HomeMy WebLinkAbout1984-07-17; City Council; 7820 Exhibit 03; OFFICIAL REQUEST TO STATE OF CALIFORNIA FOR MORTGAGE REVENUE BOND ALLOCATION Exhibit 03nu (Lr%W L;/r!IdUI\ d RATINGS:
Standard & Paors: Ah
(see “Ratings” herein 7/17 \9B.&
NEW ISSUE d iw5
In-the opinion of Bond Counsel, under existfng statutes, regulations, rulings and judicial decisions, assuming continuing compliance
with certain requirements of Section 103A of the Internal Revenue Code of 1954, as amended, interest on the Bonds fs exempt
from present federal income taxation. In the opinion of Bond Counsel, tnterest on the Bonds fs also exempt from
present State of Califcmia personal income taxation. See “Tar Exemption” herein.
$15,000,000
City of Carlsbad, California I
J 1 Single Family Residential Mortgage Revenue Bonds
Issue of 1985
8.75% Term Bonds Dated: June 1, 1985
Price: 100% (Plus accrued interest) Due: November 1,201
The Bonds will be issued only in fully registered form in the denomination of $5,000 or any integral multip thereof. Principal (or redemption price) of the Bonds is payable at the principal corporate trust office of Fir
Interstate Bank of California, Los Angeles, California, as trustee (the “Trustee”). Interest will be payab
semiannually on May 1 and November 1 of each year, commencing November 1,1985, by check or draft mailed 1
the respective registered owners thereof. The Bonds are subject to redemption prior to maturity as set forth herei
and it is expected that a substantial portion of the Bonds will be so redeemed.
The Bonds are being issued to provide the City of Carlsbad, California (the “City”), with funds to finance tl purchase of mortgage loans (the “Loans”) on certain single family residences (including condominiums). T1
Loans will be originated and serviced by First National Bank of North County (the “Lending Institution”) ( behalf of the City, and assigned to the Trustee. The Loans will be insured to the extent described herein.
The Bonds are limited obligations of the City payable solely from Bond proceeds, revenues (excludh Excess Earnings, as defined herein) and other amounts derived by the City from the Loans (including certai earnings thereon and certain insurance with respect thereto), and certain reserve funds established connection therewith. The Bonds do rmot constitute a debt or liability of the City, the State of California t any political subdivision thereof for which is pledged the faith and credit of the City, the State of Californ or any political subdivision thereof within the meaning of any constitutional or statutory limitation. TI Bonds do not constitute an indebtedness or Uoan of credit of the City, the State of California or any politic subdivision thereof and do not directly or indirectly obligate the City, the State of California or any politic subdivision thereof to levy or pledge army form of taxation, or make any appropriation, for the payment of tl Bonds.
1
A municipal bond insurance policy issued by
AMBAC INDEMNITY CORPORATION
simultaneously with the issuance of the Bonds will insure payment of principal of and interest on, the Bonds, whc
due, as described herein.
,-
L The Bonds are ofered when, as and if issued and received by the Underuwiters, subject to the appr~l their legality by Stradling, Yocca, Carhon 6 Rauth, a Professional Corporation, Newport Beach, Californt
Bond Counsel, and certain other conditions. Certain legal matters will be passed upon by O&k, Herrington
Sutclife, Counsel to the Underwriters, It fs expected that the Bonds in definitive fomz will be auailiable f deliwy in Los Angeles, Califmia, on or about July 9, 1985.
PaineWebber
Incorporated
Dated: June 12, 1985
No dealer, broker, salesman or other person has
been authorized by the City or the Underwriter to give any information or to make any representations with respect to
the Bonds other than those contained in this Official
Statement, and, if given or made, such information or
representations must not be relied upon as having been
authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for
such person to make such offer, solicitation or sale. The
information set forth herein has been obtained from the City
and other sources which are believed to be reliable, but is
not guaranteed as to accuracy or completeness by, and is not
to be construed as a representation of, the Underwriter. The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create
any implication that there has been no change in the
information or opinions set forth herein, or in the affairs
of the City, since the date hereof.
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
CITY OF CARLSBAD
CITY COUNCIL
Mary H. Casler, Mayor
Claude A. Lewis
Ann J. Kulchin
Richard Chick
Mark V. Pettine
City Manager
Frank Aleshire
City Attorney
Vincient F. Biando, Jr., Esq.
