HomeMy WebLinkAbout1984-07-17; City Council; 7820 Exhibit 02; OFFICIAL REQUEST TO STATE OF CALIFORNIA FOR MORTGAGE REVENUE BOND ALLOCATION Exhibit 02pi0 LEN e;l(f-tjKY\ &
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NEW ISSUE
In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the Bond3
is exempt from income taxation b!i the United States of America subject to compliance with the requirements
of Section 103A of the Internal Reuenue Code of 1954, as amended, and from personal income
taxation imposed by the State of California. (See “Legality and Tax Exemption” herein.)
i
$20,000,000
CITY OF CARLSBAD, CALIFORNIA
t \
SINGLE FAMILY RESIDENTIAL MORTGAGE
REVENUE BONDS, ISSUE OF 1983
10% Term Bonds Dated September 1, 1983 Due September 1, 2017-Price 98.789
The Bonds will be issued as fully registered bonds in denominations of $5,000 each or any integ
multiple thereof. Principal of the Bonds is payable as set forth below at the corporate trust office of Secui
Pacific National Bank in Los Angeles, California, and the interest thereon is payable semiannually
March 1 and September 1 of each year, commencing March 1, 1984, by check or draft mailed to the rei
tered owners thereof. The Bonds are subject to redemption prior to their respective stated maturities
set forth herein, and it is expected that a substantial portion of the Bonds will be so redeemed.
The Bonds are limited obligations of the City of Carlsbad and will be payable solely from and secu
by the revenues and assets (and any insurance payments made with respect thereto) pledged therej
Neither the faith and credit nor the taxing power of the City, the State of California or any political s
division thereof is pledged to the payment of the principal or redemption price of or interest on the Bor
The Bonds are being issued to provide funds for a program under which the Trustee, on behalf
the City, will purchase from Wells Fargo Mortgage Company mortgage loans which have been made
qualified persons in order to finance the purchase of single family residential housing (including townhot
and condominium units) within the City. Each mortgage loan must be the subject of a private mortg
guaranty insurance policy providing 100% coverage of the outstanding balance of the mortgage lo
together with certain endorsements, all as further described herein.
The Bonds are ofered when, as and if issued by the City and received by the Underwriters, subject
the approual of legality by Stradling, Yocca, Carlson rlr Rauth, a Professioml Corporation, Newport Bea
California. Certain legal matters will be passed upon for the Underwriters by Orrick, Herrington CL- Sutcli,
A Professional Corporation, San Fr~rncisco, California. It is expected that definitive Bonds will be availa
for delivery in New York, New York (on or about October 5,1983.
BLYTH EASTMAN PAINE WEBBER INCORPORATED
Dated: September 14, 1983
CITY OF CARLSBAD, CALIFORNIA
City Council
Mary Casler, Mayor
Claude "Buddy" Lewis, Vice Mayor Richard Chick, Councilmember
Ann J. Kulchin, Counci.lmember Robert B. Prescott, Councilmember
City Manager
Frank Aleshire
City Attorney
Vincent F. Biondo, Jr.
Building & Planning Director
Martin Orenyak
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Finance Director
James F. Elliott
SPECIAL SERVICES
Bond Counsel
Stradling, Yocca, Carlson & Rauth
a Professional Corporation
Newport Beach, California
Trustee
Sec:urity Pacific National Bank
Los Angeles, California
Administrator
Investor:; Mortgage Financial Services, Inc.
Boston, Massachusetts
Feasibility Consultant
Empire Economics
No dealer, broker, salesperson or other person has been authorized by the City o
Carlsbad, California or the Underwriters to give any information or to make any
representations with respect to the Bonds, other than those contained in this Officia
Statement and, if given or made, such other information or representations must not b
relied upon as having been authorized by any of the foregoing. This Official Stateme
does not constitute an offer to sell or the solicitation of an offer to buy, nor shal
there be any sale of, the Bonds by any person in any jurisdiction in which it is unla
for such person to make such offer, solicitation or sale.
herein has been obtained from the City of Carlsbad, California, and other sources whi
are believed to be reliable, but is not guaranteed as to accuracy or completeness by,
is not to be construed as a representation by the City of Carlsbad or the Underwriter
The information and expressions of opinion herein are subject to change without notic
and neither the delivery of this Official Statement nor any sale made hereunder shall
under any circumstances, create any implication that the;-e has been no change in the
information or opinions set forth herein or in the affairs of the City of Carlsbad,
California, since the date hereof.
The information set forth
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A L
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABLILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
TABLE OF CONTENTS
Page ___
Introduction ........................... 1 Summary of Certain Provisions
The Bonds .............................. 3 of the Indenture ..............
Description .......................... 3 Certain Definitions .............
Redemption ........................... 3 Pledge and Assignment ...........
Source and Uses of Funds ............... 5 Establishment of Funds ..........
Sources of Payment ................. 6 Covenants of the City ...........
Security ............................. 6 Supplemental Indentures .........
Flow of Funds ........................ 7 Amendment of the Indenture ......
Assumptions Regarding Revenues Default and Remedies ............
and Debt Service Requirements ...... 8 Discharge of Indenture.. ........ The Program ............................ 11 The Trustee..... ................
Developer Agreements ................. 13 No Litigation .....................
Agreements ......................... 14 Certain Verifications .............
The Lending Institution. ............. 19 Additional Information ............
Nature of Security and Investment of Moneys in Funds ...
Mortgage Sale and Service Legality and Tax Exemption ........
Foreclosure Laws..................... 18 Underwriting ......................
The Administrator ...................... 20
Insurance.. ............................ 20 Appendix A - Description of
Private Mortgage Guaranty Developer Reserved
Standard Hazard Insurance Appendix B - The Lending Institution
and Earthquake Insurance........... 23 Appendix C - General Information
Special Hazard Insurance........ ..... 23 Concerning the City
Flood Insurance.......... ............ 24 Appendix D - Summary of Feasilibity
Errors and Omissions Insurance Study
Policies and Fidelity Bonds ........ 24
Payment of Insurance Claims. ......... 25
Insurance.. ........................ 20 Single Family Residence
$20,000,000
CITY OF CARLSBAD, CALIFORNIA
SINGLE FAMILY RESIDENTIAL MORTGAGE REVENUE BONDS
ISSUE OF 1983
INTRODUCTION
The purpose of this Official Statement of the City of Carlsbad,
California (the "City"), is to furnish information in connection with the sale
of $20,000,000 principal amount of the City's Single Family Residential
Mortgage Revenue Bonds, Issue of 1983 (the "Bonds"). The Bonds are authorized
to be issued pursuant to Chapters 1-5 of Part 5 of Division 31 of the Health
and Safety Code of the State of California, as amended (the "Act"), an
ordinance of the City passed on June 21, 1983, and a resolution of the City
Council of the City adopted on June 21, 1983. The purpose of the Act is to
provide long-term, low interest rate mortgage loans to persons who are unable,
because of their income, to afford conventional mortgage loans.
The Bonds are being issued pursuant to a Trust Indenture dated as of
September 1, 1983 (the "Indenture"), between the City and Security Pacific
National Bank, as trustee (the "Trustee"), for the purpose of providing funds
to purchase from Wells Fargo Mortgage Company (the "Lending Institution") home
mortgage loans (the 'LLoans") made to qualified persons and secured by eligible
single family owner-occupied residences (the "Residences") located within the
City, all in accordance with the Mortgage Sale and Service Agreement (the
"Agreement") among the Lending Institution, the Trustee, Iavestors Mortgage
Financial Services, Inc., as Administrator (the "Administrator") and the
City. Funds available to purchase Loans have been reserved by the developers
described in Appendix A hereto (the "Developers") who have developed or who
plan to construct or develop and market approximately 240 single family
Residences (the "Developer Reserved Single Family Residences") within a
thirty-six (36) month period (which may be extended in accordance with the
Indenture), all in accordance with the Developer Agreements (the "Developer
Agreements") between the Developers and the City. The object of the City's
affordable housing program (the "Frogram") is to provide affordable housing
€or average and below averi,ge income households.
Under the Program, each Loan will (i) be made to an eligible mortgagor
(the "Mortgagor") to financ:e up to 95% of the purchase price of the Residence;
(ii) have a term of not less than 29 nor more than 30 years; (iii) provide for
level monthly payments; (iv) be secured by a first mortgage lien (subject to
certain permitted encumbrances); (lT) be originated substantially in accordance
with Federal National Mortgage Association (IIFNMAl') or Federal Home Loan
Mortgage Corporation ("FHLYICL') current underwriting practices by the Lending
Institution; (vi) be serviced substantially in accordance with FNMA or FHLMC
current practices by the Lending Institution; and (vii) be insured by private
mortgage guaranty insurance with primary coverage in the amount of 100% of th
outstanding principal balance with advance payments, attorneys' fees limit
waiver, due-on-sale exclusion waiver and nonmonetary default endorsements.
Hazard insurance (including earthquake coverage and flood coverage, if
applicable) and special hazard insurance will be required, and will be
maintained if commercially available, to the extent described herein.
Each Mortgagor must intend to occupy the Residence as his or her
principal residence within sixty (60) days after the date of the Loan and for
a minimum of two years and, generally, may not have had a present ownership
interest in any principal residence during the three years prior to the
execution of the Loan. A Mortgagor's household income may not exceed 150% of
Median Household Income in the case of a Mortgagor who will be the first
occupant of a new or improved Residence and 120% of Median Household Income i
all other cases, provided that at least 20% of the aggregate principal amount
of Loans in such other cases shall be made to Mortgagors whose household
income does not exceed 110% of Median Household Income. Median Household
Income for the City is currently $27,943.
The acquisition cost of each Residence may not exceed 110% of the
applicable Average Area Purchase Price.
the City for new Residences is currently $125,378 and for existing Residences
is currently $109,866.
The Average Area Purchase Price for
The Bonds are limited obligations of the City payable solely from and
secured by a pledge of payments made on the Loans (and any insurance payments
made with respect thereto) and all other funds held under the Indenture
(except for Excess Earnings required to be rebated to the United States
pursuant to the Indenture), and are secured by an assignment of all right,
title and interest of the City in the Loans and certain agreements related
thereto (as more particularly described in the Indenture).
The Bonds do not constitute an indebtedness of the City (except as aforesaid)
or a loan of credit thereof within the meaning of any constitutional or
statutory provisions. Neither the faith and credit nor the taxing power of
the City, the State of California or any political subdivision thereof have
been pledged to the payment of the Bonds.
There follows in this Official Statement brief descriptions of the Bonds
the security for the Bonds, the Program, the Developer Agreements, the
Agreement, the Indenture, the Administrator and the insurance required in
connection with the Program. A brief description of the City is included in
Appendix C, and a summary of the feasibility study prepared by Empire
Economics (the "Feasibility Consultant") is included in Appendix D. All
references to documents, agreements and insurance policies are qualified in
their entirety by reference thereto, copies of which are available for
inspection during the offering period at the offices of Blyth Eastman Paine
Webber Incorporated, San Francisco, California. Certain capitalized terms
used herein are defined in "Summary of Certain Provisions of the Indenture."
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THE BONDS
Description
The Bonds will be issued as fully registered bonds in denominations of
$5,000 each or any integral multiple thereof, will be dated September 1, 1983
will mature on the date and will bear interest at the rate set forth on the
cover page of this Official Statement, payable semiannually on March 1 and
September 1 of each year, cGmmencing Earch 1, 1984, by check or draft mailed
to the respective persons in whose names the Bonds (or any predecessor Bonds?
are registered at the close of business on the fifteenth day of the month
preceding the applicable interest payment date.
The Bonds may be exchanged or transferred at the aforesaid office of the
Trustee, or at its office in New York, New Yorl;, provided that the Trustee ma
not be required to register the transfer of any Bond during the five days nex
preceding any date established by the Trustee for the selection of Bonds for
redemption and, with respect to the Bonds so selected, to the date of
redemption. For every exc:hange or transfer of any Bond, the City or the
Trustee shall make a charge sufficient to reimburse it for any tax or govern-
mental charge required to be paid with respect to such exchange or transfer.
If any Bond is mutilated, lost, stolen or destroyed, the Indenture provides
that the City shall execute and the Trustee shall authenticate a new Bond or
Bonds of the same tenor, as the case may be. In the case of a lost, stolen c
destroyed Bond, the City and the Trustee may require satisfactory indemnifi-
cation prior to the authentication of a new Bond. The City and the Trustee
may charge the owners of the Bonds for their reasonable fees and expenses in
connection with replacing mutilated, lost, stolen or destroyed Bonds.
Re demp tion
The Bonds are subject to mandatory redemption under the circumstances
described herein; they are not subject to optional redemption.
Sinking Fund Redemption: The Bonds are subject to redemption prior to
maturity, in part by lot, from Mandatory Sinking Account Payments (as definec
in the Indenture), at a redemption price equal to the principal amount therec
plus accrued interest thereon, without premium, on the dat?s and in the
amounts set forth below:
Date Amount Date Amoun - ___
September 1987 $55,000 September 1991 $ 80,OO
March 1988 55,000 March 1992 85,OO
September 1988 60,000 September 1992 90,oo
March 1989 60,000 March 1993 90,OO
September 1989 65,000 September 1993 95,OO
March 1994 105,OO March 1990 70,000
September 1994 115,OO September 1990 70,000
120,OO March 1991 75,000 March 1995
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Amoun
September 1995 Si25,OOO March 2007 $ 360,000
March 1996 125,000 September 2007 380,000
September 1996 130,000 March 2008 395,000
March 1997 135,000 September 2008 415,000
September 1997 145,000 March 2009 440,000
March 1998 150,000 September 2009 460,000
September 1998 155, COO March 2010 485,000
March 1999 165,000 September 2010 505,000
September 1999 175,000 March 2011 535 I 000
March 2000 180,000 September 2011 560,000
September 2000 190,000 March 2012 585,000
March 2001 200,000 September 2012 615,000
September 2001 210,000 March 2013 645,000
March 2002 220,000 September 2013 680,000
September 2002 235,000 Harch 2014 715,000
March 2003 245,000 September 2014 '750,000
September 2003 255,000 March 2015 785,000
March 2004 270,000 September 2015 825,000
September 2004 285,000 March 2016 865,000
September 2005 310,000 March 2017 945,000
March 2006 325,000 September 2017 985,000
September 2006 345,000
____ ~ -- Date Amount Date
March 2005 295,000 September 2016 910,000
The amount of any such Mandatory Sinking Account Payment shall be reducec
as set forth ir, the Indenture by the amount of Bonds purchased by the Trustee
for application against such Plandatory Sinking Account Payment (in each case
during the preceding six months) 01- purchased or redeemed under the
circumstances described below in connection t;ith special mandatory redemptions
and selected for application against Flandatory Sinking Account Payments (in
accordance with the Indenture).
Special Ffai:datory Redemption: The Bonds are subject to special mandatory
redemption prior to their respective stated maturities at the principal amount
thereof plus accrued interest thereon, from amounts deposited in the
Redemption Fund as follows:
1. As a whole or in part on any date on or after September 1,
1986 from amounts transferred to the Redemption Fund from the Program
Fund on August 1, 1986. However, the Trustee may delay said transfer if
it receives an opinion of nationally recognized bond counsel to the
effect that such transfer and the use of such moneys are not required to
preserve the exen;ptior. of federal income taxation and a certificate of
Standard & Poor i s Corporation to the effect that such deiay will not
materially adversely affect the rating of the Bonds.
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2. As a whole or in part on the next interest payment date with
respect to which noti.ce of redemption can be timely given, from amounts
transferred to the Redemption Fund from the Revenue Fund after the
transfers required to be made therefrom to the Estimated Excess Earnings
Account, the Program Expense Fund, the Bond Fund, and the Reserve Fund
have been made.
3. As a whole on any date when the amounts on deposit in the
Revenue Fund, Bond Fund, Reserve Fund and Redemption Fund are sufficient
to pay all Outstanding Bonds and Qualified Progran: Expenses then due and
payable.
