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Home My WebLink About1982-08-17; City Council; 7129; REQUEST TO SOLICIT PROPOSALS FROM BOND COUNSEL AND BOND UNDERWRITERS FOR MULTI-FAMILY MORTGAGE REVENUE BOND PROGRAMc h CI T@ 1 OF CARLSBAD - AGENDA e BILL 62 - '. 1AB# 7\27 I Tm REQUEST TO SOLICIT PROPOSALS FROM BOND DEPT MT% 08/ 1 7/ 82 U1 Idlng & DEPT.Pl ann1 ng COUNSEL AND BOND UNDERWRITERS FOR MULTI- FAMILY MORTGAGE REVENUE BOND PROGRAM ClTY CITY I RECOMMENDED ACTION: A - /-9&F*= fd+d4/ City Council direct the City Attorney and Director of Building and Planr sol i ci t proposals for services from bond counsei and bond financi a1 undt for the purpose of packaging a multi-family and single family mortgage I bond issue. c\l 00 m rl -$ 2 i u 0 a 3 5 i U cu co I b rl I co n IU > 0 cx e e U 2 2 6 : z U z ITEM EXPLANATION: Mortgage Revenue Bonds have been used successfully by cities to assist l in providing low-moderate income housing. Staff has held several meeti posal to build 400 mu1 ti-family rental units in Calavera Hi 11 s. We have a1 so received proposals for single family projects uti 1 izing th method of financing. Preliminary indications are that we will be considering bond funds of $ to $15 million for a multi-family issue and $60 million to $80 million family issues. These development proposals have encouraged us to pursue the feasibilit utilizing mortgage revenue financing to solve our housing problems. Research of other successful projects indicates that bond and underwrit assistance is needed early in the consideration of a bond issuance. We believe that bond and underwriting assistance will provide the city the expertise needed to make these projects work. developers to assess their interest in such a program. We have receive FISCAL IMPACT: Bond counsel and underwriter will be ?aid. out of bond proceeds and/or u front fees from developers. Council can ask that any staff administrat costs be reimbursed from bond fees. City will incur no financial liabi no matter what is the disposition of bonds. EXHIBIT: Memo from Building & Planning Director to City Manager dated August 6, 0 t I II) 0 a MEMORANDUM """"" TO : City Manager FROM : Building ti Plann 4s) n- Director DATE : August 6, 1982 SUBJECT: MORTGAGE REVENUE BONDS I NTRODIJCT I ON Mortgage revenue bonds are a very recent financing vehicle available to cities. They are revenue bonds with several unique features. One of thes features is that an election is not required; secondly, the money obtained by the City from these revenue bonds is turned over to a trustee for administration. All costs of distributing and administering the bonds are paid by the recipient of the mortgage loans made possible by proceeds from the revenue bonds. Simply stated, mortgage revenue bonds allow the City to provide money at a reduced interest rate for housing construction, and the bonds are matured by mortgage payments made by the borrower. The reasons for using these bonds is that the borrower may take advantage of the City's tax exempt status. Typically, this allows the borrower a reduction in interest costs on his loan depending on the bond interest rate and the costs incurred in establishing and administering the mortgage 1 oans. There are two major issues to be addressed when considering mortgage reven bonds. One relates to the units proposed for construction, the economic status of the borrowers and land use constraints. This area, of course, h been reviewed and tentatively approved on the projects under consideration The second subject relates to the mechanics of selling bonds and the administration of the money after it has been received by the City. Typically, there are four levels of expertise required to sell and adminis mortgage revenue bonds. BOND COUNCIL As is true of all municipal bonds, the legal review and certification of bond council is necessary to protect the bond buyer. We recommend the retention of our existing bond council, the firm of Stradling, Yocca, Carlson & Rauth. FIFJANCIAL CONSULTANT A financial consultant would also be needed to assist in all the steps of preparing and selling the bonds, including identifying the purpose, limita tions, marketing, and other details regarding the description and conditic of the bonds. UNDERWRITER The third outside service, of course, is the underwriter who is in effect 0 e City Manager -2- August 6, 1982 wholesale purchaser of mortgage revenue bonds and would, in turn, either hold those bonds that fit his portfolio or sell them at a retail price. Restrictions and special conditions would be determined by the City Council; however, the financial consultant will provide those alternatives that have been developed by other issues recently sold in a very active market. In some cases the financial consultant and the under- writer are the same. TRUSTEE The trustee fits into the scheme of operations after money is sold. The money is turned over to a trustee.( s) who becomes responsible for managing the City's money from that point on. The City would not be involved any further unless we wish to monitor the efficiency of the trustee, audit, 01 in other ways retain some limited control. In that event there would be some costs incurred to the City as the result of the mortgage revenue bonc process. Typically the trustee would be a bank, savings PC loan company, c other qualified financial institution with a base of operations in the Sar Diego area. The trustee will charge a fee for the service provided. The City will need to determine that organization which provides a complete service at the lowest fee to the borrower. These four firms and the City form the team necessary to effect the sale and administration of mortgage revenue bonds. Where do we go from here? SALE OF BONDS A starting point would be to select a financial consultant who would work with the staff and Council in preparing details of the revenue bond sale and a prospectus describing the bonds. As mentioned earlier, there are t\ levels of service provided by financial consultants. There are those thai provide both financial consultant service and are a1 so underwriters and would purchase the bonds. The second method of operation by financial consultants consists of preparing the prospectus and soliciting offers on competitive basis from a variety of underwriters., Providing time permits, it would be prudent on the City's part to interview several financial con- sultants before a selection is made. COST TO TH.E BORRONER As stated earlier, the primary purpose of the City issuing mortgage revenl bonds is to make money available for loans for moderate or low cost housir The generating factor for the low cost is that the City can issue tax exen bonds. However, subtracted from that saving will be the costs which becor; clearly evident by the number of consultants or service organizations work ing with the City to issue the bonds. The savings to the borrower is the reduction in interest generated by tax exempt bonds less the cost of the financial consultant, bond attorney, underwriter, discounts, and trustee charges. In other words, costs for these services will be passed on to the person borrowing for the purpose c building a home. The savings to the borrower will depend on the bond marl 0 e P City Manager -3- August 6, 1982 and the costs charged by the various external service organizations. As for the home mortgage. The rapidly-changing money market and specificall: the mortgage revenue bond market generates great difficulty in ascertaini~ precisely what this savings might be. stated earlier, the savings expected to result is a 2$ less interest char( OTHER CONSIDERATIONS If the Council proceeds with the sal e of mortgage revenue bonds, it is important that the City take special care in the selection of financial advisors to assure.that all facets of the mortgage revenue bond procedure are carefully designed. Any default on payment of the bonds would general a cloud on the financial stability of the City. If all details are assigned to outside service organizations, there will I a minimum of staff time required to observe and follow-up on the work beit performed for the City. To say there would be no costs would be un- realistic because any project the City is involved in requires some staff time for report and procedure review. MO : pa b