Building & Planning Director
Martin Orenyak
Finance Director
James Elliott
SPECIAL SERVICES
First Interstate Bank of California,
Los Angeles, California
TRUSTEE
Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
Newport Beach, California
BOND COUNSEL
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TABLE OF CONTENTS
Page
Introduction ............................................ 1
The Bonds ............................................... 3
General Description ................................ 3
Special Mandatory Redemption .................. 4 Sinking Account Redemption .................... 4
Risk of Redemption ............................ 5
Manner of Redemption .......................... 5
Notice of Redemption ............................... 6
Security for the Bonds ............................. 6
Additional Bonds ................................... 7 Disposition of Bond Proceeds ............................ 8 Flow of Funds ...................................... 8 Structure Assumptions and Bondholders' Risks ............ 11
Structure Assumptions .............................. 11
Limited Rights in Event of Default ................. 12
Natural Disasters .................................. 12
Tax Exemption ...................................... 12
Special Considerations Relative to the Residence
Mortgages ........................................ 13
Foreclosure Laws ................................... 14
Limited Rights of Registered Owners with Respect
to Moneys Held by the Lending Institution ........ 14
Bond Insurance .......................................... 15
The Program ............................................. 19
Developer Agreements ............................... 21
Mortgage Sale and Service Agreement ................ 23
Foreclosure Laws ................................... 28
The Lending Institution ............................ 29
Errors and Omissions Insurance Policy and
Fidelity Bond .................................... 30
The Compliance Agent .................................... 30
Insurance ............................................... 30
Private Mortgage Guaranty Insurance ................ 31
Standard Hazard Insurance. Flood Insurance and Earthquake Insurance ......................... 34
Summary of Certain Provisions of the Indenture .......... 36 Certain Definitions ................................ 41 Establishment of Funds ............................. 41 Investment of Moneys in Funds ...................... 41
Covenants of the City .............................. 42
Supplemental Indentures ............................ 43
Amendment of the Indenture ......................... 43 Default and Remedies ............................... 44 Discharge of Indenture ............................. 46 The Trustee ........................................ 47
Redemption Provisions .............................. 4
Special Hazard Insurance ........................... 35
(i)
Page
Feasibility Study ....................................... 47 Certain Verifications ................................... 47
Rating .................................................. 47
Underwriting ............................................ 47
Legality for Investment ................................. 47
Approval of Legality .................................... 48
Tax Exemption ........................................... 48
Section 103A ....................................... 48
No Litigation ........................................... 50 Additional Information .................................. 51
Appendix A: Description of Developer Reserved Single Family Residences .................. A-:
Appendix C: The City .................................... C-:
Appendix D: Summary of Feasibility Study ................ D-:
Appendix E: Form of Municipal Bond New Issue
Insurance Policy ......................... E-]
Appendix F: Proposed Form of Legal Opinion ............. F-I
Appendix B: The Lending Institution ..................... B-:
(ii)
$1 5,000,000
CITY OF CARLSBAD Single Family Residential Mortgage
Revenue Bonds, Issue of 1985
INTRODUCTION
This OfficfLal Statement of the City of Carlsbad,
California (the "City"), including the Appendices hereto,, sets forth information in connection with the sale of
$15,000,000 aggregate principal amount of the City's Single
Family Residential Mortgage Revenue Bonds, Issue of 1985 (the
"Bonds"), which are being 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"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth herein under "Definitions of Certain
Terms. 'I
The Bonds are being issued pursuant to a Trust
Indenture dated as of June 1, 1985 (the "Indenture") between
the City and First Interstate Bank of California, as trustee (the "Trustee"), for the purpose of providing funds to purchase from First National Bank of North County (the "Lending Institution") home mortgage loans (the "Loans") 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, United Guaranty Residential Insurance Company of Iowa, as Compliance Agent (the "Compliance Agent") 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 137
single family residences (the "Developer Reserved Single
Family Residences") within a twenty-eight (28) 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 "Program") is to provide affordable housing for average and below average
income households.
Under the Frogram, each Loan will (i) be made to an
eligible mortgagor (the "Mortgagor") to finance up to 95% of
the purchase price OE 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); (v) be originated substantially in accordance with Federal National
Mortgage Association ("F'NMA") or Federal Residence Loan Mortgage Corporation ("FHLMC") current underwriting practices by the Lending Institution and underwriting practices by the
Private Mortgage Insurer; (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 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 in 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 $28,735.
The acquisition cost of each Residence may not
exceed 110% of the applicable Average Area Purchase Price.
The Average Area Purchase Price for the City for new
Residences is currently $123,300 and for existing Residences
is currently $130,100.
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 to the extent of any 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
meaninq of any constitutional or statutory provisions. Neither the faith and credit nor the taxing p ower of the
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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 I3onds, the security for the Bonds, the
Program, the Developer Agreements, the Agreement, the
Indenture, the Compliance Agent 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 PaineWebber Incorporated, San Francisco,
California. Certain capitalized terms used herein are defined in "Summary of Certain Provisions of the Indenture."
THE BONDS
General Description
The Bonds will be issued only in fully registered form in the denomination of $5,000 or any integral multiple
thereof, will be dated as of June 1, 1985, and will bear
interest therefrom, payable semiannually on May 1 and
November of each year, commencing November 1, 1985, at the
rate per annum, and will mature on the date set forth on the
cover of this Official. Statement.
Except as otherwise provided in the Indenture,
principal (or redemption price) and interest payable upon
maturity or redemption of the Bonds are payable at the
principal corporate trust office of the Trustee in Los
Angeles, California, and interest on the Bonds is payable by
check or draft mailed by the Trustee to the respective
persons in whose names the Bonds are registered at the close
of business on the fifteenth day of the month preceding the applicable interest payment date, except in the case of a payment of defaulted interest which shall be made by check or draft to the respective persons in whose names the Bonds are registered on a special record date fixed in accordance with the Indenture.
The Bonds may be transferred or exchanged at the aforesaid office of the Trustee. For every exchange or
transfer of any Bond, the Trustee shall make a charge sufficient to reimburse it for any tax or governmental charge required to be paid with respect to such exchange or transfer
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and may require the payment of a charge equal to the
customary fee charged by the Trustee for such exchange.