General Redemption Provisions: If less than all of the Bonds are to be
redeemed, the Trustee shall seiect the Bonds to be redeemed by lot in any
manner which the Trustee deems fair. Bonds of a denomination greater than
$5,000 may be partially redeemed but only in increments of $5,000. ru'otice of
redemption is to be given not less than 10 nor more than 60 days prior to thi
redemption date by mail io the registered owners cf Bonds to be redeemed at
the addresses appearing on the Bond registration books of the Trustee.
SOURCES AND USES OF FUNDS
The proceeds of the :sale of the Bonds (other than accrued interest) and
other funds collected by the City will be applied as follows:
Source of Funds
Bond Proceedsl: . . . . . . . . . . $20,000,000
20,910,000
Developer Fees and Other Sources. . 910,000
Application of Funds
Program Fund
Acquisition of Loans . . . . . . 19,654,000
Payment of Costs of Issuance2/. . 115,000
Capital Reserve Account . . . . . . 393,080
185,720 Interest Reserve Account . . . . .
Original Issue Discount . . . . . . 242,200
Underwriters' Discount . . . . . . 320,000
$2@,910,@00
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-_____ 1/ Accrued interest on the 6onds is to be deposited in the
Re\.enue Fund.
2/ Includes fees of Eond Counsel, official statement and bor
printing ccsts. costs of the feasibility study, bond rati
fees, initial special hazard insurance premiums and other
expenses related to the issuance of the Bonds.
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Moneys deposited in the Program Fund are to be used to pay Costs of
Issuance and to purchase Loans relating to the Developer Reserved Single
Family Residences and, in certain cases, relating to existing Residences. As
such Loans are originated and delivered to the Trustee, the Trustee will draw
against moneys on deposit in the Program Fund. Any unexpended funds remaining
in the Program Fund on August 1, 1986, are required to be transferred to the
Redemption Fund and applied to redeem Bonds on September 1, 1986, pursuant to
the special mandatory redemption provisions of the Indenture.
NATURE OF SECURITY AND SOURCES OF PAYMENT
Security
The Bonds are limited obligations of the City payable from "Revenues".
The term IIRevenues" means all amounts received by the City or the Trustee from
or with respect to any Loan, the Agreement, any Developer Agreement or any
policy of insurance on or with respect to any Loan, including, without
limiting the generality of the foregoing, scheduled payments of principal and
interest required pursuant to any Loan and paid from any source (including
both timely and delinquent payments), Loan Principal Prepayments, and all
interests, profits or other income derived from the investment of amounts in
any fund or account established pursuant to the Indenture (except the Excess
Earnings Fund), but shall not include (1) Impound Payments, (2) any amount
retained by the Lending Institution (other than the City) as a servicing fee
or other compensation, and (3) Excess Earnings.
The Bonds will not be payable from any of the City's revenues, moneys or
assets other than the Revenues. The Bonds do not constitute an indebtedness
of the City (except as aforesaid), or a loan of credit of the City within the
meaning of any constitutional or statutory provision. Neither the faith and
credit nor the taxing power of the City, the State of California or any of its
political subdivisions is pledged to the payment of the Bonds or the Loans.
The Loans will be secured by first mortgage liens (subject to certain
permitted encumbrances) on Residences in the City. The terms on which Loans
are made must meet or exceed certain criteria established by the City as
discussed herein (See "The Program").
Hazard, earthquake (to the extent commercially available) and mortgage
insurance will be required to be maintained at specified levels (See
"Insurance").
limit of the greater of 1% of the original outstanding principal amount of the
Loans, or twice the original principal amount of the largest Loan, covering
certain otherwise uninsured hazard risks such as mudslides (and to a limited
extent flood and earthquake) and losses due to the application of a
coinsurance clause. The Reserve Fund has been established under the Indenture
as a reserve to assist in payment of principal, sinking account and interest
installments in the event Revenues, including payments on the Loans, prove to
be temporarily insufficient. Prior to delivery of the Bonds, Developer Fees,
as described under "The Program" herein, in an approximate aggregate amount
The City will maintain special hazard insurance, with a policy
6
equal to $910,000, in cash, will be collected. These amounts are calculated
to be sufficient, together with certain anticipated investment income, to
recover Costs of Issuance and Underwriters' Discount associated with
undelivered and prepaid Loans.
Flow of Funds
Under the Indenture, all Revenues (and "Excess Earnings," as hereinafte
defined, prior to their deposit in the Excess Earnings Fund) are to be
deposited in the Revenue Fund. Until the principal of and interest on the
Bonds shall have been paid or provided for, amounts in the Revenue Fund are
be allocated on the last (day of each Semiannual Debt Service Period for
deposit by the Trustee in the following amounts and order of priority;
1. Estimated Excess Earnings Account: the amount, if any, of Estimatl
Excess Earnings for the period;
2. Program Expense Fund: the amount, if any, needed to increase the
amount in the Program Expense Fund to the Program Expense Fund
Requirement ;
3. Bond Fund: the amount, if any, need to increase the amount in the
Bond Fund to the sum of (i) the aggregate amount of interest becoming d
and payable on the next interest payment date upon all Bonds then
Outstanding, plus (ii) the aggregate amount of principal becoming due a
payable on the Outstanding Bonds on the next interest payment date, plu
(111) the aggregate amount of Mandatory Sinking Account Payments requir
to be paid on the next interest payment date;
4. Capital Reserve Account: the amount, if any, needed to increase t
amount in the Capital Reserve Account to the Capital Reserve Account
Requirement; and
5. Redemption Fund: the balance remaining in the Revenue Fund.
On or before October 1 of each year the Trustee will make a final
calculation as to the Excess Earnings for the preceding Bond Year and shall
transfer such amount from the Estimated Excess Earnings Account to the Exces
Earnings Fund. The amount deposited in the Excess Earnings Fund will be fre
and clear of the lien of the Indenture and will be remitted to the United
States Treasury. Amounts, if any, thereafter remaining in the Estimated
Excess Earnings Account shall be transferred to the Revenue Fund. To the
extent that the amount transferred from the Estimated Excess Earnings Accoun
is less than the amount that is required to be transferred, the Trustee shal
make up such deficiency from the Revenue Fund.
Amounts in the Program Expense Fund shall be used solely for the paying
of Qualified Program Expenses.
Amounts in the Bond Fund shall be used solely for the purposes of
(1) paying interest on the Bonds as it shall become due and payable (includi
7
accrued interest on any Bonds purchased or redeemed prior to maturity pursuant
to the Indenture), (2) paying the principal of the Bonds when due and payable,
(3) purchasing, redeeming or paying at maturity the Bonds, and (4) redeeming
Bonds when the sum of the amounts held in the Revenue Fund, Bond Fund, Reserve
Fund and Redemption Fund equals or exceeds the principal amount of Bonds
Outstanding, plus interest accrued to the date fixed for redemption, and
required expenses.
insufficient to pay the principal of or interest on the Bonds or any Mandatory
Sinking Account Payment when due, the Trustee shall transfer to the Bond Fund
the amount of such deficiency by withdrawing said amount from the following
funds or accounts in the following order of priority: (1) the Redemption
Fund; (2) the Interest Reserve Account; and (3) the Capital Reserve Account.
All amounts in the Interest Reserve Account shall be applied solely for
In the event that the amount in the Bond Fund is
the purposes of making up any deficiency in the Bond Fund. On September 1,
1987, all amounts remaining in the Interest Reserve Account shall be
transferred to the Revenue Fund.
Amounts in the Capital Reserve Account may be used solely for the
purposes of (1) making up any deficiency in the Bond Fund and (2) redeeming
Bonds. Any amount in the Capital Reserve Account in excess of the Capital
Reserve Account Requirement shall be transferred to the Revenue Fund not later
than thirty days after the beginning of each Bond Year commencing with the
Bond Year beginning September 2, 1986.
Amounts on deposit in the Redemption Fund shall be used solely for the
purposes of (1) making up any deficiency in the Bond Fund, (2) transferring to
the Capital Reserve Account such amounts as may be required to increase the
balance therein to the Capital Reserve Account Requirement, (3) paying for
Qualified Program Expenses and (4) redeeming Bonds, provided that, at any time
prior to giving notice of redemption as provided in the Indenture, if
practicable the Trustee shall apply amounts in the Redemption Fund to the
purchase of Bonds at public or private sale as and when and at such prices
(including brokerage or similar charges, but excluding accrued interest, which
is payable from the Bond Fund), as the Trustee may in its discretion
determine, not exceeding the par value of such Bonds.
ASSUMPTIONS REGARDING REVENUES AND
DEBT SERVICE REQUIREMENTS
The City has estimated that payments on the Loans (net of servicing
fees), together with certain earnings derived from the investment of funds and
accounts, will be sufficient to pay the principal of and interest on the Bonds
and certain other expenses (including Costs of Issuance and Underwriters'
Discount).
The estimates of the City are based principally upon the following
assumptions:
1. An aggregate principal amount of $19,654,000 of Loans will be
purchased on or prior to August 1, 1986, at a stated interest rate of 10.20%
8
per annum and at a price of 100% of the then unpaid principal balance, plus
accrued and unpaid interest.
2. The,Developer Fees and the anticipated investment earnings on the
moneys on deposit in the funds and accounts created pursuant to the Indenture
are sufficient to recover Costs of Issuance and Underwriters' Discount
associated with undelivered Loans.
3. The Loans will be amortized over and have terms of not less than 29
nor more than 30 years, with approximately equal monthly installments, and
will have a weighted average life of not less than three years.
Either the Loans will be paid substantially on a timely basis in 4.
accordance with their terms; or, in the case of defaults and foreclosures, any
settlement of mortgage insurance claims will be made at such time as, and in
an amount and in a form of payment which, together with moneys available in
the Bond Fund, will allow t:he City to make scheduled payments of debt service
on the Bonds, notwithstanding certain aspects of the mortgage insurance
programs described under "Private Mortgage Guaranty Insurance".
5. Moneys deposited in the Capital Reserve Account will be continually
invested pursuant to the Indenture at an average yeild of 10.0% per annum
until October 5, 2003 and thereafter at a rate not less than 8.0% per annum;
and monies deposited in the Interest Reserve Account will be invested at an
average annual yield of 10.0% per annum prior to September 1, 1987.
6. Moneys deposited in the Program Fund will be continually invested
prior to September 1, 1986 at an average yeild of 10.05% per annum.
7. Moneys deposited in all funds and accounts (except the Program Fund
and the Reserve Fund) will be continually invested at an average yield of
8.50% per annum.
8. The Lending Institution's servicing fees and premiums for special
hazard insurance will not exceed 0.266% per year of the principal amount of
Loans.
9. The Trustee's fee will not exceed .04% per year of the principal
amount of the Bonds Outstanding.
The City has established a maturity schedule for the Bonds based on 'the
above assumptions and the scheduled amortization payments on the Loans. The
scheduled maturity of the Bonds assumes no prepayment of Loans. If either
Loans are not purchased in the aggregate principal amount set forth above or
prepayments of Loans occur, Bonds will be redeemed pursuant to the special
redemption provisions of the Indenture.
A possible reason for the Cityls not purchasing Loans in the above
aggregate amount is the competition it may receive in making real estate
loans. Competition in making real estate loans in the City normally comes
primarily from savings and loan associations, commercial banks and other
9
mortgage bankers in the area. Because one of the principal factors in
competing for real estate loans is the interest rate charged and because the
Loans are expected to be made at less than currently prevailing market rates
and for a fixed term of approximately 30 years, the Lending Institution does
not expect significant competition in making the Loans. There are, however, a
number of ways in which mortgage loans could become available at rates
competitive with those specified for the Loans, such as through a decline in
market interest rates on conventional loans, the FHA Section 245 (Graduated
Payments Mortgage) program or residential housing mortgage loan programs
established by the State of California, the California Housing Finance Agency
or by nearby communities which may also issue tax-exempt bonds to provide for
the financing of such programs.
If interest rates on conventional mortgage loans were to decline
substantially and become competitive with the Loans, or the Residences are not
constructed as currently anticipated, the City may not be able to purchase
Loans in the anticipated principal amount. To cover any such eventuality the
City has obtained Developer Fees in amounts, and certain anticipated
investment income earned in funds and accounts held by the Trustee, which are
calculated to be sufficient to recover Costs of Issuance and Underwriters'
Discount associated with undelivered Loans.
Another reason for the City's not purchasing Loans in the above aggregatc
principal amount is that the Developers participating in the Program may not
construct and make available Developer Reserved Single Family Residences for
sale on a timely basis. Such delays on the part of the Developers could be a
result of such things as adverse weather conditions, fires, labor disputes an(
shortages of material. In the event that delays in construction of certain o
the Developer Reserved Single Family Residences do occur for any reason, the
City has retained the right, subject to certain limitations, to substitute
other homes for financing under the Program (See "The Program - Developer
Agreements" herein) .
The City anticipates that a portion of the Loans will be partially or
completely prepaid or terminated prior to their respective final maturities a
a result of events such as sale of the residence, default, condemnation or
casualty loss, or noncompliance with the Program including the requirements c
Section 103A of the Internal Revenue Code of 1954, as amended
("Section 103A"). Because of the lack of historical basis with respect to
prepayments of mortgage loans of a type similar to the Loans described hereir
and the requirement of Section 103A that assignees meet the qualification
standards of Section 103A (See "The Program -- Mortgage Sale and Service
Agreements"), there is no reliable basis for predicting the actual average
life of the Loans. The City, however, does anticipate prepayment of a number
of Loans, and it is probable that the Bonds will have a substantially shortei
life than the stated maturity of the Bonds.
The assumptions set forth above are based on current market conditions
and practices, and subsequent events may not correspond to such assumptions.
For example, defaults on, and foreclosure proceedings with respect to, a
substantial number of the Loans could disrupt the flow of Revenues available
10
!
for the payment of scheduled debt service on the Bonds because of delays
involved in enforcing creditors' rights under California law and in collect
insurance benefits. The City's ability to collect on defaulted Loans is
described under "The Program -- Foreclosure". The City's ability to have i
insurance claims satisfied is dependent upon the solvency of the mortgage
insurer at the time of the claim. The City does not make any representatio
as to the ability of any provider of hazard or private mortgage guaranty
insurance to pay the claims when presented by the City or by a Mortgagor.
While the Bonds are outstanding, events may not correspond to the
assumptions set forth above. It is possible, for example, that physical
damage to the residential housing units securing the Loans may exceed the
limits of, or be caused by a peril not insured under, the standard and spec
hazard insurance policies, or that the average rates realized on invested
moneys will be less than anticipated. Additionally, the value of the
Residences securing the Loans could decline substantially, and under such
circumstances, actual losses with respect to defaulted Loans could exceed
coverage provided by mortgage insurance. Under such circumstances, revenue
from the Loans, available investment earnings and insurance proceeds may no
be sufficient to pay the principal of and interest on the Bonds when due.
THE PROGRAM
The Trustee, on behalf' of the City, will purchase Loans from the Lendi
Institution using proceeds from the Bonds and the Developer Fees. The Loan
will be made to finance the acquisition by qualified Mortgagors of Residenc
located in the City. Based on current development estimates, Loans to fina
approximately 240 Residences will be purchased. Information concerning the
Developer Reserved Single Family Residences is set forth in Appendix A, and
information concerning the Lending Institution is set forth in Appendix B,
both of which reference is hereby made for such information.
Each Loan will be secuired by a first mortgage lien (subject to permitt
encumbrances) on the Residence being financed thereby. To qualify for
purchase, each Loan must be insured to the extent described herein and must
meet specific eligibility criteria and guidelines set forth in the document
described below, which include the Developer Agreements, the Agreement, the
Indenture and the Rules and Regulations of the City (collectively, the
"Program Documents").
The Program is intended to provide affordable housing for persons who
intend to occupy a Residence as a principal residence and, in general, who
have not had a present ownership interest in any principal residence durinc
the three years prior to the execution of the Loan. A Mortgagor's househol
income may not exceed 150% of the applicable Median Household Income in the
case of a Mortgagor who will be the first occupant of a new or improved
Residence and 120% of the applicable Median Household Income in all other
cases, provided that at least 20% of the aggregate principal amount of Loar
in such other cases shall be made to Mortgagors whose household income doe5
not exceed 110% of Median Household Income.
