE I BLVD ]53.01 MEMORYI 391.07 ]63.02 �' ]52.01 ]41.09 ]41.11 ]49.02 AV EGINOf ]44.03 143 ]4 OU 749.00; ]40.03 741 ]40.04 m1 1 0] ]40.06 NSP2 Target Geography 29A -18 ]55.15 Copyright 2009. All Rights Reserved