In case any Bond is mutilated, lost, stolen or destroyed, the Indenture provides that the City shall execute, and the Trustee shall authenticate and deliver, a
new Bond of like tenor and number in exchange and
substitution for the Bond so mutilated, lost, stolen or
destroyed. In the case of a lost, stolen or destroyed Bond,
the City and the Trustee shall require satisfactory evidence of such loss, theft or destruction, as well as
indemnification satisfactory to them, prior to the City's
execution and the Trustee's authentication and delivery of a
new Bond. The person requesting the authentication and
delivery of a new Bond shall pay such expenses as the City
and the Trustee may incur, in connection with replacing
mutilated, lost, stolen or destroyed Bonds.
Redemption Provisions
Special Mandatory Redemption. The Bonds are
subject to special mandatory redemption prior to their stated
maturity upon payment of the principal thereof and interest
accrued thereon to the date fixed for redemption, without
premium (a) as a whole or in part (by lot) on November 1,
1988, from moneys transferred to the Redemption Fund from the Program Fund which have not been applied to the acquisition
of Loans before October 1, 1987; provided that the Trustee
may delay said transfer if it receives the written approval
of the Bond Insurer and an opinion of counsel acceptable to
the Trustee to the effect that such later transfer and use of such moneys will not cause the interest on the Bonds to become taxable for federal income tax purposes and acknowledgement from Standard & Poor's Corporation (or such other evidence as may be satisfactory to the Trustee) that such delay will not adversely affect the rating on the Bonds; (b) as a whole or in part (by lot) on any interest payment date from any other moneys deposited in the General Account
of the Redemption Fund; (c) as a whole or in part (by lot) on
any interest payment date from Loan Principal Prepayments
deposited in the Loan Principal Prepayment Account of the
Redemption Fund; and (d) as a whole on any date for which notice of redemption can be given if amounts held in various funds established under the Indenture (except the Program Fund and the Excess Earnings held in the Excess Earnings
Fund) are sufficient to pay all outstanding Bonds and required expenses.
Sinking Account Redemption. The Bonds are subject to mandatory sinking account redemption prior to their stated
maturity, in part (by lot), on each May 1 and November 1,
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commencing on May 1, 1988, at the principal amount thereof
and accrued interest thereon to the date fixed for
redemption, without premium, from mandatory sinking account
payments, as follows:
Principal Princi Date Amoun Date Amount
May 1, 1988 $ 60,000 May 1, 2003 $220,01 November 1, 1988 60,000 November 1, 2003 230,0(
May 1, 1989 65,000 May 1, 2004 240,Ol November 1, 1989 65,000 November 1, 2004 250,OI
May 1, 1990 70,000 May 1, 2005 260,Ol November 1, 1990 75,000 November 1, 2005 275,Ol May 1, 1991 75,000 May 1, 2006 285,Oi
80,000 November 1, 2006 300,01 November 1, 1991
May 1, 1992 85,000 May 1, 2007 315,Ol November 1, 1992 85,000 November 1, 2007 325,01
May 1, 1993 90,000 May 1, 2008 340,0[ November 1, 1993 95,000 November 1, 2008 360,0(
May 1, 1994 100,000 May 1, 2009 375 , O( November 1, 1994 105,000 November 1, 2009 390,Ot
May 1, 1995 110,000 May 1, 2010 410,0( November 1, 1995 115,000 November 1, 2010 425,0(
May 1, 1996 120,000 May 1, 2011 445,0( November 1, 1996 125,000 November 1, 2011 465,0(
May 1, 1997 130,000 May 1, 2012 490,0( November 1, 1997 135,000 November 1, 2012 510,0( May 1, 1998 140,000 May 1, 2013 535,OC November 1, 1998 150,000 November 1, 2013 555,OO
May 1, 1999 155,000 May 1, 2014 580,OO November 1, 1999 160,000 November 1, 2014 610,OO
May 1, 2000 170,000 May 1, 2015 635,OO November 1, 2000 175,000 November 1, 2015 655,OO
May I, 2001 185,000 May 1, 2016 585,OO November 1, 2001 195,000 November 1, 2016 275,OO
May 1, 2002 200,000 May 1, 2017 70,00 November 1, 2002 210,000 November 1, 2017 5,00
Risk of Redemption. Because the Bonds are subject
to special mandatory redemption as aforesaid, it is expected
that a portion of the Bonds will be redeemed at par prior to
their scheduled maturity or sinking account redemption dates. For a description of the uncertainties inherent in predicting the average life of the Loans (which in turn affects the effective average life of the Bonds), see
"Structure Assumptions and Bondholders' Risks" herein.
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Manner of Redemption. In the event that less than
all of the Bonds are to be redeemed, the Trustee shall select the Bonds to be redeemed by lot in any manner which the
Trustee shall deem proper in its sole discretion. Bonds of a
denomination greater than $5,000 may be partially redeemed
but only in increments of $5,000.
Notice of Redemption
Notice of redemption shall be given by first class
mail, postage prepaid, mailed not less than ten nor more than
60 days prior to the redemption date, to each registered
owner of Bonds to be redeemed at his or her address appearing
on the bond registration books of the Trustee. No defect in or failure to give such mailed notice shall affect the
sufficiency of the proceedings for the redemption of any
other Bond. All Bonds so called for redemption shall cease
to accrue interest on the specified redemption date, provided
funds for their redemption have been duly deposited with the
Trustee and, except for the purpose of payment, shall no
longer be protected by the Indenture or be deemed to be
outstanding under the Indenture.