11
Loans will provide for level payments of principal and interest basec
a thirty year amortization. Each Loan shall include a provision pursuant
which any amount owing to the City thereunder will be forgiven in its entj
at such time as the principal of and interest on the Bonds and any amount
payable to the City pursuant to the Indenture shall have been paid in full
Each Loan is to have a loan-to-value ratio of 95%. Each Loan will bear
interest at a stated interest rate of 10.20%. Except as expressly provide
otherwise, Loans purchased by the Trustee must be qualified pursuant to Fb
or FHLMC underwriting criteria and practice.
Mortgagors may have their monthly loan payments reduced pursuant to i
supplement provided by a Developer for a period not to exceed three years.
The Lending Institution will be permitted to qualify the Mortgagor at the
reduced payment level if an escrow for the supplement is fully funded at t
time the Loan is purchased.
Each Mortgagor will also be charged an origination fee of 11'2 of 1% c
the principal amount of the Loan to be paid to the Lending Institution at
time the Loan is funded. All Loans will be serviced by the originating
Lending Institution in accordance with the guidelines set forth in the
Agreement.
Under the Program, the Mortgagor must be a first time homebuyer who
intends to occupy the Residence as his or her principal residence and the
acquisition cost of the residence may not exceed 110% of the applicable
Average Area Purchase Price. In the case of a Residence on leased land, t
capitalized value of the ground rent, calculated using a discount rate eql
to the yield on the Bonds, is included in the acquisition cost. Based upc
study prepared by Empire Economics, the Average Area Purchase Price for ne
residences in the San Diego SMSA, in which the City is located, is determj
to be $125,378, and the Average Area Purchase Price for existing residence
the San Diego SMSA as so determined is $109,866. A Loan may only be assun
if the new Mortgagor and the Residence meet similar eligibility requiremer
as well as certain income requirements under the Act.
With respect to each Loan, the Mortgagor, the Developer and the Lend]
Institution are required to submit to the Administrator and the Trustee
affidavits or certificates, under penalty of perjury, certifying facts anc
intentions which exhibit the Mortgagor's compliance with the requirements
Section 103A as to intent to occupy the unit as a principal residence; no
ownership interest in a principal residence for the prior three years;
acquisition cost limitations on the price of the residence; the nonreplacc
of an existing mortgage loan: and restrictions on future assumptions. The
Agreement and the Indenture also prescribe various procedures and techniqL
to be followed by the Lending Institution and the Administrator in reviewj
or verifying the affidavits and information provided by the prospective
Mortgagor in compliance with certain administrative "safe harbors" set for
in the Temporary Regulations under Section 103A.
12
Developer Agreements
Under the Developer Agreements the City will reserve a total of
approximately $19,654,000 to make Loans to finance the purchase of Residence
within the Projects.
The Developers have constructed or are planning to construct
approximately 240 Residences. See Appendix A: "Description of Developer
Reserved Single Family Residences'' herein. Each Developer listed in
Appendix A agrees to use its best efforts to construct and make available a
sufficient number of Residences to enable the Lending Institution to origina
and sell to the Trustee Loans in the specified amounts by August 1, 1986 (or
such later date as may be established in accordance with the Indenture). The
Developer may, with the written consent of the City, transfer all or a portil
of its reservation to another developer which has previously entered into a
Developer Agreement with the City, and the portion of the reservation so
transferred may be used pursuant to the transferee's Developer Agreement.
Upon a determination by the Trustee that the same will not adversely affect
the rating of the Bonds, the Developer may, with the written consent of the
City, transfer all or a portion of its reservation to any other developer, wl
shall then enter into a Developer Agreement with the City. The Developer's
request for the City's consent to such transfer shall set forth the terms an(
conditions of the transfer, a description of the proposed Residences, the
proposed transferee and the purpose for the transfer, all of which must
conform to all requirements of the Program and otherwise be acceptable to thf
City. Except as otherwise provided in the Developer Agreement, no reservati(
or portion thereof may be transferred to a developer who has not entered intc
a Developer Agreement with the City, except upon terms and conditions which
have been first presented to and rejected by each of the Developers who has
entered into such a Developer Agreement.
Additionally, a Developer may direct that an amount not exceeding 40% of
the money he has reserved for Loans be used for Loans for Residences which ar
not Developer Reserved Single Family Residences but which otherwise comply
with the requirements of the Program.
At the time the DeveLoper Agreement is executed each Developer is to pal
to the Trustee in cash a commitment fee of approximately 4.5% of the funds
reserved for that Developer. After the Bonds are delivered the commitment
fees will be held by the Trustee in the Program Fund.
Under the Developer Agreements each Developer is required to represent
with respect to the Residence it constructs and sells under the Program that:
(i) to the be:;t knowledge of the Developer, such is to be occupie
by a mortgagor who it; a first time homebuyer as such mortgagor's
principal place of residence within 60 days after making of the Loan, an
the related Loan is made for the purpose of purchasing the Residence and
not for the purpose of acquiring or replacing any existing mortgage;
13
(ii) to the best knowledge of such Developer, the household income
of the mortgagor does not exceed that percentage of Median Household
Income applicable under the Program for the particular category of
affordability of the Residence being sold;
(iii) the Acquisition Cost of the Residence does not exceed the 110%
of the Average Area Purchase Price;
(iv) the Residence financed by such Loan will be free of material
damage, constructed in a good and workmanlike manner and will be in
general good repair on the closing date of such Loan and at the time the
Residence is offered for sale it will be free of any and all mechanics'
liens ;
(v) the Residence was offered for sale to qualifying homebuyers on
a first-come-first-served basis or on the basis of a random drawing
without regard to race, color, religion, age, sex, marital status or
national origin (except to the extent that some other basis is required
by law, as in the case of a condominium conversion); and
(vi) it has no knowledge of any fact, circumstance or condition with
respect to the mortgagor or the Loan which would lead it to believe that
the certifications required to be made by the mortgagor to the City are
not true.
Ten percent of the Loans, in dollar amount, at any given time, may be
originated to Mortgagors who are not first time homebuyers.
If, after the Trustee has purchased a Loan, it is determined by the City
that the acquisition cost exceeded 110% of the Average Area Purchase Price,
the Developer is required immediately to purchase the Loan from the Trustee at
a price equal to the unpaid principal balance thereof together with interest
accrued thereon.
Mortgage Sale and Service Agreement
Pursuant to the Agreement, the Lending Institution agrees to use its best
efforts to originate and sell without recourse to the Trustee on behalf of the
City by August 1, 1986, Loans in an aggregate principal amount of
$19,654,000. Information regarding the Lending Institution's experience in
origination and servicing of residential mortgage loans is set forth in
Appendix B.
The Administrator will administer the origination and servicing of the
Loans and will undertake certain duties, including approval of the Loans and
supervision of performance of the Lending Institution as servicer. The
Administrator may establish and, from time to time, revise reasonable written
standards detailing uniform procedures to be used and complied with by the
Lending Institution. The Lending Institution agrees to comply with such
reasonable standards, and to submit such reports, provide such documents and
permit such access to information as the Administrator may reasonably request.
14
At the closing for a Loan, the Lending Institution may charge the
Mortgagor a fee of not more than 1/2 of 1% of the original principal amount o
the Loan to be retained by the Lending Institution for its own account.
Lending Institution may also collect from the Mortgagor charges for certain
customary costs paid or incurred by the Lending Institution in connection wit
the making of a Loan.
The
The Lending Institution will represent, among other things, with respect
to each Loan originated by it for purchase by the Trustee that:
(1) The Mortgagor has certified by affidavit that (a) such Loan is
secured by a Residence; (b) the Mortgagor intends to occupy the Residencl
as the Mortgagor's principal residence within 60 days from the date of
closing of the Loan and to maintain it as the Mortgagor's principal
residence (and not as an investment property or a recreational home) for
a minimum of two years after executing the Loan: (c) the Mortgagor's
household income does not exceed the maximum percentage of Median
Household Income permitted under the Program; (d) the acquisition cost o
the Residence does not exceed 110% of the Average Area Purchase Price;
(e) the Mortgagor had no present ownership interest in a principal
residence at any time during the 3-year period prior to the date of
execution of the Loan*; and (f) the Loan is not being used to replace an
existing loan of the Hortgagor.
(2) The Developer has made the certification required under the
Developer Agreement.
(3) For other than 10% of the Loans with respect to Residences
which are originated to Mortgagors who are not first time homebuyers, the
Lending Institution has examined (a) copies of executed income tax
returns which were filed with the Internal Revenue Service and which wen
provided by the Mortgagor which indicate that during the preceding 3
years the Mortgagor did not claim deductions for taxes or interest or
indebtedness with respect to real property constituting his principal
residence or (b) an aEfidavit to the effect that the Mortgagor was not
required to file such a return in one of or all such years.
(4) The Lending Institution has no knowledge of any circumstance or
condition with respect to the Loan or the Mortgagor which (a) could
reasonably be expected to cause the Lending Institution to regard the
Loan as an unacceptable investment for its own portfolio, cause the Loan
to become delinquent, or adversely affect the value or marketability of
the Loan, except that the interest rate on the Loan may be below a market
interest rate and the loan-to-value ratio may be greater than that which
is otherwise acceptable to private lenders; or (b) would lead it to
believe that the certifications required to be made by the Mortgagor and
the Developer are not true and correct.
* Up to ten percent (10%) of the Loans, in dollar amount, at any given time,
may be made to Mortgagors who have had a present ownership interest in a
principal residence within the 3-year period prior to the date of execution of
the Loan.
15
(5) The Loan has been finally endorsed (or a firm commitment
received) for insurance under the private mortgage insurance policy
described under "Insurance - Private Mortgage Guaranty Insurance" herein.
(6) The Lending Institution has obtained a current ALTA or
equivalent title insurance policy (or firm commitment therefor) that
insures that title to the mortgaged property is vested in the mortgagor
subject only to the lien of the deed of trust and to permitted
encumbrances.
(7) Based on an inspection conducted by the Lending Institution,
construction of the property securing the Loan is complete and free of
any apparent material damage and is in general good repair.
(8) The Residence is covered by a fire insurance policy with
extended coverage and an earthquake endorsement (or a commitment
therefor) assigned in favor of the Lending Institution, the Trustee and
the City as their interests may appear, in the amount specified under
(I Insurance - S tanda rd Hazard Insurance $I .
In connection with assumptions of Loans, the Lending Institution will
represent to, among other things, the matters summarized in items (l), (3) and
4(b) above.
If at any time any document or documents submitted by the Lending
Institution in connection with a Loan are, in the opinion of the
Administrator, defective or inaccurate in any material respect, the Lending
Institution is required to cure the defect or inaccuracy within 60 days from
the time the Administrator notifies it of the existence of the defect or
inaccuracy. Under the Agreement, the Lending Institution agrees that, if any
such material defect cannot be cured within such 60-day period, it will, not
later than 90 days after the Administrator's notice to it respecting such
defect or inaccuracy, repurchase the related Loan from the City at a price
equal to (1) 100% of the principal remaining unpaid on such Loan plus (ii)
unpaid accrued interest thereon to the date of the repurchase.
Notwithstanding anything set forth in the preceding paragraph, in any
case in which the Lending Institution is required to repurchase a Loan by
reason of a defect, inaccuracy or misrepresentation in a Mortgagor's
affidavit, the Lending Institution need not repurchase the Loan so long as (i)
such defect, inaccuracy or misrepresentation constitutes a default under the
Loan with respect to which the private mortgage guaranty insurance policy
provides coverage, and (ii) the Lending Institution diligently proceeds on
behalf of the City to declare all sums the payment o€ which is secured thereby
to be immediately due and payable and to take all steps necessary to collect
benefits pursuant to the private mortgage guaranty insurance policy.
Moreover, in any case in which the Lending Institution is required to
repurchase a Loan because a Developer incorrectly indicated in an affidavit
submitted to the Lending Institution that the acquisition cost of a Residence
did not exceed 110% of the Average Area Purchase Price, the Lending
Institution may exercise the right of the City pursuant to the Developer
Agreements to require the Developer to purchase such Loan from the City.
16
The Lending Institution shall service the Loans it originates and shall
generally have full power and authority, acting alone, to do any and all
things in connection with the such servicing which it may deem necessary or
desirable. The Lending Institution shall service the Loans in accordance wil
the standards set forth in the FHLMC Servicer's Guide.
As compensation for :its activities under the Agreement and in
consideration for servicing the Loans it originated, the Lending Institution
shall retain from each Mortgagor's monthly payment allocable to interest an
amount equal to 1/12 of .23 of 1% of the unpaid principal amount of the Loan.
In addition, the Lending Institution shall be entitled to servicing
compensation out of insurance proceeds or liquidation proceeds to the extent
permitted in the Agreement. Additional servicing compensation in the form of
assumption fees, late payment charges or otherwise, if any, may be retained t
the Lending Institution to the extent not required to be deposited in the
Receipts Account (hereafter mentioned) it maintains or required to be paid tc
the Private Mortgage Insurer. The Lending Institution shall be required to
pay all expenses incurred by it in connection with its servicing activities
and shall not be entitled to reimbursement therefor, except as specifically
provided in the Agreement and in the Indenture.
The Lending Instituti-on is to establish and maintain, in the name of the
City, a separate account ('the "Receipts Account"), into which all payments an
collections received by it, with respect to the Loans (including proceeds of
insurance and foreclosures, but excluding the servicing fees and certain othe
amounts) are to be deposited on a daily basis. On the twenty-fifth day of
each month, the Lending Institution is to remit to the Trustee for deposit th
sum of: (i) the scheduled payments of principal of and interest on the Loans
received by it on or before the twentieth day of the month and not previously
remitted to the Trustee, (ii) Loan Principal Prepayments received by it on or
before the twentieth day of the month, and (iii) an amount equal to all
scheduled payments of principal of and interest on the Loans which (a) are
then delinquent, (b) have not been previously remitted to the Trustee, and (c
are not yet payable by the Private Mortgage Insurer, less (iv) the service
fee, escrow payments and any other amounts permitted to be retained by the
Lending Institution pursuant to the Agreement. Notwithstanding the foregoing
each Lending Institution is also required to remit immediately to the Trustee
any portion of the Receipts Account which is in excess of the lesser of
$100,000 or the amount insured by FDIC or FSLIC, whichever is applicable<.
The obligations of Wells Fargo Mortgage Company, under the Agreement
described in (i), (ii) and (iii) above will be guaranteed by Wells Fargo &
Company. The requirement of the Lending Institution to remit by the
twenty-fifth day of each month amounts equal to principal and interest due on
each Loan regardless of the receipt thereof from the Mortgagor, as set forth
in (iii) above, will be additionally covered by an endorsement to the private
mortgage insurance policy issued by the Private Mortgage Insurer requiring
advances by the twenty-fifth day of the month upon notice from the Trustee in
the event the Lending Institution does not remit amounts required in (iii)
above by the twenty-fifth day.
17
In the event Wells Fargo Mortgage Company and Wells Fargo & Company will
be unable to make the payments set forth in clause (iii) above by the
twenty-fifth day of a month, the Lending Institution will, pursuant to the
terms of the Agreement, so notify the Trustee by the eighteenth day of such
month. The Trustee will then notify the private mortgage insurer of the
inability of the Lending Institution and its guarantor to make such payments
on the next business day in order to provide the private mortgage insurer
sufficient time to make the payments required under its mortgage guaranty
insurance policy on the twenty-fifth day of such month (See "Insurance-Private
Mortgage Guaranty Insurance").
On the twenty-fifth day of each month, the Lending Institution is to
furnish to the Administrator a statement setting forth the status of the
Receipts Account it maintains, as of the close of business on the twentieth
day of such month and showing, for the period covered by such statement, the
aggregate of deposits into and withdrawals from such Receipts Account. Such
statement shall begin in a form prescribed by the Administrator and shall also
include (i) information as to the principal balances of Loans outstanding at
the close of business on the twentieth day of such month, (ii) information as
to Loans upon which a combined total of two required monthly payments of
principal and interest are delinquent, as of the close of business on the last
day of the preceding calendar month, and (iii) the unpaid outstanding
principal amount of Loans and the estimated fair market value of any real
estate acquired through foreclosure or grant of a deed in lieu of foreclosure.
Within 120 days after the close of the Lending Institution's fiscal year,
the Lending Institution shall furnish to the Administrator an auditorls report
relating to the Lending Institution's financial statements and mortgage loan
operations. The Lending Institution shall also deliver to the Trustee and the
Administrator a certificate stating that (i) a review of the activities of the
Lending Institution during the preceding year and of its performance under the
Agreement has been made, and (ii) based on the review, there is, as of such
date, no default by the Lending Institution in the fulfillment of any of its
obligations under the Agreement, or if there is any such default, specifying
each such default and the nature and status thereof.
The Lending Institution's servicing duties may be terminated by the
Administrator for cause. Upon such termination, the Administrator is
obligated to succeed to all rights and obligations of the terminated Lending
Institution concerning servicing of Loans and shall be entitled to receive
compensation therefor. As soon as practicable thereafter, the Administrator
is to enter a servicing agreement with another qualified lending institution,
or shall itself assume such servicing. The Administrator may, if it shall be
unable to so act, appoint or petition a court of competent jurisdiction to
appoint a successor servicer.
Foreclosure Laws
The Loans will be secured by first lien deeds of trust, the most commonly
used real property security device in California. Although a deed of trust iz
similar to a mortgage with power of sale, the deed of trust formally has thret
18
parties -- the debtor trustor (similar to a mortgagor), the third party
grantee called the trustee, and the lender-creditor (similar to a mortgagee)
called the beneficiary. The trustor grants the property, irrevocably until
the debt is paid, "in trust, with the power of sale" to the trustee to secur
payment of the obligations. The trustee's authority is governed by law, the
express provisions of the deed of trust and the directions of the beneficiar
Upon the default of a Loan, the Lending Institution servicing the Loan
to exercise the City's rights under the deed of trust's power of sale, subje
to the constraints imposed by California law for the transfer of title to
property by private sale. During the three-month period beginning with the
filing of a formal notice of default, the Mortgagor will be entitled to
reinstate the Loan by making overdue payments. Under standard servicing
procedures, the filing of the notice of default does not occur unless at le;
two full monthly payments, are due and unpaid. The power of sale is exercise
by posting and publishing a notice of sale for at least 20 days after the
expiration of the three month reinstatement period. Therefore, the effectib
period for foreclosing upon a Loan could be in excess of six months after tk
initial default. Such time delays in collections could disrupt the flow of
revenues available for the payment of debt service on the Bonds if such
defaults occur with respect to a substantial number of Loans. Under
California anti-deficiency legislation, there is no personal recourse agains
a mortgagor where the trustee exercises the power of sale.
The Lending Institution
The City has entered into an Agreement with Wells Fargo Mortgage Compar
to originate and provide $19,654,000 principal amount of Loans to the Trust1
for purchase on behalf of the City during the delivery period which termina
on August 1, 1986. In consideration for the efforts associated with
originating Loans, each Mortgagor will pay an origination fee of 112 of 1% 1
the principal amount of each Loan (plus the cost of appraisal and credit
reports and other customary closing expenses) to the Lending Institution.
Certain other information concerning the Lending Institution is set fo
in Appendix B hereto.
Residential real estate loans originated by the Lending Institution arl
subject to a thorough underwriting process in order to assess the prospecti'
borrower's ability to repay and the adequacy of the home as collateral for
loan requested. California is an "anti-deficiency'' state, which means that
in general, lenders providing credit on single family properties must look
solely to the property for repayment in the event of default. Accordingly,
loan underwriting policies require that loan officers be satisfied that the
value of the property being financed currently supports, and will support i
the future, the outstanding loan balance with sufficient excess value to
mitigate against adverse shifts in real estate values. The appreciation in
value of California real estate in the past has tended to limit loss and
foreclosure experience on their portfolios of single family home mortgages.
Since it is anticipated that some Loans under the City's Program may be mad
on the basis of a ninety-five percent (95%) loan-to-value ratio, and since
19
prediction can be made as to future prices of housing, the prior experience of
the Lending Institution described in Appendix B may not necessarily be useful
in predicting the delinquency and loss rates to be experienced on the Loans.
THE ADMINISTRATOR
Investors Mortgage Financial Services, Inc. (IIIMFS") will act as
Administrator under the Agreement. IMFS, a Massachusetts corporation, is a
wholly owned subsidiary of Continental Financial Services Company ("CFS"), of
Richmond, Virginia. As of December 31, 1982, CFS reported assets of
approximately $2.08 billion, produced revenues of approximately $585.2 million
and after tax earnings of approximately $50.4 million. CFS is one of five
wholly owned operating companies of the Continental Group, of Stamford,
Connecticut.
IMFS is acting as Administrator for 19 separate single family
residential mortgage revenue bond issues financed under the Mortgage Subsidy
Tax Bond Act of 1980 and amendments. In addition to the City of Carlsbad's
Single Family Residential Mortgage Revenue Bonds, Issue of 1983, IMFS serves
as Administrator for the City and County of Denver, Adam County, Boulder
County and Mesa County in Colorado and the County of Los Angeles, County of
Orange, County of Santa Barbara, County of Santa Clara, City of Palmdale,
Redding-Shasta Home Financing Authority and the City and County of Sacramento
in California. These issues comprise a total amount of approximately
5640,415,000.
IMFS management is experienced in providing financial related
intermediary services, such as the services of administrator to the mortgage
lending industry. These services are offered for both taxable and tax-exempt
mortgage based securities. IMFS is an affiliate company to Investors Mortgage
Insurance Company (the "Private Mortgage Guaranty Insurance" described below).
INSURANCE
The Residences securing each of the Loans purchased by the Trustee must
be covered by a standard hazard insurance policy and a special hazard
insurance policy. In addition, each Loan must be insured by a mortgage
guaranty insurance policy issued by Investors Mortgage Insurance Company.
Private Mortgage Guaranty Insurance
To qualify for purchase by the Trustee, on behalf of the City, a
Loan must be insured in full under a mortgage guaranty insurance policy issued
by Investors Mortgage Insurance Company (IIIMI"). IMI, an Illinois insurance
company, will provide, subject to underwriting, mortgage guaranty insurance
for the Loans under, and in accordance with the terms and conditions of, its
full coverage policy, an amendatory endorsement waiving the due-on-sale
exclusion and the non-monetary default, advance payments and advances
amendatory endorsements thereto and the Commitments and Certificates issued
pursuant thereto (all of which are collectively referred to as a "Policy").
20
The following descriptio:n of a Policy and the coverage thereunder is only a
brief outline and does n3t purport to be comprehensive or definitive and sul
outline is qualified in its entirety by reference to a Policy itself.
The City, the Trustee and the Lending Institution will be named insure
(collectively, the "Insured"), as their interest may appear, under each Pol
Any default (including mortgagor-related nonmonetary default, such as
defaults resulting from a failure to comply with the requirements of the
City's Program or a failure to comply with the requirements of Section 103A
under the Loan which is the basis for a foreclosure action is covered under
the Policy. No claim may be filed under a Policy with respect to a Loan
insured thereunder until the Insured has acquired title to the mortgaged
property which secured such Loan. Unless otherwise agreed to by IMI, a cla
under a Policy must be filed within 60 days after the Insured acquires tit1
to such mortgaged property.
As conditions precedent to the filing and/or payment of a claim under
Policy: the Loan must be secured by a first lien on the mortgaged property
and, the Insured must (i) have accomplished all construction, additions and
improvements necessary to complete the mortgaged property as contemplated b
the Policy, (ii) in the event of any physical loss or damage to the mortgag
property, have restored and repaired the mortgaged property to at least as
good a condition as existed at the effective date of the Policy and as
contemplated by the Policy, ordinary wear and tear excepted, and (iii) pend
the filing and settlement of a claim, advance (a) hazard insurance premiums
and real estate property taxes and (b) as necessary and approved in advance
IMI, (1) expenses to preserve, repair and prevent waste to the mortgaged
property and to maintain it in at least as good a condition as existed at t
effective date of the Policy and as contemplated by the Policy, ordinary we
and tear excepted, (2) foreclosure costs including court costs and reasonab
attorneys' fees and (3) sales expenses.
Other provisions and conditions of each Policy provide that (1) no cha
shall be made in the terms of a Loan without the consent of IMI, (ii) writt
notice is to be given to IMI within 10 days after the Insured becomes aware
that a mortgagor is delinquent in two monthly payments due under the Loan o
that any proceedings affecting the mortgagor's interest in the mortgaged
property have been commenced, and the Insured report monthly to IMI the sta
of any such Loan until the Loan is brought current, such proceedings are
terminated or a claim is filed, (iii) the Insured shall commence and
diligently pursue foreclosure or appropriate proceedings to acquire title t
and possession of the mortgaged property when the mortgagor becomes delinqu
in four or more monthly payments on the Loan, shall notify IMI of the
institution of such proceedings and provide IMI with copies of documents
relating thereto, shall notify IMI of the unpaid principal balance of the L
and accrued and unpaid interest thereon at least 15 days prior to the sale
the mortgaged property by foreclosure and shall bid such amount unless IMI
specifies a lower or higher amount, and (iv) the Insured may accept a deed
lieu of foreclosure only if the ability of the Insured to assign specified
rights to IMI is not thereby impaired.
21
The amount of a claim for benefits consists of (i) the unpaid principal
amount of the Loan and accrued and unpaid interest thereon and (ii) the amount
of advances made by the Insured in accordance with a Policy less (a) all rents
or other payments collected or received by the Insured (other than the
proceeds of hazard insurance) which are derived from the mortgaged property,
the Mortgagor, an insurance company or any other person, (b) hazard insurance
proceeds in excess of the amount required to restore the mortgaged property,
(c) amounts expended by the insured due to the fault of the Insured, (d) any
claim payment previously made by IMI under the Policy with respect to the
Loan, and (e) unpaid premiums.
When a claim for benefits is properly submitted, IMI, at its option,
shall pay to the Insured either (i) the amount of the claim for benefits
calculated in accordance with the immediately preceding paragraph or (ii) the
delinquent regular monthly payments specified in the Loan plus advances
required of the Insured and described above and thereafter the regular monthly
payments specified in the Loan until (a) the total of such payments equals the
claim for benefits or (b) a sale of the mortgaged property approved by IMI, at
which time IMI pays the balance of the claim for benefits less the net
proceeds of such sale. If the net proceeds of such sale exceed the claim for
benefits, the Insured shall immediately account for and remit to IMI such
excess. If IMI elects to pay under option (1) or (ii)(a), the Insured must
convey title to the mortgaged property to IMI upon payment of the claim for
benefits, among other conditions. If IMI elects to pay under option (ii), it
may direct the Insured to rent and/or sell the mortgaged property to apply all
sums so received to and in reduction of payments due from IMI.
The advance payments amendatory endorsement provides for an advance
payment procedure pursuant to which IMI, within five days of receipt of a
specified notice from the Insured, is required, with respect to a Loan on
which a mortgagor is delinquent in two or more monthly payments of principal
and interest but subject to the coverage limitations of the Policy, to advance
to the Insured an amount equal to all delinquent payments of principal and
interest (except payments due solely as a result of acceleration of the Loan)
and is required to continue to make such delinquent payments until the Insured
files (or should have filed) a claim for benefits with respect to the Loan for
which such payments have been made. The insured is required to reimburse IMI
for such advance payments either from payments received by the Insured on
account of the Loan from the mortgagor, an insurer of the mortgaged property
or the proceeds of the foreclosure sale or conveyance of the mortgaged
property. Any unreimbursed advance payments will be offset against any claim
payment to the Insured.
The Policy also provides for advance payment of delinquent installments
of principal and interest on Loans not later than the thirtieth day of each
month if a Lending Institution fails to make such payment on the twenty-fifth
day thereof as required by the Agreement and if the institution which
guaranteed the Lending Institution's payment thereof fails to honor its
guarantee.
22
On June 30, 1983, IF1 reported insurance in force covering $8.4 billion
of residential mortgages, total admitted assets of approximately
$128.5 million, capital znd surplus aggregating approximately $13.4 million
and a statutory contingericy reserve of approximately $77.3 million, resultin
in total policyholder reserves of approximately $90.7 million. On that date
IMI reported a risk to pcilicyholder~s surplus ratio of 18.2 to 1.
Standard Hazard Insurance and Earthquake Insurance
For a Residence to qualify for purchase by the Trustee on behalf of the
City, the related Residence must be covered by a standard hazard insurance
policy issued by an insurance carrier qualified to issue such insurance in t
State of California. The standard hazard insurance policy will insure agair
physical damage to or destruction of improvements on the property by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. The policy must insure the Residence from loss in an amount at lea::
equal to the lesser of the principal balance owing on the Loan or 90% of it:
replacement cost.
In addition, each Residence is to be insured against risk of loss due
earthquake in an amount 'not less than the lesser of the maximum insurable
value of the Residence or the principal balance owing on such Loan, subject
a 5% deductible per occurrence. Such coverage is required at the time the
Loan is purchased, but need be maintained thereafter only if commercially
available.
Special Hazard Insurance
The Administrator will cause a special hazard insurance policy to be
obtained to provide limited protection with respect to certain risks,
including mud flows and (to a limited extent) flood, building collapse, anc
losses resulting from the application of coinsurance provisions of the
standard hazard insurance policy subject to the availability of such insura
from reputable insurance companies at reasonable rates and upon reasonable
terms. The special hazard insurance policy will not cover against losses
caused by floods if a Residence is located in an area designated as a flooc
hazard zone by federal or state authorities and separate flood insurance is
not maintained. The Trustee will pay the premiums for the special hazard
insurance policy from the Program Expense Fund established pursuant to the
Indenture. The special hazard insurance policy will be issued by Commerce
Industry Insurance Company (the "Special Hazard Insurer").
The special hazard insurance policy will provide that where there has
been damage to a Residence securing a defaulted Loan, and such damage is nc
fully covered by such policy, the Special Hazard Insurer will pay the lessc
of: (i) the cost of repair, or (ii) the unpaid principal balance of the Lc
at the time of acquisition of the claim settlement at the rate of interest
specified in the Loan, plus advances, less any net proceeds in the event tl
Residence is sold or transferred in accordance with the policy. The speci
hazard insurance policy shall continue in force until (i) each Loan either
been paid in full or no longer secures the Bonds, or (ii) all Bonds have b
23
fully paid or provision for such payment has been provided for pursuant to the
Indenture. The special hazard insurance policy will provide that the Trustee
will cause to be maintained standard hazard insurance policies, insuring each
Residence against casualty loss. In the event such coverage is not maintained
and a loss occurs which would have been covered by such standard hazard
insurance policy, then the claim under the special hazard insurance policy
shall be reduced by the amount which the standard hazard insurance policy
would have covered.
The maximum amount payable under the special hazard insurance policy will
be the greater of 1% of the aggregate initial principal balance of the Loans
or twice the original principal amount of the largest Loan purchased. The
residual coverage under the policy will be reduced by the dollar amount of
claims paid, less any amounts realized by the insurer upon disposition of any
Residence. If aggregate claims exceed the special hazard insurance policy
limit, no further payments will be made by the insurer, any losses resulting
thereafter will be borne by the bondholders.
If the special hazard insurance policy shall cease to be available from
the original issuer, the Administrator shall exercise its best reasonable
efforts to obtain a comparable replacement policy with coverage at least equal
to the then existing coverage of the special hazard insurance policy.
Flood Insurance
If a Residence is located in an area designated as a flood hazard zone by
federal or state authorities, the Lending Institution servicing the Loan
secured by such Residence will cause to be maintained for such Loan a flood
insurance policy in the form of a Federal homeowner's flood insurance policy
in an amount which is equal to the lesser of the maximum insurable value of
the Residence securing the Loan or the principal balance owing on such Loan,
whichever is less.