Security for the Bonds
The Bonds are payable fror. Revenues, and are
secured by a pledge and assignment of said Revenues, all of
the proceeds of the Bonds and any other amounts held in any fund or account established pursuant to the Indenture (exclusive of the Excess Earnings Fund), subject only to the provisions of the Indenture permitting the application
thereof for or to the purposes, and on the terms and
conditions, set forth in the Indenture. The Bonds are also
secured by an assignment of all of the right, title and
interest of the City in the Loans and certain agreements
relating thereto (as more particularly described in the
Indenture).
The Bonds are limited obligations of the City and are not a lien or charge upon the funds or property of the
City, except to the extent of the aforesaid pledge and
assignment. The Bonds shall not be deemed to constitute a
debt or liability of the City, the State of California or any
political subdivision thereof for which is pledged the faith
and credit of the City, the State of California or any
political subdivision thereof. The Bonds do not constitute an indebtedness or a loan of credit of the City, the State of California or any political subdivision thereof within the meaning of any constitutional or statutory limitation. The
Bonds shall not or directly or indirectly obligate the City,
6
the State of California or any political subdivision thereof
to levy or pledge any form of taxation, or make any
appropriation, for the payment of the Bonds.
Moneys used for payment of the Bonds will be
derived from the payment by individual Mortgagors of principal of and :interest on Loans, income earned on
investment of money:; on deposit in the various funds and
accounts held by the Trustee, proceeds of foreclosure sales
and certain insurance proceeds. The Loans will represent
first lien deeds of trust (subject to permitted encumbrances)
on the Residences securing the same. The Loans will be insured by private mortgage guaranty insurance. Standard
hazard insurance, special hazard insurance, earthquake damage
insurance and, in certain cases, flood insurance are required
to be obtained for the mortgaged property, subject, in the
case of earthquake damage insurance, to the commercial
availability thereof. See "Insurance -- Mortgage Guaranty Insurance" and "Insurance -- Standard Hazard Insurance, Flood
Insurance and Earthquake Insurance."
The Bond Reserve Fund, consisting of the Interest Reserve Account and the Principal Reserve Account, has been
established under the Indenture as a reserve for, among other
things, the payment of principal of and interest on the
Bonds, in the event ,payments on Loans prove to be temporarily
insufficient for such purpose.
Payment when due of the principal of, and interest
on the Bonds will be insured by a Bond Insurance Policy to be
issued by the Bond Insurer. See "Bond Insurance."
Additional Bonds
The Indenture does not permit the issuance of any additional bonds payable or secured on a parity with the
Bonds.
7
DISPOSITION OF BOND PROCEEDS
The following table sets forth the anticipated use
of Bond proceeds (not including accrued interest on the
Bonds) and Developer Fees:
Program Fund
To Acquire Loans I/ ....... $14,494,600 To Pay Issuance Expenses 2/ ........ 343,062 Reserve Fund 3/ ...................... 574,838
Underwriter's Discount ...............
TOTAL ................................ $15,675,000 ----------- -----------
- 1/ Upon delivery of the Bonds, the City will have
$14,494,600 available to acquire Loans, of which $13,819,600 will be derived from Bond proceeds and $675,000 from
Developer Fees.
- 2/ Issuance expenses include Bond Counsel fees, printing
costs and rating agency fees, initial Trustee fees, an
initial special hazard insurance premium of $5,073, an initial bond insurance premium of $48,000, an investment agreement premium of $161,000, market demand study costs and
other miscellaneous issuance expenses.
- 3/ Including $140,000 in the Interest Reserve Account and
$434,838 in the Principal Reserve Account.
Moneys deposited in the Program Fund are to be used by the Trustee to purchase Loans and to pay costs of issuance of the Bonds. As such Loans are originated and delivered to
the Trustee, the Trustee will disburse moneys on deposit in
the Program Fund to purchase such Loans. Any funds in the
Program Fund which are not used to purchase Loans before
October 1, 1987 (or such later date as may be established in accordance with the Indenture) (the "Delivery Period"), are
required to be transferred to the Redemption Fund and used to redeem Bonds, without premium, pursuant to the special mandatory redemption provisions of the Indenture on November 1, 1988 (or such later date as may be established in
accordance with the Indenture).
Flow of Funds
Under the Indenture, all Revenues (and "Excess
Earnings," as hereinafter defined, prior to their deposit in
the Excess Earnings Fund) are to be deposited in the Revenue
8
Fund. Until the principal of and interest on the Bonds shall have been paid or provided for, amounts in the Revenue Fund
are to 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 Estimated Excess Earnings for the period;
2. Municipal I3ond Insurance Premium Fund: the amount
equal to the semiannual premium payable to the Bond
Insurer;
3. Bond Fund: the amount, if any, needed to increase the amount in the Bond Fund to the sum of (i) the
aggregate amount. of interest becoming due and payable on
the next interest payment date upon all Bonds then
Outstanding, plus (ii) the aggregate amount of principal
becoming due and payable on the Outstanding Bonds on the next interest payment date, plus (iii) the aggregate amount of Mandatory Sinking Account Payments required to
be paid on the next interest payment date;
4. Principal Reserve Account: the amount, if any,
needed to increase the amount in the Principal Reserve
Account to the Elond Reserve Account Requirement;
5. Program Expense Fund: the amount, if any, needed
to increase the amount in the Program Expense Fund to
the Program Expense Fund Requirement; and
6. Redemption Fund: the balance remaining in the
Revenue Fund.
On or before June 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 Excess Earnings
Fund. The amount deposited in the Excess Earnings Fund will
be free 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 Account is less than the amount that is required to be transferred, the Trustee shall make up such deficiency from the Revenue Fund.
Amounts in the Program Expense Fund shall be used
solely for the paying1 of Qualified Program Expenses.
9
Amount 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 (including 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, Bond 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. In the
event that the amount in the Bond Fund is 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 accounts in the Bond Reserve
Fund in the following order of priority: (1) the Interest
Reserve Account; and (2) the Principal Reserve Account.
All amounts in the Interest Reserve Account shall be applied solely for the purposes of making up any deficiency in the Bond Fund. On October 1, 1987, all amounts
remaining in the Interest Reserve Account shall be
transferred to the Revenue Fund.
Amounts in the Principal 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
Principal Reserve Account in excess of the Bond Reserve Fund
Requirement shall be transferred to the Revenue Fund on
October 1, 1987 (or such later date as may be established in
accordance with the Indenture) and thereafter on or before each interest payment date.
Amounts on deposit in the Redemption Fund shall be used solely for the purposes of 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.
Amounts on deposit in the Municipal Bond Insurance Fund shall be used solely to pay the annual premium for the
Municipal Bond Insurance.
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STRUCTURE ASSUMPTIONS AND BONDHOLDERS' RISKS
Structure Assumptions
The City believes that payments on the Loans,
together with amounts held under the Indenture (including the
Developer Fees), as well as earnings thereon (other than the Excess Earnings), will generate sufficient Revenues to pay on a timely basis the principal of, mandatory sinking account installments and interest on the Bonds, Bond Insurance premiums, special hazard insurance premiums, the Trustee's
fees and certain other costs (including issuance expenses and
Underwriter's discount), on the basis of the following
assumptions:
1. The Lending Institution's servicing fee and
premiums for special hazard insurance will not exceed
0.285% per year of the aggregate principal amount of the
Loans.
2. Premiums for bond insurance will not exceed
0.32% per year of the aggregate principal amount of the
Bonds outstanding.
3. An aggregate principal amount of $14,494,600
of Loans bearing interest at the stated rate of 9.55%
will be purchased by the Trustee on behalf of the City
at the times set forth in the Developer Agreements.
4. All Loans will have scheduled final maturities
of not more than 30 nor less than 29 years, will provide
for approximately equal monthly installments of principal and interest, and will have a weighted average
actual life of not less than 3 years.
5. Moneys deposited in all funds and accounts will be continually invested pursuant to an Investment Agreement between the Trustee and Atlantic Capital
Corporation and Atlantic Capital Corporation will honor
its obligations thereunder to repay such moneys and
interest thereon at the rates and at the times set forth
therein.
6. The Trustee's annual fee will not exceed 0.08% of the aggregate principal amount of Bonds outstanding.
7. Either the Loans will be paid substantially on a timely basis fin accordance with their terms or, in the
case of delinquencies and foreclosures, any settlement
of insurance claims will be made at such time as, and in
11
an amount and in a form of payment which, together with
moneys available in the Bond Reserve Fund, will allow
the City to make scheduled payments of debt service on
the Bonds.
The assumptions set forth above are based on
current market conditions and practices, and subsequent
events may not correspond to such assumptions. Under such circumstances, revenues from the Loans, investment earnings
and insurance proceeds may not be sufficient to pay the
principal of and interest on the Bonds when due.
Limited Rights in Event of Default
The remedies available to the registered owners of
the Bonds upon an event of default under the Indenture or other documents described herein and policies of insurance referred to herein are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and
judicial decisions, including specifically Title 11 of the
United States Code (the "Federal Bankruptcy Law"), the
remedies specified by the Federal Bankruptcy Law, the
Indenture and the various Program documents and policies of
insurance referred to herein may not be readily available or may be limited. The various legal opinions to be delivered
concurrently with the delivery of the Bonds will be
qualified, as to the enforceability of the various legal instruments, by limitations imposed by bankruptcy,
reorganization, insolvency or other similar laws affecting
the rights of creditors generally.
Natural Disasters
The Loans will be secured by Residences located solely within certain developments, and accordingly there
will not be extensive geographical distribution of the
Loans. Such concentration makes the Residences securing the
Loans more susceptible to loss due to fire, earthquake or
other hazards, some of which may not be covered by the
various insurance policies or may exceed the limits of such
policies as described herein under "Insurance -- Standard
Hazard Insurance, Flood Insurance and Earthquake Insurance" and "Insurance -- Special Hazard Insurance."
Tax Exemption
See "Tax Exemption" herein for a discussion of the
conditions under which interest on the Bonds may not be
exempt from federal income taxation.