Errors and' Omissions Insurance and Fidelity Bonds
If the Lending Institution fails to perform its obligations under the
Program Documents due to an error or omission of its officers or employees,
coverage will be provided within the limits of the errors and omissions
insurance policy required to be maintained by the Lending Institution. If any
officer or employee of the Lending Institution misappropriates funds from the
Lending Institution, coverage therefor will be provided within the limits of
the fidelity bond required to be maintained by the Lending Institution. The
Lending Institution is required to pay the premiums for its errors and
omissions insurance policy and fidelity bond. The Lending Institution is
required to deposit any amount collected under any such errors and omissions
insurance policy or fidelity bond into its Receipts Account.
Both the errors and omissions insurance policies and fidelity bonds must
be in the form and substance required by the FHLMC or FNMA. Such policies and
bonds are subject to certain limitations as to amounts of coverage, deductible
mounts, conditions, exclusions and exceptions. Accordingly, the errors and
24
omissions insurance policies and fidelity bonds, respectively, will not
provide coverage against all losses which may be sustained as a result of
errors, omissions or misappropriations.
If either the error:; and omissions insurance policy or fidelity bond
shall cease to be in effect, or the insurer thereof shall cease to be
acceptable to the Administrator and the Trustee, the Lending Institution is
required to obtain from <another insurer acceptable to the Trustee a
replacement policy therefor.
Payment of Insurance Claims
The City makes no representation as to the ability of any insurer issu:
mortgage guaranty, standard hazard, special hazard, earthquake, flood or
errors and omissions insurance to make payments under their policies at the
times and in the amounts specified in such policies.
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following statements are a brief summary of certain provisions of
Indenture (copies of which may be obtained from the City and at the corpora
trust office of the Trustee, in Los Angeles, California). The summary does
not purport to be complete and reference is made to the Indenture for a ful
and complete statement of such provisions. Certain capitalized words or te
used in this summary and not defined herein are defined in the Indenture an
have the same meaning herein as therein used unless the context requires so
other meaning.
Certain Definitions
"Bond Year" means the period of twelve consecutive months ending on th
first day of September in any year in which Bonds are or will be Outstandin
"Bonds" means the City of Carlsbad, California, Single Family Resident
Mortgage Revenue Bonds, Issue of 1983, authorized by, and at any time
Outstanding pursuant to, the Indenture.
"Capital Reserve Account Requirement" means an amount equal to two
percent (2%) of the principal amount of the Loans outstanding as of any dai
of calculation.
"Costs of Issuancell means all administrative fees of the City and iter
of expense directly or indirectly payable by or reimbursable to the City ai
related to the authorization, issuance, sale and delivery of the Bonds,
including, but not limited to, advertising and printing costs, costs of
preparation and reproduction of documents, filing and recording fees, init:
fees and charges of any insurer, the City and the Trustee, (including fees
charges for services through the first Bond Year), legal fees and charges,
fees and disbursements of consultants and professionals, rating agency fee:
fees and charges for preparation, execution, transportation and safekeepinc
25
Bonds and any other cost, charge or fee in connection with the original
issuance of Bonds.
"Estimated Excess Earnings" means the Excess Earnings which the Trustee
estimates, as of each July 1 and January 1, will be earned during the
Semiannual Debt Service Period for which the estimate is being made.
"Estimated Maximum Earnings" means the Maximum Earnings which the Trustee
estimates, as of each July 1 and January 1, will be applicable to the
Semiannual Debt Service Period for which the estimate is being made.
"Excess Earnings" means earnings on investments held under the Indenture
(exclusive of Loans), including unrealized gains and losses upon the
retirement of the last Outstanding Bond, during the period for which the
calculation is being made which are in excess of the sum of (i) Maximum
Earnings (calculated on the basis of semiannual compounding) and (ii) actual
losses on Loans.
"Impound Payments" means all deposits made by a Mortgagor in order to
obtain or maintain mortgage insurance or guarantees or fire and other hazard
insurance or any federal, state or local program subsidy with respect to a
Loan or the premises relating thereto, and deposits required to be made with
respect to taxes and other governmental charges or similar charges customarily
required to be deposited in advance by a Mortgagor and impounded pending their
payment for the item or items for which the deposits were impounded.
"Investment Agreement" means one or more agreements in form and substance
satisfactory to the City, dated as of the date on which the Bonds are issued,
by and between the Trustee and Atlantic Capital Corporation with respect to
the Program and Reserve Funds and by and between the Trustee and Wells Fargo
Mortgage Company with respect to the remaining funds.
"Investment Securities" means any of the following which at the time are
legal investments under the laws of the State of California for moneys held
under the Indenture and then proposed to be invested in: (1) direct
obligations of the United States of America (including obligations issued or
held in book-entry form on the books of the Department of the Treasury of the
United States of America) or obligations the principal of and interest on
which are guaranteed by the United States of America; (2) obligations,
debentures, notes or other evidence of indebtedness the payment of which is
secured by the full faith and credit of the United States of America;
(3) certificates of deposit with or general obligations of any bank or savings
and loan association the securities of which are rated not less than "A+" by
Standard & Poor's Corporation, if not secured by such collateral; and (4) the
Investment Agreement.
"Loan" means a loan, evidenced by a Note secured by a first lien __ Mortgage, which meets the requirements of the Agreement and which the Trustee,
on behalf of the Issuer, has purchased or intends to purchase from a Lending
Institution pursuant to the Agreement.
26
'ILoan Principal Prepayments" means all amounts received by the City or
the Trustee representing recovery of the principal amount of any Loan
(exclusive of regularly scheduled principal payments) as a result of (1) ani
prepayment of all of the principal amount of any Loan: (2) the sale,
assignment or other disposition of any Loan; (3) the acceleration of any LOE
(on account of default or any other cause) or the foreclosure or sale under
deed of trust or other proceedings taken in the event of default of any Loar
and (4) compensation for losses incurred with respect to any Loan from the
proceeds of condemnation, title insurance, hazard insurance, mortgage
insurance or guarantees (whether received in the form of moneys or as
debentures or certificates issued pursuant to a contract of insurance),
exclusive of amounts recovered in respect of such losses to the extent
required to be otherwise applied pursuant to the applicable contract of
insurance.
"Mandatory Sinking Account Payment" means, as of any date of calculatic
the amount required to be paid by the City on a given date for the retiremei
of Bonds.
"Maximum Earnings" means the product of an interest rate equal to the
Yield on the Bonds multiplied by the average daily balance of amounts held
under the Indenture in investments other than Loans during the period for
which the calculation is being made, calculated on the basis of semiannual
compounding.
"Outstanding" when used as of any particular time with reference to
Bonds, means (subject to the provisions of the Indenture concerning
disqualified Bonds) all I3onds theretofore, or thereupon being, authenticate(
and delivered by or on behalf of the Trustee under the Indenture except
(1) Bonds theretofore cancelled by the Trustee or surrendered to the Truster
for cancellation; (2) Bonds with respect to which all liability of the City
shall have been discharged in accordance with the Indenture, including Bond
(or portions of Bonds) for which the Trustee is holding money in trust for
payment of particular Bonds (or portions thereof); and (3) Bonds for the
transfer or exchange of or in lieu of or in substitution for which other Bo
shall have been authenticated and delivered by or on behalf of the Trustee
pursuant to the Indenturle.
I
"Owner" means the Person in whose name a Bond is registered in the
registry maintained by the Trustee.
"Program Expense Fund Requirement" means, as of any date of calculatio
such amount as may at any time and from time to time be fixed or determined
the Trustee, with notice thereof to the City, as necessary to be accumulate
in the Program Expense Fund as a reserve for the uses to which amounts in s
fund may be applied pursuant to the Indenture.
"Qualified Program Expenses" means the following of the Cityls expense
in carrying out and administering the Program: (1) fees and expenses of th
City (but only to the extent paid or incurred in connection with the
preparation of financial reports required pursuant to the Indenture) and th
27
Trustee and (2) insurance premiums with respect to any special hazard
insurance required to be maintained on or with respect to any one or more
Loans pursuant to the Indenture.
"Revenues" means all amounts received by the City or the Trustee from or
with respect to any Loan, the Agreement, any Developer Agreement or any policy
of insurance on or with respect to any Loan, including, without limiting the
generality of the foregoing, scheduled payments of principal and interest
required pursuant to any Loan and paid from any source (including both timely
and delinquent payments), Loan Principal Prepayments, and all interests,
profits or other income derived from the investment of amounts in any fund or
account established pursuant to the Indenture (except the Excess Earnings
Fund), but shall not include (1) Impound Payments, (2) any amount retained by
the Lending Institution (other than the City) as a servicing fee or other
compensation, and (3) Excess Earnings.
"Semiannual Debt Service Period" means the period from March 1 through
August 31 and the period from September 1 through the last day of February in
any given year in any year in which there are Bonds Outstanding.
Pledge and Assignment
Pursuant to the Indenture, the City assigns all of the Revenues, all of
the proceeds of the Bonds and amounts (other than Excess Earnings) held in any
fund or account established under the Indenture, together with all of the
right, title and interest of the City in each Loan, the Agreement and each
Developer Agreement for the benefit of the owners of the Bonds.
Establishment of Funds
The Indenture establishes the following funds and accounts to be held by
the Trustee: (1) the Revenue Fund; (2) the Estimated Excess Earnings Account;
(3) the Excess Earnings Fund: (4) the Program Expense Fund; (5) the Bond Fund;
(6) the Reserve Fund: and (7) the Redemption Fund.
Bond proceeds are to be deposited as described under "Sources and Uses of
Funds" herein, and the transfer and disbursement of Bond proceeds and Revenues
are to be made by the Trustee in the manner set forth under "Nature of
Security and Sources of Payment - Flow of Funds" herein.
Investment of Moneys in Funds
Moneys held in any of the funds and accounts established pursuant to the
Indenture (other than those monies in the Program Fund which have been
reserved to pay Costs of Issuance on the Bonds) shall be invested by the
Trustee in Investment Securities to maximize investment income, with proper
regard for the preservation of principal, subject to the tax covenants and
limitations as to maturities set forth in the Indenture and subject also to
any request of the City as to such investment.
28
Moneys in all funds and accounts established under the Indenture shall
invested in Investment Securities paying interest and maturing not later th
the dates on which it is estimated that such money will be required by the
Trustee. However, investments in all funds and accounts may be commingled
puroses of making investments, and all gains and losses shall be allocated
ratably.
All interest and other profit derived from such investment shall be
deposited when received in the Revenue Fund. Investment Securities acquire
as an investment of moneys in any fund or account established under the
Indenture shall be credited to such fund or account. For the purpose of
determining the amount in any such fund or account, the amount of any
obligation allocable thereto shall be equal to the purchase price of such
obligation (not including accrued interest, if any, paid on the purchase of
such obligation) plus the amount of any discount below par accounting for a
such discount ratably each year over the term of such obigation (i.e., by
dividing the amount of such discount by the number of interest payment date
having passes since the date of purchase).
i
The Trustee may sell at the best price obtainable, or present for
redemption, any Investment Securities so purchased whenever it shall be
necessary in order to provide money to meet any required payment, transfer,
withdrawal or disbursement from the fund or account to which such Investmen
Security is credited, arid the Trustee shall not be liable or responsible fo
any loss resulting from such investment.
Covenants of the City
The City warrants and covenants, among other things:
(1) To punctually pay all Revenues received by it to the Trustec
for payment of the Bonds;
(2) Not to extend or consent to extension of time for payment 0'
maturity of Bonds;
(3) To provide further assurances of rights under the Indenture
re qui red ;
(4) To keep or cause to be kept proper books for all the Prograi
transactions described in the Indenture and to file a copy of its ann'
report pertaining to such transactions with the Trustee and provide s'
report to each Owner who has filed his name and address with the City
the Trustee for such purpose:
(5) To the extent permitted by law, not to claim the advantage
any laws which may adversely effect the covenants and agreements of t
Indenture;
29
(6) To do nothing which will cause the Bonds to become arbitrage
bonds within the meaning of Section 103(c) of the Code or which would
fail to comply with the requirements of Section 103A and the regulations
promulgated thereunder;
(7) To use Bond proceeds to purchase Loans which are in compliance
with the Program, and to do all things necessary to produce Revenues
sufficient to pay principal of and interest on the Bonds and to maintain
and enforce all policies of insurance required under the Program, and to
enforce the terms, conditions and covenants of the Loans, the Agreement,
and the Developer Agreements: and
(8) To assure that Mortgagors shall be indebted under the Loans
only to the extent necessary to provide for full payment of principal and
redemption premium, if any, and interest on the Bonds and any expenses
and other amounts required to be paid under the Indenture and the
Agreement, and after full payment of all of said amounts, to execute any
documents or do such other things as may be necessary to relieve the
mortgagors of their obligations remaining under the Loans.
Supplemental Indentures
Supplemental Indentures may be adopted at any time to:
(1) Add covenants and agreements to further secure the Bonds or to
surrender any right or privilege of the City reserved or conferred under
the Indenture ;
(2) Modify the Indenture subject to consent of Owners as described
below ;
(3) Cure ambiguities and defects or inconsistent provisions of and
add clarifying provisions to the Indenture; and
(4) Permit qualification of the Indenture under the Trust Indenture
Act of 1939, as amended, or any similar federal statute.
Amendment of the Indenture
With the exception of amendments of the type outlined in (l), (3) and (4)
above, which may be made without the consent of the Owners, amendments to the
Indenture may be accomplished by supplemental indenture adopted with the
consent of the Owners of at least 60% of the principal amount of Bonds
Outstanding, such consent to be obtained in writing. No such amendment may
change the redemption or maturity of any Outstanding Bonds, or any interest
date or reduce the principal amount or redemption price or rate of interest
without the consent of all of the Owners of the Bonds then Outstanding nor may
the percentage required for consent be reduced without consent of all of the
Owners.
30
Default and Remedies
Events of default are defined as:
(1) Default in the payment of principal, redemption price or
sinking fund instal-lments when due; 4
i (2)
(3)
Default 1.n the payment of interest when due;
Default by the City in the observance of any of the covenan
agreements or condi-tions contained in the Indenture or in the Bonds,
which continues for a period of 60 days after written notice thereof
shall have been given by the Trustee or by the Owners of not less thai
25% of the Outstanding Bonds; or
(4) The assumption under the provisions of any law relating to
bankruptcy or insolvency or any similar law relating to creditors rigk
by any court of competent jurisdiction, of custody or control of the (
or of the whole or any substantial part of its property, if such custc
or control is not terminated or stayed within 60 days from the date 01
assumption of such custody or control.
Upon the concurrence of an event of default, the Trustee or the Owner:
a majority of Outstanding Bonds may, upon written notice to the City, decl;
the principal of all Bonds and the interest accrued thereon to be immediatt
due and payable, and upon such declaration, the same is to become immediatt
due and payable; provided, however, that if, at any time after such
declaration and before any judgment or decree for the payment of the money:
due has been obtained 01- entered, the City deposits with the Trustee a sum
sufficient to pay all the principal or redemption price of and interest on
Bonds payment of which is overdue, with interest on such overdue principal
the rate borne by the respective Bonds, and the reasonable charges and
expenses of the Trustee, and any and all other defaults known to the Trustc
shall have been made good or cured to the satisfaction of the Trustee or
provision deemed by the Trustee to be adequate shall have been made therefc
then, the Owners of not less than a majority of the Bonds then Outstanding
written notice to the C:Lty and to the Trustee, may, on behalf of the Owner!
all of the Bonds, rescind and annual such declaration and its consequences
waive such default; but no such rescission and’annulment shall extend to or
shall affect any subsequent default, or shall impair or exhaust any right c
power consequent thereon.
Upon the happening of an event of default, the Trustee may, and shall
upon written request of the Owners of at least 25% of Outstanding Bonds,
prpceeding as it may deem effectual to protect and enforce such rights.
’I proceed to enforce its rights or the rights of such Owners by such appropri I
In the event of an insufficiency of funds to pay principal and sinkins
fund installments, redemption prices or interest then due (after payment ol
expenses, charges and 1:Labilities of the Trustee and other required expense
the balance of funds then available (other than funds held for the payment
31
redemption of particular Bonds which have theretofore become due at maturity
or by call for redemption) shall be applied as follows if less than all Bonds
are due and payable:
First, to payment of interest in the order of maturity of
installments, or, if funds are insufficient to pay any installment in
full, ratably, by amounts due, without discrimination or preference.