12
Special Considerations Relative to the Loans
The Lending Institution’s competition in makinc
real estate loans in the area of the Developments normallq
comes primarily from savings and loan associations,
commercial banks and other mortgage bankers. Because one of
the principal factors in competing for real estate loans i:
the interest rate charged, and because the Loans are expectec
to be made at substantially less than currently prevailin!
market rates, the Lending Institution does not expect
significant competition in making the Loans as long a:
currently prevailing market rates do not decrease. There
are, however, a number of ways in which mortgage loans coulc
become available at rates competitive with those specified
for the Loans, such as through various federal, state or
local governmental programs, which include California Housing
Finance Agency programs, similar mortgage loan programs financed by tax-exempt bonds, or the Federal Housing Administration Section 245 (Graduated Payments Mortgage) program. In addition, prevailing interest rates for
conventional mortgages in the area could decrease. In the
event that, prior to all the Loans being originated, other
mortgage loans were to become available in the area at rates
competitive with that specified for the Loans, or the
Residences to be built in the Developments are not constructed as anticipated (due to lack of- performance by the Developers, natural disasters, strikes, material shortages or other reasons), the City might not be able to purchase Loans in the anticipated amount. Investment income earned on funds
held by the Trustee and Developer Fees, however, are
calculated to be sufficient to recover issuance expenses and
Underwriter’s discount associated with undelivered Loans.
Any Bond proceeds or other funds deposited in the Program
Fund which have not been used to purchase Loans by the end of
the Delivery Period will be used to redeem without premium an
appropriate portion of the Bonds pursuant to the special
mandatory redemption provisions of the Indenture.
The scheduled maturity of the Bonds assumes no prepayment of Loans. If prepayments of Loans occur, an appropriate portion of the Bonds is required to be redeemed pursuant to the special mandatory redemption provisions of
the Indenture. The City anticipates that a portion of the
Loans will be partially or completely prepaid or accelerated
prior to their respective final maturities as a result of
events such as sale of the Residences, default, condemnation or casualty loss, or noncompliance with the Program requirements. Because of the lack of a historical basis with respect to prepayments of mortgage loans of a type similar to the Loans described herein, and the Program requirement that in the event of assumption the Loans are to be accelerated
13
when assumors do not qualify under the Program requirements,
there is no reliable basis for predicting the actual average
life of the Loans. The City does, however, anticipate
prepayment of a number of Loans and it is probable that a
portion of the Bonds will be redeemed earlier than their
stated maturity or scheduled sinking account redemption dates.
Foreclosure Laws
The Loans will be secured by first lien deeds of
trust, the most commonly used real estate property security
device in the State of California. Although a deed of trust
is similar to a mortgage with a power of sale, the deed of
trust formally has three parties: a debtor-trustor (similar
to a mortgagor), a third-party grantee called the trustee, and a lender-creditor (similar to a mortgagee) called the beneficiary. The trustor grants the property, irrevocably until the debt is paid, "in trust with a power of sale" to the trustee to secure 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
beneficiary.
Upon the default of a Loan, the Lending Institution
is to exercise the City's right under the deed of trust's power of sale, subject to the constraints imposed by the
State of California law and by the private mortgage guaranty
insurer. 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 least two full monthly payments are due and unpaid. The power of sale is exercised by posting and publishing a notice of sale for at least 20
days. 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 (see "Insurance -- Private Mortgage Guaranty
Insurance" herein with regard to the advance claims required
to be obtained from the mortgage insurer). Under State of
California antideficiency legislation, there is no personal
recourse against a mortgagor where the trustee exercises the power of sale.
Limited Rights of Registered Owners with Respect to Moneys
Held by the Lending Institution
The funds held in the Receipts Account by the
Lending Institution for the Trustee under the Agreement will
be remitted to the Trustee on the close of business on the
fifth and twentieth days of each month, on the day preceding
14
each interest payment or redemption date, or if not a business day on tlhe next business day thereafter, and whenever else the :Lending Institution has accumulated an amount in excess of the amounts which are insured by the
Federal Deposit Insurance Corporation (the "FDIC") or the
Federal Savings and Loan Insurance Corporation ("FSLIC'O, as appropriate. The claim of registered owners of the Bonds with respect to unremitted funds might, in the event of insolvency of the Lending Institution, rank equally with but
not superior to the rights of the Lending Institution's other
unsecured general creditors. Furthermore, the Lending Institution will not be required to provide any collateral to
secure the rights of the registered owners of the Bonds with
respect to such funds. Accordingly, in the event of
insolvency of the Lending Institution or of the financial
institution at which the Receipts Account is maintained, the registered owners off the Bonds may be treated as general unsecured creditors of the Lending Institution or of the
financial institution, and bear the risk of losing the entire
amount which may then be held in the Receipts Account.
BOND INSURANCE
AMBAC Indemnity Corporation ("AMBAC Indemnity" or
the "Bond Insurer") has made a commitment (the "Commitment
for Municipal Bond Insurance Policy") to issue a principal
bond insurance policy (the "Municipal Bond Insurance Policy")
relating to the Bonds effective as of the date of issuance of
the Bonds. The Municipal Bond Insurance Policy will be
issued by AMBAC Indemnity or issued by a Policy Company and reinsured by AMBAC Indemnity (as described below). Under the terms of the Municipal Bond Insurance Policy, the payment of the principal of and interest on the Bonds when due will be guaranteed, to the extent that sufficient funds for such payment have not been provided. The insurance will extend
for the term of the Bonds and, once issued, cannot be
cancelled by the Policy Company or AMBAC Indemnity.
The Municipal Bond Insurance Policy will insure
payment only on stated maturity dates and sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. It will not insure payment on acceleration, as a result of a call for redemption (other than sinking fund redemption) or as a
result of any other advancement of maturity, nor will it
insure the payment of any redemption, prepayment or
acceleration premium. The Municipal Bond Insurance Policy
will not insure against nonpayment of principal or interest caused by the insolvency or negligence of the Trustee, any Paying Agent or the Insurance Trustee.
15
At least five business days before each date for
payment of principal and interest under the terms of the
Bonds, if the aggregate amount in the Debt Service Fund and
other Funds pledged therefor in accordance with the Trust
Agreement is insufficient to pay the principal of and
interest on all Bonds due on such payment date (computed, in
all cases, after giving effect to mandatory sinking fund
installments but otherwise as if no acceleration, whether by
other redemption or otherwise, had occurred), the Trustee
will notify the Insurance Trustee and the Insurer of the
amount of the deficiency. Under the terms of the Policy, AMBAC Indemnity or one of the Policy Companies (as defined below and individually, including AMBAC Indemnity, the "Insurer"), as applicable, will pay to the Insurance Trustee the amount of the deficiency stated in such notice within five business days of such notice but not prior to the
scheduled payment date. The Insurance Trustee will, upon
inspection of the registration books of the Authority, mail
checks or drafts, in payment of interest due on the Bonds,
and will pay principal of the Bonds upon surrender thereof.
If it becomes necessary to call upon the Municipal Bond Insurance Policy guarantee, payment of interest and principal may require an assignment of the Bondholders' right
to payment to the Insurer or surrender of Bonds. Transfers
of Bonds may be required for timely payment. In order to
notify registered Bondholders of the necessity for such
assignment, surrender or other transfer, the Trustee will
mail notices to such registered owners of the Bonds concurrently with the giving of notice to the Insurance Trustee as described in the previous paragraph.
Upon payment by the Insurance Trustee, the Insurer will become the owner of the surrendered Bonds and will be
fully subrogated to the surrendering Bondholders' rights to
payment on a parity with the other then outstanding Bonds.
Such subrogation will be evidenced in the case of payment of
interest by the Trustee's notation of such on the
registration books of the Authority and, in the case of
principal, by the registered owners' surrender of the Bonds
to the Insurance Trustee in exchange for payment thereon.
Under the circumstances described under the Indenture, the Insurer will be entitled to the exclusive right to direct the exercise of remedies by the Trustee in the event of a default. Among such remedies is the right to accelerate payment of the Bonds in part to the extent that moneys are available to pay the full amount due on acceleration. If the
Bonds become subject to mandatory redemption and insufficient
funds are available for redemption of all outstanding Bonds,
the Insurer will remain obligated to pay principal of and
16
interest on outstanding Bonds on the originally scheduled
interest and principal payment dates.
The insuraiice of the Bonds by the Insurer should not be construed as a representation by the Insurer that the
pledged revenues ,will at all times and under all
circumstances be sufficient to pay the principal of and
interest on the Bonds.
AMBAC Indemnity has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by AMBAC Indemnity will not affect the treatment for federal income tax purposes of interest on such
obligation and that insurance proceeds representing maturing
interest paid by AlYBAC Indemnity under policy provisions
substantially identical to those contained in the Municipal
Bond Insurance Policy shall be treated for federal income tax
purposes in the same manner as if such payments were made by the issuer.
AMBAC Indemnity is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of
Wisconsin, and licensed to do business in various states,
with admitted a :j set s (unaudited) of approximately
$440,000,000 and capital and surplus (unaudited) of approximately $101,000,000 as of March 31, 1985. AMBAC Indemnity is a wholly-owned subsidiary of MGIC Investment Corporation, a financial holding company which is a
wholly-owned subsidiary of Baldwin-United Corporation, a
financial services company, which is listed on the New York
Stock Exchange. Standard & Poor's Corporation has rated the
claims-paying ability of AMBAC Indemnity "AAA". The address
of AMBAC Indemnity's administrative offices and its telephone number are One State Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340. The Insurance Department of the State of Wisconsin has promulgated regulations specifically designed for insurers of municipal bonds which, among other things, limit each insurer as to exposure on both a single-risk and total-risk basis.
AMBAC Indemnity has entered into stop-loss
reinsurance agreements with a number of unaffiliated
reinsurers relating ico the municipal bond insurance programs of AMBAC Indemnity. The stop-loss reinsurance agreements
cover all existing new issues, funds, unit trusts and
portfolios insured hy AMBAC Indemnity. There are presently eighteen insurance companies participating in the first of such agreements with a maximum aggregate liability thereunder
of $75,000,000 and four insurance companies participating in
the second of such agreements with a maximum aggregate
liability of $50,000,000. In addition, AMBAC Indemnity has
17
entered into a quota share reinsurance agreement with four
unaffiliated reinsurers under which 20.00% of the insurance
underwritten pursuant to the municipal bond insurance
programs of AMBAC Indemnity has been and will be assumed by
such reinsurers. The stop-loss and quota share reinsurance agreements are designed to supplement the resources of AMBAC Indemnity and to provide such corporation with the ability to continue to pay claims during a period of severe economic catastrophe similar to the Great Depression of the 1930's.