Second, to payment of unpaid principal or sinking fund installments
or redemption price of Bonds which are due in the order of due dates with
interest on the overdue principal at the rate borne by the respective
Bonds, and, if the amount available shall not be sufficient to pay in
full all Bonds due on any date, ratably, by amount due, without
discrimination or preference.
If all the Bonds are due and payable, and a like insufficiency exists,
available funds shall be applied to payment of principal and interest,
ratably, without preference or priority, according to total amounts due.
The timing of such payments on default is in the discretion of the
Trustee. The method of conducting remedial proceedings by the Trustee may be
directed in writing by Owners owning a majority in principal amount of the
Bonds; provided, however, the Trustee may decline to follow any such direction
which, in the opinion of the Trustee, would be unjustly prejudicial to other
Owners .
No Owner has any right to institute any suit, action or other proceedings
under the Indenture or for the protection or enforcement of any right therein
granted or any right granted under the law, unless such Owner has given to the
Trustee written notice of the event of default or breach of duty on account of
which suit, action or proceeding is to be taken, and unless the Owners of not
less than 25% in principal amount of the Bonds then Outstanding have made
written request to the Trustee to exercise the powers granted in the Indenture
or to institute such action, suit or proceeding in its name and unless, also,
there shall have been offered to the Trustee reasonable security and indemnity
against the costs, expenses and liabilities to be incurred therein or thereby,
and the Trustee shall have refused or neglected to comply with such request
within 60 days after such written request and tender of indemnity; and such
notification, request, and offer of indemnity are declared in every such case
to be conditions precedent to the execution of the powers under the Indenture
or for any other remedy under law. The Indenture prohibits actions which may
adversely affect rights and interests of Owners.
Discharge of Indenture
c Full payment of principal, interest and redemption price of all
Outstanding Bonds terminates all rights and obligations under the Indenture.
The lien of the Indenture and the pledge of the Revenues are also fully
discharged if (i) there shall have been deposited with the Trustee and set
aside in a special trust fund either moneys or direct and general obligations
32
of the United States of America, the principal and interest on which when
will be sufficient to pay all principal or redemption price and interest d
or to become due on or prior to maturity or redemption date of the Bonds,
(11) with respect to Bonds to be redeemed prior to their maturity, notice
such redemption shall have been given in accordance with the provisions of
Indenture or provision satisfactory to the Trustee shall has been made for
giving of such notice.
The Trustee
I
Security Pacific National Bank is the Trustee. Unless an Event of
Default shall have occurred and be continuing, the Trustee shall perform 0’
such duties as are specifically set forth in the Indenture and the Agreeme>
During the existence of an Event of Default, the Trustee shall exercise SUI
of the rights and powers vested in it by the Indenture, and use the same
degree of care and skill in their exercise, as a prudent man would exercisl
use under the circumstaiices in the conduct of his own affairs. The Truste
not liable in connection with the performance of its duties under the
Indenture, except for its own negligence or default. The Trustee may becoi
the owner of Bonds with the same rights it would have if it were not Trust
The City may remove the Trustee at any time unless an Event of Default sha
have occurred and then he continuing and shall remove the Trustee if at an
time requested to do so by the holders of not less than a majority in
aggregate principal amount of the Bonds then Outstanding or for certain ot
causes set forth in the Indenture. The Trustee also may resign at any tim
Upon removal or resignation of the Trustee, the City shall promptly appoin
successor Trustee. Any Trustee must be a trust company or bank having the
powers of a trust company, having a corporate trust office in Los Angeles,
California, having a combined capital and surplus of at least $100,000,000
and must be subject to supervision or examination by federal or state
authority.
NO LITIGATION
There is no litigation or controversy of any nature now pending or
threatened to restrain tor enjoin the sale, execution, issuance or delivery
the Bonds or in any way contesting the validity of the Bonds or any
proceedings of the City taken with respect to the authorization, sale or
issuance of the Bonds, lor the pledge or application of any moneys, pledged
Revenues or securities provided for the payment of or security for the Bon
the existence or powers of the City or the title of any officers of the Ci
to their respective positions, or having any significant effect on the sou
of income to be collectled which contribute to the Revenues. The City will
certify upon delivery of the Bonds.
33
LEGALITY AND TAX EXEMPTION
General
All legal matters in connection with the issuance of the Bonds are
subject to the approval of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Newport Beach, California, Bond Counsel. Certain legal matters
will be passed upon by Orrick, Herrington & Sutcliffe, A Professional
Corporation, San Francisco, California, Counsel to the Underwriters. Fees
payable to Bond Counsel are contingent upon the sale and delivery of the Bonds.
In the opinion of Bond Counsel, under existing statutes, regulations,
rulings and judicial decisions, interest on the Bonds is exempt from present
federal income taxes and from present State of California personal income
taxes. Bond Counsel is further of the opinion that, in order for interest on
the Bonds to be exempt from federal income taxes from the date the Bonds are
delivered, Section 103A, requires that the City meet certain requirements on a
continuing basis. Bond Counsel is further of the opinion that, assuming at
least ninety-five percent (95%) of the proceeds of the Bonds used to purchase
Loans is devoted to Loans which meet the requirements of said Section 103A at
the time such Loans are executed, and assuming further that the City complies
with its covenants contained in the Indenture, interest on the Bonds will
continue to be exempt from federal income taxes under existing statutes,
regulations, rulings and judicial decisions.
Section 103A provides that interest on "mortgage subsidy bonds", such as
the Bonds, is exempt from federal income taxation under certain conditions.
The following conditions imposed by Section 103A relate to future events: (1)
all Loans are required to be made with respect to Residences which can
reasonably be expected to become the principal residence of the Mortgagor
within a reasonable time and which are located within the jurisdiction of the
City; (2) at least 90% of the principal amount of the Loans must be made to
Mortgagors who have not had a present ownership interest in a principal
residence at any time during the 3-year period prior to execution of the Loan;
(3) the acquisition cost of Residences financed with Loans may not exceed 110%
of the Average Area Purchase Price; (4) none of the Bond proceeds may be used
to acquire or replace an existing mortgage; and (5) any person permitted to
assume a Loan is required to meet the conditions set forth above in (l), (2)
and (3).
In connection with the execution or assumption of Loans, temporary
regulations of the Internal Revenue Service authorize the City to rely on
affidavits of mortgagors as to (1) intention to use a Residence as a principal
residence; (2) no present ownership interest within the 3 prior years
(accompanied by federal income tax returns); and (3) affidavits of the
martgagor and the seller of the Residence that the Loan is not replacing an
existing loan and the acquisition cost does not exceed the applicable
percentage of the Average Area Purchase Price which is fixed by reference to
"safe harbor" amounts published and to be published by the Internal Revenue
Service. Loans on Residences covered by the City's Program as required will
not replace existing mortgages within the meaning of Section 103A.
34
Section 103A(c)(Z)(B)(ii) and (iii) and the temporary regulations thereunde
provide that, if the conditions summarized above are met at the time the Lo
were executed with respect to 95% of the Bond proceeds available for making
Loans and corrective measures were taken with respect to those Loans which
not meet those conditions, interest on the Bonds will remain exempt from
federal income taxation. Section 103A also contains certain other
requirements affecting the structure of the Program, the terms of the Loans
and arbitrage earnings (if any) with respect to certain funds. The City mu
make a good faith attempt to meet these additional requirements and any
failure by the City to meet these requirements is permissible only if due t
an inadvertent error after taking reasonable steps to comply with such
requirements. The City has also covenanted in the Indenture to meet these
requirements and the City has agreed to take all steps necessary to comply
with these requirements so long as any of the Bonds are outstanding.
Developer Agreements, the Agreement and the Indenture do incorporate the "s
harbor" procedures of Section 103A and require certain affidavits and
certifications (and provide penalties for inaccuracies of such affidavits a
certifications) by the City, the mortgagors, the sellers of the Residences
the Lending Institution which, if accurate, are believed by the City to mee
these conditions.
Indenture have been drafted so that these structuring and safe harbor
requirements are satisfied. The City believes that the procedures and
covenants described above should assure compliance with Section 103A.
Nevertheless, if it is determined that more than 5% of the principal amount
Loans violate certain requirements of Section 103A, the interest payments o
the Bonds may lose their federal income tax exemption.
/
The
In the opinion of Bond Counsel, the Agreement and the
CERTAIN VERIFICATIONS
Price Waterhouse, a firm of independent certified public accountants,
verified the mathematical accuracy of the computations relating to the
sufficiency of projected cash flow receipts and disbursements on the Loans
reserve funds to pay the principal of and interest on the Bonds and prepare
the computations relating to the actuarial yield on the Loans and on the Bc
supporting the conclusion of Bond Counsel that interest on the Bonds is exe
from present federal income taxes. Price Waterhouse expresses no opinion o
the attainability of the assumptions upon which such computations are based
nor on the attainability of the resultant projections.
UNDERWRITING
The Underwriters have agreed, subject to certain conditions, to purcha
the Bonds from the City at a price which is $320,000 less than the initial
public offering prices set forth on the cover page. The Underwriters'
obligations are subject to certain conditions precedent, and they will be
obligated to purchase all the Bonds, if any Bonds are purchased. The Bonds
may be offered and sold to certain dealers, banks, and other parties at pri
lower than the initial offering prices, and such initial offering prices ma
be changed from time to time by the Underwriters.
35
ADDITIONAL INFORMATION
Any statements in this Official Statement involving matters of opinion,
whether or not expressly so stated, are intended as such and not as
representations of fact. This Official Statement is not to be construed as a
contract or agreement between the City or the Underwriters and the purchases,
holders or owners of any of the Bonds.
The execution and delivery of this Official Statement has been duly
authorized by the City. Concurrently with the delivery of the Bonds, the City
will furnish a certificate executed on behalf of the City by an authorized
officer of the City to the effect that this Official Statement, as of its date
and as of the date of delivery of the Bonds, does not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements herein, in the light of the circumstances under which they
were made, not misleading.
CITY OF CARLSEAD
By /s/Mary Casler
Mayor
36
APPENDIX A
DESCRIPTION OF DEVELOPER RESERVED
SINGLE FAMILY RESIDENCES -
E s t ima ted
Bond Funds Project Price Area U! T 'ieveloper Re s e rve d Name Range Size
The Anden $ 9,827,000 Meadow $ 90,000-125,000 1,035-1,735 sq. ft. Cond
- - --
Group Ridge
The Anden 4,913,500 Saiita Fe $110,000-135,000 1,450-1,810 sq. ft. Deta
Group Ridge
Downey 1,768,860 Paseo De $105 000-115,000 1,038-1,258 sq. ft. Cond
Savings & is Costa
Loan
Pacific 3,144,640 Th? Crest $ 75,000-110,000 965-1,295 sq. ft. Condc
Scene,
Inc.
TOTAL $19,654,000
A- 1
APPENDIX B
THE LENDING INSTITUTION
General
The following is a summary of the Lending Institution's experience
in originating and servicing residential family mortgage loans. The
information regarding the Lending Institution was provided by the Lending
Institution, and neither the Issuer nor the Underwriters have independently
verified the accuracy of such information. In addition, there can be no
assurance that the past pattern of appreciation in value of California real
estate will continue or that the loss experience with respect to the Loans
securing the Bonds will be as favorable as the loss experience shown for the
Lending Institution described below. In particular, if the California
residential real estate market should experience an overall decline in
property values, the actual rates of delinquencies, foreclosures and losses
could be significantly higher than those previously experienced by the Lending
Institution.
Wells Fargo Mortgage Company, a wholly-owned subsidiary of Wells
Fargo & Company, was established in 1952 as Sonoma Mortgage. Wells Fargo
Bank, N.A., one of the largest banks in California, purchased Sonoma Mortgage
in 1968, and the company was incorporated as Wells Fargo Mortgage Company.
Wells Fargo is an FHA and VA approved mortgagee and is a FNMA and FHLMC
approved seller/servicer. Wells Fargo currently has five offices in
California originating FHA/VA and conventional mortgage loans.
As of December 31, 1982, Wells Fargo was servicing 73,224 single
family mortgage loans (including conventional FHA and VA mortgage loans), in a
principal amount of $2,504,866,000.
Residential Mortgage Loan Origination Experience
( $- Thousands )
Fiscal 1982 Fiscal 1981 Fiscal 1980 Fiscal 1979
$90,512 $165,679 $267,580 $324,256
Mortgage Loan Servicing Experience
($- Thousands)
Percent of Percent of Percent of Percent of
Mortgage Loans Mortgage Loans Mortgage Loans Mortgage Loans Foreclosure
Serviced Delinquent Delinquent Delinquent Over Loans
Fiscal 1982 31-60 Days 61-90 Days 90 Days Fiscal 1981
$2,504,866 3.5% .80% .70% -0-
B-1
APPENDIX C
THE CITY
The following information concerning the City is included only fo
the purpose of supplying general information regarding the City. Neither tl
faith and credit nor the taxing power of the City, the State of California I
any political subdivision thereof is pledged to the payment of the Bonds, a:
the Bonds are limited obligations of the City payable solely from and secur
by the revenues and assets pledged therefor.
Named for the famous European spa, Karlsbad Bohemia, Carlsbad
consists of 37-1/2 square miles situated on the Pacific coast. The City is
located approximately 35 miles north of San Diego and 90 miles south of Los
Angeles. Incorporated in 1952, the City is governed by a mayor, city counc
and city manager.
services.
The City provides its own police, fire and emergency
The Carlsbad c:limate is Mediterranean, with an average temperatur
of 59.2 degrees during the year.
9.45 inches. Over 300 acres of beautiful recreation areas, parks, picnic a
play areas dot the City, with one community swimming pool and two in the
planning stages. Carlsbiid enjoys 30 tennis courts, numerous golf courses,
226 campsites and four miles of public beach.
nationally known for its water sports, offers two boat landings, fishing,
swimming, sailing, and water skiing. The internationally known La Costa
Resort Hotel and Spa in Carlsbad annually hosts several golf and tennis
tournaments.
Annual rainfal is limited to an average
Agua Hedion da Lagoon,
The City has experienced considerable population growth during th
past two decades. Since 1960 the City's population has increased fourfold.
The population has increased from a level of 9,200 in 1960 to 35,500 in 198
With easy access to major freeways (Interstate 5 and Highway 78)
Carlsbad is only a short ride from neighboring North County communities,
downtown San Diego, or the International Border with Mexico. The Santa Fe
Rail Company provides excellent freight service to major American cities.
Amtrak terminal in 0cean:;ide serves passengers boarding the seven regularly
scheduled commuter runs Ion the San Diego-Los Angeles line. The North Count
Transit District provides efficient local bus service; Greyhound Lines offe
state and interstate bus travel from a station in Oceanside: and more than
trucking services serve (Carlsbad. The McClellan-Palomar Airport is located
within the city, and the San Diego International Airport is just 35 miles a
The City's major employers are as follows:
c- 1
Number of
Employment Entity Employees
Manufacturing
Hughes Aircraft 1,100
Sierracin-Magnedyne , Inc. 220
Oak Systems Communications 750
Burroughs Corporation 500
Eaton-Leonard Corp. 180
Non-Manufacturing
La Costa Resort Hotel & Spa 1,000
Carlsbad Unified School District 350
Car County Auto Dealers 460
Lopez Farms 300
Sanchez Farms 300
The City also has a substantial amount of industrial property that
is slated for future development, including the 560 acre Carlsbad Research
Center, the Palomar Airport Business Park located near the Palomar Airport and
the Palomar Oaks Industrial Park.
c- 2
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EMPIRE ECONOMICS -
MARKET DEMAND STUDY
SINGLE-FAMILY RESIDENTIAL MORTGAGE REVENUE BONDS
CITY OF CARLSBAD
ISSUE OF 1983
EXECUTIVE SUMMARY
Prepared
for
City of Carlsbad
by
Empire Economics
Joseph T. Janczyk, Ph.D.
September 1983
EMPIRE ECONOMICS -
EXECUTIVE SUMMARY
INTRODUCTION
Background
Carlsbad, based upon its concerns about the adverse impacts thz high levels of mortgage interest rates are having on tl affordability of housing, is attempting to resolve this cris: through the issuance of mortgage revenue bonds under Assemb: Bill 81355. Since the interest paid on the bonds is tax-exem] (in the opinion of' Bond Counsel), the mortgage rate f( households in the pr'ogram is expected to be significantly lout than either FHA/VA or conventional market rates. Consequentl: many households that are presently excluded from the housil market will, through the lower mortgage rate that this progri offers, be able to qualify for loans, and thus purchase housinl Furthermore, the development of these projects will genera employment opportunities in the construction sector that wi:
directly benefit Carl.sbad's citizens as well.
Description of Carlsbad
The city of Carlsbad, incorporated in 1952, is situated on tl Pacific Ocean, some 35 miles north of San Diego and 90 mil( south of Los Angelas. Carlsbad has experienced a considerab:
amount of demographic growth during the past two decades: i' population has increased from a level of 9,200 in 1960 to 35,5( in 1980. Carlsbad's transportation facilities include Route ! an interstate freeway, Santa Fe Rail Company, and Amtrak. TI major employers in Carlsbad, along with the approximate number ( their employees shown parenthetically, are as follows : Hught
Aircraft (llOO), Oak Systems Communications (7501, Burrougl (5001, and the La Costa Resort Hotel (1000). The city also has substantial amount of industrial property that is slated fc future development: The Carlsbad Research Center is a premier 5( acre industrial park that has been advertised extensively in tl Wall Street Journal, and the Palomar Airport Business Park is i industrial park located near the Palomar Airport. The city ( Carlsbad is governed by a Mayor, City Council and City Managt and it provides police, fire, and emergency services.
- -
1
EMPIRE ECONOMICS
Description of the Candidate Projects
There are four candidate projects in the Carlsbad mortgage revenue bond program: Meadow Ridge Homes and Santa Fe Ridge by The Anden Group, The Crest by Pacific Scene, and Paseo De LaCosta
by Downey Savings & Loan Properties. All the projects are located in close proximity to the world-famous La Costa Country Club-Resort complex which is some five miles inland from the ocean. The projects have access to Route 5, an interstate freeway than links Carlsbad with San Diego and Los Angeles. The characteristics of the projects and their participation in the mortgage revenue bond program are now discussed.
Meadow Ridge Homes
The Meadow Ridge Homes Project has a total of 350 housing units;
so far, 41 of these have been completed, including 7 models, and 88 more are under construction presently. The housing products are townhomes that are in structures containing some 2-4 units each; the overall density of the project amounts to some 5 units
per acre. The prices of the townhouses are $90-125,000, and their living areas are 1,035-1,795 sq. ft. The amenity package includes a pool, spa, tennis court, and open space; the homeowners association fee is $95 per month. The project has experienced an absorption rate of some 5 units per month during the past year, using conventional financing with a buy-down. Meadow Ridge Homes has requested an allocation of $10 million to provide mortgage financing for about 110 townhomes.
Santa Fe Ridge
The Santa Fe Ridge Project has a total of 170 single-family units. The project has a land use density of 3.4 units per acre,
so each unit is on a lot of some 8000 sq.ft. The housing products are priced from $110-135,000 and they have 1450-1810 sq.ft. of living area. Santa Fe Ridge has requested an allocation of $5 million to provide financing for 50 of its housing units.
The Crest
The Crest is a project by Pacific Scene that is located within Calabera Hills, a Master Planned Community in the northeastern portion of Carlsbad. The Crest received tentative approval concurrently with the approval of the Calavera Hills Master Plsnned Community. According to the Carlsbad Planning Department, The Crest recently received final approval. The off- site improvements are almost completed and the model complexes are under construction, with an expected completion date of October 1983. The Crest will feature units priced from $75- 110,000 with 965-1295 sq.ft. of living area. Pacific Scene has requested a mortgage allocation of about $4 million to provide financing for some 50 housing units.
--
--
--
-
2
EMPIRE ECONOMICS -
Paseo De LaCosta
Paseo De LaCosta is a 60 unit condominium project that present1 has its first phase of 26 units, along with its model complex under construction. The project's housing products are stacke flat condominiums. They are in the $105-115,000 price range an have $1,038-1,258 sq. ft. of living area. The amenities includ a swimming pool and cabanna as well as open space; the homeowner fee is expected to be $110 per month. Paseo De LaCosta ha requested a mortgage allocation of some $1.8 million which wil be used to provide mortgage financing for 18 of its units.
Purpose
The purpose of the market demand study is to perform comprehensive analysis of all of the various demographic economic, financial, and other housing-related factors that wil influence the housing market conditions in Carlsbad during th 1983-85 period. Furthermore, this demand will be adjusted fo
the special federal and state criteria that purchasers mus fulfill to qualify for the use of the mortgage revenue bon funds. Accordingly, the particular topics that will b
addressed, and upon which specific recommendations will be made are as follows:
The population growth for San Diego County and Carlsba is forecasted for the 1983-90 period, based upon th growth prospects of their primary economic bases including local industry, commuters, retirees an tourismr
* The expected population growth in Carlsbad is then use
to determinle the amount of its housing demand over th 1983-85 period. The composition of this demand b product type is derived using the income distributio for households in the city of Carlsbad.
* Next, the forecast of housing demand is adjusted t reflect the various federal and state criteria tha purchasers must fulfill, which include the following being a "new1' homeowner, being the principal occupan of the home, and also having an annual income tha
does not exceed the designated maximum. Furthermore the prices of each of the housing units in the progra must not exceed a specified level; this is based upon special avlerage area purchase price study by Empir Economics.
* The supply of housing is then analyzed, according t housing units completed and under construction, as we1 as projects that may come on the market in the nea future. While the competitiveness of the activ projects involves a consideration of their location
--
*
3
EMPIRE ECONOMICS -
product type and features, the key factor determining
their absorption is the financing that they offer, so
this is analyzed comprehensively. Additionally, the prospects for mortgage revenue bond programs by other cities in the San Diego County, such as Oceanside, are also assessed.
* Finally, based upon a careful consideration of all of the housing demand and supply conditions during the 1983-85 period, along with the special criteria that purchasers must fulfill, the optimum portfolio of projects will be determined, to maximize the success of
the Carlsbad mortgage revenue bond program.
Assumptions - and Qualifications
The market demand study will be based upon Empire Economics' comprehensive data bank of demographic, economic, and housing market conditions in,San Diego County, in general, and Carlsbad, in particular. While the data used in analysis have been carefully reviewed for their accuracy and reliability, they are not guaranteed as being such. Furthermore, the demographic, economic, and housing demand forecasts are based upon what is presently regarded as being the most probable scenario for the future. However, the forecasts are not guaranteed since actual events may vary significantly from this scenario, due to a variety of factors which are difficult to predict.
Market Areas
Based upon a consideration of the demographic, economic, and housing factors that will influence the success of the Carlsbad mortgage revenue bond program, the following market areas have been delineated:
San Diego County: This includes all of the various. cities/communities within the geographical boundaries of the county. While the program is designed solely for projects that are in the city of Carlsbad, it is important to consider the changes in economic and demographic factors in the other areas of the county as well, because there is an inter-relationship between these and Carlsbad.
-
North County Area: The north San Diego County area is pactitioned into three regions, according to their particular demographic and economic characteristics, which are as follows: Carlsbad, Oceanside/Vista/San Marcos and Escondido.
Carlsbad Market Area: The Carlsbad market area consists of all the portions of the city of Carlsbad, this includes the La Costa Country Club-Resort complex. Since the mortgage revenue bond program is designed specifically for projects in Carlsbad,
its demographic, economic, and housing market trends are analyzed comprehensively.
4
EMPIRE ECONOMICS -
DYNAMIC GROWTH OF SAN DIEGO COUNTY A,ND THE CITY OF CARLSBAD
San Diego County's recent dynamic growth has placed it amongs
the fastest growing counties in the state of California Furthermore, Carlsbad has been one of the most rapidly growin cities in San Diego County. Accordingly, the county's as well a the city's recent demographic, economic, and housing marke trends are now reviewed, as a background for the subsequen analysis, since these will influence the marketability of th projects in the Carlsbad mortgage revenue bond program.
* The population of San Diego County, based upon the 198 Census, amounted to some 1,850,000. The populatio growth has been phenomenal: an increase of some 80 since 1960, and 37% since 1970. Since 1980, th population of San Diego County increased by almost 2 annually from mid-1980 to mid-1982, reaching a level o 1,924,700 in 1982. Carlsbad, in turn, has been one o the fastest growing cities in the San Diego County
Specifically, its population has increased from 15,OO in 1970 to 35,450 in 1980: an increase of some 135% Furthermore, Carlsbad's population has continued t increase siince 1980, attaining a record level of 36,15 in 1982.
* San Diego County's employment, including wage an salary employees as well as the self-employed, attaine a level 0.P 740,000 in 1982, for a total increase o some 227,000 positions since 1974; this amounts to growth rate of some 6% annually. Since the increase i
the total :labor force amounted to some 267,000 durin the same ]period, the unemployment rate increase somewhat, from some 8% in 1974 to 10.5% in 1982 However, this increase is a result of more peopl entering the labor force, rather than a decline i employment. Although comparable employment data are no available for the city of Carlsbad, the recen developments in its industrial parks reflect substantial amount of new.employment in the city.
The magnitude of housing activity in San Diego Count has remained relatively constant during the 1970's For instance, the number of newly constructed unit amounted to some 20,000 units annually over the 1976-8 period, somewhat less than the level of 25,700 unit annually dining the 1970-75 period. An analysis o product types revealed that the housing activity ha been divided almost equally between single-family an multiple-family units. The housing activity in Carlsba
has amounted to some 1,000 units annually during th
5
EMPIRE ECONOMICS -
1970-82 period, and most of this, some 60%, has been for single-family units.
* The general vitality of the San Diego housing market is also reflected by various other indicators. To show
the recent trends that have occurred, the average levels of these housing indicators during the early
1970's (1970-75) are compared to their values during the later 1970's and early 1980's (1976-81). The number of loans that were recorded increased from
65,200 to 106,700 annually, and their values rose from $2.4 billion to $6.3 billion annually. The number of
deeds recorded increased from 68,600 to 100,000 annually. Finally, the number of tracts that were recorded declined slightly from 358 to 348 annually, and the number of recorded lots also declined from
15,300 to 10,600 annually.
Therefore, San Diego County and Carlsbad have recently demonstrated a substantial amount of demographic, economic, and residential growth.
RECENT TRENDS AND FUTURE PROSPECTS FOR THE
SAN DIEGO COUNTY AND CARLSBAD ECONOMIC BASES UNDERLYING GROWTH IN
The future population growth of San Diego County and also the north county area, including Carlsbad, Oceanside/Vista/San
Marcos, and Escondido, depends upon the growth of their economies, which are comprised of primary and support sectors. The primary sector represents the economic base of the local economy: this is the "means" by which money is injected into the
local economy. While the economic base typically consists of manufacturing firms and governmental establishments (federal and state) that generate employment locally, there are other facets
of the economic base as well. For instance, tourists who visit San Diego, households who retire in San Diego, and commuters who reside in San Diego but are employed elsewhere are also considered to be part of the economic base, since they bring money into the local economy just as manufacturing industries and government establishments.
The- primary sector, in turn, has a multiplier impact upon the support sector. Specifically, households in the primary sector bring money into the local economy, and through their expenditures on retail products, professional services, housing, etc., generate employment positions in the support sector. Therefore, the composition of the primary sector, in terms of local employment and governmental establishments as well as tourism, retirees, and commuters, along with their multiplier
impact on the support sector, is assessed carefully, to determine
the future population growth that will occur in San Diego County
6
EMPIRE ECONOMICS -
and Carlsbad during the 1980's.
Composition -- of the Primary Sector
The specific composition of primary sector employment in the Sa Diego economy, i.e., the proportion of employees in loca industry and governmental establishments as compared to tourists retirees, and commuters, was derived through a comparativ analysis of recent employment trends and patterns in the Sa Diego economy as compared to those of the California statewid economy. Specifically, the location quotient and shift shar analysis revealed that the primary economic base for San Die$ County consists of local industry and governmental establishment (federal and state). The other economic bases result in a ne leakage of money out of the San Diego County economj
Specifically, the positive impacts of retirees and tourism ar offset by households who are employed in San Diego County bL reside elsewhere.
-- Forecast - of Population Growth
The forecast of population growth for San Diego County ar Carlsbad involves a consideration of the following: the specifi share of San Diego County's growth that will occur in the nort county area, including Carlsbad, Oceanside/Vista/San Marcos, ar Escondido; the growth path of the primary sector during the 198: 90 period; and, finally, the transformation of the expansion c
the primary sector into population growth.
The proportion of San Diego County's population growth that wil occur in the north county area and Carlsbad, in particular, j
based upon recent trends in building activity. These ar considered to be the most appropriate measure of the distributic of population growth within San Diego County, since they reflec changes in population as a result of local as well as non-loc: employment. The market shares for the Car 1 s bac
Oceanside/Vista/San Marcos and Escondido amount to 188, 608, ar 22% of all the activity in the north county.
The most probable growth paths for primary employment ar expected to be predominantly a continuation of their recer patterns. Accordingly, employment in San Diego County's primar sector, including local and non-local employment, will contint to increase, thoughL at a somewhat slower rate due to tk
maturation of the Sari Diego County.
The population growth for San Diego County, the north county arc and Carlsbad can now be forecasted for the 1983-90 period, bast upon the most probable growth scenario for the primary sector ar their perspective market shares. The population growth for S: Diego County, as a whole, is expected to be 51,700 annual: during the 1983-85 period; this is a growth rate of some 2.1 annually. While the annual population growth for the nor1 county area and Carl.sbad amounts to 11,500 and 2,100 annuall: respectively, over the 1983-85 period. For additional informatic
c
7
EMPIRE ECONOMICS
on population growth in San Diego County, the north county area
and Carlsbad, refer to Table 1.
DEMAND FOR HOUSING BY QUALIFIED PURCHASERS
The demand for housing by qualified purchasers is now derived using the population growth forecasts of the prior section. First, the gross demand for new housing in San Diego County, the north county area, and Carlsbad is forecasted for the 1983-85 period. Next, the composition of Carlsbad's demand by price range is derived using the income distribution of its residents. Then, modifications to the demand for housing in Carlsbad are
made, based upon the various criteria that purchasers in the mortgage revenue bond program must fulfill. The result of this analysis will be the demand for housing in Carlsbad by qualified purchasers.
Housing Demand -- and its Distribution 2 Product Type and Price Range
The population growth for San Diego County, the north county area and Carlsbad is expected to average 51,700, 11,500 and 2,100 annually, respectively, over the 1983-85 period. The housing
demand that this will generate is derived by dividing the population growth by the number of people per household, which amounts to 2.63 for San Diego County as a whole, based upon the 1980 Census. Consequently, the annual average demand for housing
for San Diego County, the north county area and Carlsbad amounts to 19,700, 4,400 and 800 units annually, respectively, over the 1983-85 period. By comparison, the six year moving average of
housing activity in Carlsbad has amounted to some 731 units recently; however, this has been adversely impacted by the high levels of mortgage interest rates since 1980.
The distribution of Carlsbad's housing demand according to various price range cohorts is now derived, based upon the following algorithm:
* Using 1980 Census Data on income and population, the proportions of households in various income ranges in
Carlsbad are determined. Then, their income levels are updated, using changes in household income (an average of 11% per year for 1980 and 1981, and 7% for 1982). Population is updated using the population growth rates in the city of Carlsbad (3.0% for 1980-81 and 1.5% for
* The monthly payments that households in the various income ranges typically make are estimated using their incomes along with their propensities to spend income on housing. According to the United States Bureau of
-
1981-82).
8
EMPIRE ECONOMICS -
Labor Surveys, the proportion of income that household, spend on mortgage payments (not including propert taxes, insurance, etc.) amounts to 28% for low incoml households and 19% for high income households.
The monthly payments that households can affori includes both the principal portion of the payment
which reflects the price of the housing unit, and alsl the interest portion of the payment, which reflects th mortgage rate of the loan. Consequently, the analysi of the maximum housing prices that households ca afford requires a specification of the mortgag interest rate. Since the mortgage rate for th projects in the Carlsbad mortgage revenue bond progra is expected to be lo%, a conservative assumption of 10 is used for the analysis herein.
Based upon the follow.ing algorithm, the composition of the annua average demand for 797 housing units in Carlsbad, given
mortgage interest rate of lo%, is as follows:
Price Annual Cohort Demand
$ 0- 150,000 274 60- 130,000 143 80-100,000 125
100-140,000 177 140-175,000 29
*
1'75 ,OOO+ 49
Total 797
For additional information on the derivation of the compositio of housing demand from the income distribution of households i Carlsbad, refer to Table 2.
Housing Demand Q Qualified Purchasers
The Mortgage Revenue Bond Subsidy Act of 1980, Tax Equity an Fiscal Responsibility Act of 1982, and Assembly Bill Wl35 require that purchasers of housing under the mortgage revenL bond program fulfill certain criteria in order to ensure the these funds are used properly. Accordingly, the above forecast of housing demand are now adjusted for these special criteria, j
order to arrive at an accurate estimate of the magnitude ar composition of housing demand for projects in the mortgag revenue bond program.
Federal Criteria
According to the Mortgage Subsidy Act of 1980 and also the T: Equity and Fiscal Responsibility Act of 1982, the primary feder:
9
EMPIRE ECONOMICS -
criteria that Bust be fulfilled are as follows: (1) the price of
the housing unit must be below the designated maximum, (2) the purchaser may not have owned a house at any time within the prior three years (this applies to 90% of the purchasers); and (3) the purchaser must have the intention of occupying the new residence for at least two years. The impacts of these restrictions on housing demand are now analyzed.
Maximum Price: The maximum price for the housing units may not exceed 1-f the average price for housing in the region. Based upon a special average area purchase price study by Empire Economics, the average price for new housing units in the San Diego SMSA is estimated to be $125,378: 110% of this amounts to $137,916. For existing housing units, the average price is
$109,866: 110% of this is $120,853. Consequently, the maximum price that applies to each of the housing units in the program is $137,916 and $109,866 for new and existing housing units, respectively.
llNewll Homeowner : The llnewll homeowner requirement means that 90% of the purchasers in the mortgage revenue bond program may - not have been homeowners at any time within the prior three years. Accordingly, for each product type, the proportion of
purchasers that would fulfill this requirement (given the 10% non-first time buyer allowance) was estimated, based upon the
prices of the housing units and profiles of the purchasers.
Owner Occupancy: The owner occupancy requirement means that
the purchaser must have the intention of residing in the housing unit for a least two years after purchasing the unit. The adjustment for wnewll homeowner eliminates investors, and thus leaves only those purchasers who are owner occupants.
Summary: The forecast of the gross housing demand is now modified for the criteria that purchasers ‘must fulfill, by applying the proportion of purchasers that qualify to the prior forecasts of housing demand. The modified annual average demand forecasts for the 1983-85 period amounts to 263 units annually in Carlsbad, including 75 units in the $80-100,000 price range and
71 in the $100-140,000 price range.
State Criteria
Since the mortgage revenue bonds are being issued under Assembly Bill 111355, the income of the purchasers must not exceed a designated limit. Specifically, there are three alternative measures of income, as follows: (1) statewide median household income; (2) county-wide median household income; and (3) median family income for an area (such as an SMSA) as determined by the Department of Housing and Urban Development. While all of the above alternatives require the use of median rather than mean income, they differ in terms of their geographical areas as well as unit designation, i.e., household or families. (Note:
Families include people residing in the same housing unit that are related by blood or marriage and thus require a minimum of
-
10
EMPIRE ECONOMICS -
two persons, while households include all families as well as singles or unrelated people living in the same housing unit, and may thus have only one person.)
Based upon 1980 Census data, the median income levels were $18,170 for households statewide, $17,178 for San Diego County households, and $20,259 for families in the San Diego SMSA. These median incomes are updated to 1982 using data on personal income and population for California and also the San Diego SMSA: an average of 10.8% per year for 1980 and 1981 and 7% for 1982. Applying these adjustment factors to the three measures of the 1979 median income results in the following median income levels for 1982: $23,868 for the statewide households, $22,565 for San Diego County households, and $26,612 for San Diego families. Since the San Diego SMSA median income for families is the
highest of the three, it is selected as the measure of median income for the Carlsbad revenue bond program.
Next, Empire Economics forecasted the per capita income levels for 1983-85 using the most probable scenarios for changes in personal income. Specifically, the expected changes in the per capita income for both California and the San Diego SMSA amount to 5% for 1983, 6% for 1984, and 7% for 1985. These adjustment factors were applied to the 1982 median income levels to forecast
the income levels for '1983, 1984, and 1985. The final adjustment is that purchasers in the program all have entitlement funds so they can have up to 150% of the median income level. So, the maximum incomes for purchasers in the mortgage revenue bond program amounts to $41,914 for 1983, and increase to an estimated $47,539 in 1985.
COMPETITIVENESS OF THE PROJECTS
IN THE MORTGAGE REVENUE BOND PROGRAM
Having established the magnitude and composition of housing demand by qualified purchasers in Carlsbad during the 1983-85 period, the study now turns to an analysis of the competitiveness of the projects in the mortgage revenue bond program, as compared
to the projects that are not participating in the program, especially in terms of the financing that they offer.
Act:Lve Residential Projects
The competitive residential projects that are being marketed presently include al:L of the projects that currently offer housing products that are comparably priced to the candidate projects. Specifically, the relevant projects for Meadow Ridge Homes, Sea Pointe Village and Paseo De LaCosta are those in the La Costa area, due to the country club-resort environment, while
the projects that are comparable to Tamarack Shores are those located in the urbanized area of Carlsbad.
--
11
EMPIRE ECONOMICS
La Costa Market Area
The La Costa market area has a total of 13 comparable projects, including Meadows Ridge Homes which is participating in the Carlsbad bond program. These projects are distinguished from other projects in the north area of San Diego County by their proximity to the La Costa Resort Hotel, a world famous country club and spa center. The overall absorption rate of these projects amounts to some 19 units per month. The specific factors underlying the absorption of these projects can be determined by partitioning them into three groups, according to their price ranges: the luxurious group has an absorption rate of 5 units per month; the affluent group has an absorption rate of 10 units per month, and the entry-level group has an absorption rate of 4 units per month. Accordingly, each of these groups is now discussed.
The luxurious group is comprised of the projects that offer housing products that are priced above $175,000, on the average; the upper-bound of their price range is some $600,000. There are six housing projects in this category: their overall absorption amounts to 5 units per month, or 0.8 units per project, on the average. Their housing products have 2-3,000 square feet or more, on the average, and their amenities are primarily landscaping, swimming pools, and security. The homeowners association fee amounts to some $85-190, on the average. The absorption rates that these projects are experiencing are, in general, inversely related to the prices of their housing products. This reflects the diminuition of the "investment premium" that purchasers place on luxury units now that the financial markets have attained an equilibrium, i.e., the mortgage financing costs (after taxes) are approximately equal to or below the expected appreciation rate for housing; this is in sharp contrast to the disequilibrium situation that prevailed during the late 1970's.
The affluent segment of the market, with housing products that are priced in the $100-150,000 range, had six projects, including the candidate project, Meadow Ridge Homes. The housing products in this category have 1,100-1,900 square feet of living area, on
the average. Their amenity packages include swimming pools, spas, and some have recreation rooms as well; the monthly homeowners association fee amounts to $70-140. The absorption rates of the affluent projects are determined by the value of the products that they offer purchasers, rather than their prices, since they are all comparably priced. The total absorption for the projects in &his segment amount to some 10.units per month, for an average of some 2 units per project. The competitiveness of the Meadow Ridge Homes Project is reflected by its superior absorption rate of 5 units per month.
Carlsbad Urbanized Area
The Carlsbad urbanized area represents the downtown area of the
city, Tamarack Shores project is located in this area. There are a total of 8 projects in this area: 3 with detached housing
-~
-
12
EMPIRE ECONOMICS -
products and 5 with attached housing products. Of these, th comparable projects are those that offer detached housin products that are in the $100-135,000 price range. The project with attached housing products are not comparable to Tamarac Shores since they are priced either above this range, as in th case of those projects that are located near the ocean or lagoon or below this price range, as in the case of those projects tha provide affordable housing products.
The three projects with detached housing products, which include
the candidate project Tamarack Shores, have an overall absorptio rate of some 8 units per month. The project with the highes absorption rate is Co.lony Calavera Hills, with 5 units per month It offers single-family detached units priced at $110-135,OO
with 1,200-2,000 square feet of living area. The project with th next highest absorption rate is Tamarack Shores, with some 2.' sales per month. As discussed above, this project offer: detached housing products on lots that are some 3500 square fee or more. The prices of the housing products are $95-120,000 anc they have 1,250-1,900 square feet of living area. Finally, thl project with the lowest absorption rate, some 0.5 per month, i,
Laguana Riviera, which has housing products priced at $130.
137,000 with 1,800-2,000 square feet of living area on lots tha are 6,000 square feet in size. A comparison of these project, reveals that their absorption rates are related to the prices o the products that they offer, considering the sizes of the lot, as well as the prices of the housing units. While Colony Calaver4 Hills is presently the best selling project, it has an unsoll inventory of only 23 units, which should be absorbed in 3-1 months. Then, Tamarack Shores, is expected to capture thl leadership position.
Competitiveness of Projects in the Bond Program
Although the mortgage rate offered by projects in the Carlsbac mortgage revenue bond program has not yet been established, thc mortgage rate is e presumed to be 10% for the purpose of the following analysis. By comparison, the market FHA/VA or conventional rates may be either above or below this level durinE
the 1983-85 period. Consequently, it is necessary to assess hob
this may affect the absorption of projects participating ir Carlsbad's mortgage revenue bond program. If the prevailing market mortgage rates should rise above 129, then the absorptior rates of those projects in the program would increase. So, the co~petitiveness of the non-participating projects would decline substantially since their monthly payment levels would increase, The projects presently on the market would not be able to lower
their prices sufficiently, while the projects to be developed ir the future would have to offer more economical product types. Ir
the event that the market FHA/VA and conventional mortgage rate: decline to 10% or less, then the absorption rate of the project: in the mortgage revenue bond program would be similar to that of
the non-participating projects.
-- ---
13
EMPIRE ECONOMICS -
Residential Projects in Other Mortgage Revenue Bond Programs
The Mortgage Bond Allocation Committee of the State of California allocates the state's mortgage revenue bond funds among various cities and counties in California. So, it is possible to determine the specific cities/counties that may offer mortgage revenue bond issues during 1983. Specifically, within San Diego County, Oceanside recently issued some $21 million in mortgage revenue bonds, while San Diego City ($8 million), and Chula Vista ($10 million) are also expected to have mortgage revenue bond programs in 1983. For additional information on the projects in
the Oceanside mortgage revenue bond issue of 1983, which attained a mortgage rate of 9.8%, refer to Chart A.
--
OPTIMUM PROJECT PORTFOLIO FOR THE CARLSBAD
MORTGAGE REVENUE BOND PROGRAM
The above findings on the expected population-employment growth and the market demand-supply conditions in the Carlsbad market area as well as the characteristics of the candidate projects are now all utilized to derive the optimal project portfolio for Carlsbad's mortgage revenue bond program.
Optimum Project Portfolio
The optimum project portfolio for the Carlsbad mortgage revenue
bond program was derived through the following algorithm. Refer
to Table 3 for a summary of the analysis.
* Carlsbad's housing demand by qualified purchasers was estimated through a consideration of its expected population growth along with adjustments for the various criteria that purchasers must fulfill. The results of this analysis demonstrated an average adjusted demand for 263 housing units annually during
the 1983-85 period,. including 75 units in the $80- 100,000 price range and 71 units in the $100-140,000 price range.
* The competitive market analysis of the non- participating projects revealed that the primary determinant of a project's absorption rate is the product type, pricing and financing that it offers.
The comparable projects in Carlsbad have an unsold
inventory of some 53 units: 23 attached and 30 detached. These are not considered to be strongly competitive with the projects in the Carlsbad mortgage revenue bond program since they have conventional
financing. Additionally, the projects in the Oceanside bond program are also not considered to be strongly
14
EMPIRE ECONOMICS -
competitive since the projects in the Carlsbad bonc program will. also have financing of some 10%.
The required capture rates for the absorption of tht projects in the Carlsbad mortgage revenue bond prograr can now be determined based upon a comparison of thc net demand by qualified purchasers and the number 01
units in thle candidate projects. Meadow Ridge Homes, Santa Fe Ridge, The Crest, and Paseo De LaCosta have a total of 228 units. Comparing this to the conservative estimate of the net demand by qualified purchasers for 263 units reveals that the candidate projects need tc achieve an overall capture rate of 29% to be marketed within a three year period. The capture rates for the housing products in the $100-140,000 range is somewhat
higher, i.e., 72%.
* Finally, a comparison of the candidate projects with the other projects in Carlsbad reveals that the candidate projects are competitive with the other projects in the market area, considering their locations, the llvaluefl of their housing product considering their prices, features and amenities.
Conclusions
Therefore , based upon a comprehensive analysis of Carlsbad f s expected demographic-economic trends and housing market demand- supply conditions as well as the characteristics of Meadow Ridge Homes, Santa Fe Ridge, The Crest, and Paseo De LaCosta, we conclude that the housing products in the Carlsbad's mortgage revenue bond program can be absorbed within a three year period. This is also confirmed by the current absorption rates of Meadow
Ridge Homes which presently has an absorption rate of some 4 units per month using conventional financing, so its 100 units could be marketed in two years, especially with financing that
has a mortgage rate of less than 10%.
15
TABLE 1
FORECAST OF POPULATION GROWTH
--_-_-_____-_---__-_---------------------------------_------
NORTH OCEANSIDE
COUNTY AREA SAN MARCOS
YEAR SAN DIEGO COUNTY CARLSBAD VISTA ESCONDIDO
............................................................
YARKET SHARES 21.17% 18.31% 59 58% 22.11%
1983 52,736 11,163 2,043 6,651 2,469
1985 50,648 11,734 2,148 6,991 2,595 1986 49,635 11,996 2,196 7,147 2,653 1987 48,642 12,242 2,241 7,294 2,707 1988 47,669 12,474 2,283 7,432 2,759 1989 46,716 12,692 2,323 7,562 2,807 1990 45,782 12,896 2,361 7,683 2,852
TOTAL 393,510 96,652 17,693 57,586 21,374
AVERAGE 51,689 11,451 2,096 6,823 2,532
1984 51,682 11,457 2,097 6,826 2,534
1983-85 .............................................. --------------
16
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19
EMPIRE ECONOMICS -
ASSUMPTIONS AND QUALIFICATIONS
The methodology underlying this study has been designed to take into account all of the various demographic, economic, and housing market factors that will influence the success of the various projects in the mortgage revenue bond program. Specifically, the data used in the analysis have been gathered from sources that are regarded as being reliable. Furthermore,
the forecasts of housing demand are based upon the most probable assumptions regarding the economic and housing market conditions that are likely to prevail in the future.
While a high degree of conscientiousness has been exercised with respect to the above factors, we nevertheless take special care to state the assumptions and qualifications underlying the study. Specifically, data presented in the study are not guaranteed in terms of their accuracy or reliability. The forecasts of housing demand are also not guaranteed, since there are numerous economic, physical and political factors that appear to be inconsequential at the present time but may ultimately have a substantial effect on the success of the program.
Furthermore, the success of the mortgage revenue bond program depends upon some events which are completely beyond our control. First, the competitiveness of the various projects in the program, as compared to other projects that may come on the market, depends upon their interest rate differential, estimated to be approximately two percentage points. Should mortgage rates decline significantly after the issuance of the bonds, so that the market rates are below the bond rates, then the financing competitiveness of the projects in the program would diminish, and so their absorption would require more time. Secondly, the success of a particular project also depends upon the quality of the housing products as well as the effectiveness of its marketing program; this is also beyond our control.
2 0