The stop-loss reinsurance agreements are continuous but are
subject to termination by, and with respect to, any reinsurer
on any December 31 upon 90 days' notice and, with respect to
the first of such agreements, by, and with respect to, one certain reinsurer on any March 31, June 30, September 30 or December 31 upon 90 days' notice. Termination will also occur if AMBAC Indemnity fails to provide the reinsurers at any year-end with a no-loss warranty which states, in effect,
that losses incurred for that year will be borne fully by AMBAC Indemnity. Further, the stop-loss reinsurance
agreements are subject to termination by, and with respect
to, any reinsurer upon the occurrence of certain other events. If any such termination occurs, and if AMBAC Indemnity does not provide a no-loss warranty, the stop-loss reinsurance agreements provide for a six year run off period during which period the reinsurers remain liable for all
losses incurred by AMBAC Indemnity with respect to business
in force at the beginning of the run off period.
Petitions have been filed under Chapter 11 of the
Bankruptcy Code of the United States of America (the "Bankruptcy Code") with respect to Baldwin-United. None of
WMAC Investment Corporation (previously known as MGIC
Investment Corporation), its insurance subsidiaries, or AMBAC, are included in such filings. Following the
consummation of the sale, the proceedings in bankruptcy
involving Baldwin-United will not affect the operations or
the financial condition or the reinsurance agreements of AMBAC .
A Special Masters Commission was formed to assist
in the sale of the various corporate entities which comprise
definitive agreement for the purchase of the municipal bond
insurance business of AMBAC by an investor group was entered
into on January 18, 1985. The investor group includes
Citibank, N.A., as majority shareholder, together with the
management of AMBAC, Stephens Inc. and Xerox Corporation.
Pursuant to the terms of the definitive agreement, the
transaction, which is subject to various consents and regulatory approvals, is expected to be consummated by June
30, 1985. The regulatory approval enabling Citibank, N.A. to
the WMAC Investment Corporation corporate group. A
18
make this acquisition is being challenged in a lawsuit
commenced in federal district court by trade associations
representing a number of insurance companies. AMBAC Indemnity is unable to predict whether the filing of such
lawsuit would delay the consummation of the sale.
The information relating to AMBAC Indemnity, the Insurer, and MGIC Investment Corporation contained above has been
furnished by AMBAC Indemnity. No representation is made
herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such
information subsequent to the date hereof.
THE PROGRAM
The Trustee, on behalf of the City, will purchase
Loans from the Lending Institution using proceeds from the Bonds and the Developer Fees. The Loans will be made to finance the acquisition by qualified Mortgagors of Loans
located in the City. Based on current development estimates,
Loans to finance approximately 137 Residences will be
purchased. Information concerning the Developer Reserved
Single Family Residences is set forth in Appendix A, to which reference is hereby made for such information.
Each Loan will be secured by a first mortgage lien
(subject to permitted 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 documents 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 during
the three years pri.or to the execution of the Loan. A Mortgagor's household 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 Loans in such other cases shall be made
to Mortgagors whose household income does not exceed 110% of
Median Household Income.
19
The Loans will provide for level payments of
principal and interest based on a thirty year amortization.
Each Loan shall include a provision pursuant to which any amount owing to the City thereunder will be forgiven in its entirety 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 9.55%. Except as expressly
provided otherwise, Loans purchased by the Trustee must be
qualified pursuant to FNMA or FHLMC underwriting criteria and
practices and the current underwriting criteria and practices
of the Private Mortgage Insurer.
Mortgagors may have their monthly loan payments
reduced pursuant to a 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, in favor of
the Trustee for the benefit of the Bondholders, is fully funded at the time the Loan is purchased.
Each Mortgagor will also be charged an origination
fee of 0.65% of the principal amount of the Loan to be paid
to the Lending Institution at the time the Loan is funded.
All Loans will be serviced by the Lending Institution in accordance with the guidelines set forth in the Agreement.
Under the Program, in general, 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, the capitalized value of the ground rent, calculated using a discount rate equal to the yield on the Bonds, is included in the acquisition cost. Based upon a study
prepared by Empire Economics Inc., the Average Area Purchase Price for new residences in the San Diego Primary Metropolitan Statistical Area, in which the City is located,
is determined to be $123,300, and the Average Area Purchase
Price for existing residences in the San Diego Primary
Metropolitan Statistical Area as so determined is $130,100.
A Loan may only be assumed if the new Mortgagor and the
Residence meet similar eligibility requirements as well as certain income requirements under the Act.
With respect to each Loan, the Mortgagor, the Developer and the Lending Institution are required to submit
to the Compliance Agent and the Trustee affidavits or
Certificates, under penalty of perjury, certifying facts and
intentions which exhibit the Mortgagor's compliance with the
20
requirements of Sect:ton 103A as to the intent to occupy the
unit as a principal residence; no ownership interest in a
principal residence for the prior three years (except that Loans in an aggregate principal amount not exceeding at any time 10% of the total principal amount of all Loans may be
made to Mortgagors who have had a present ownership interest
in a principal residence within the three-year period prior
to the date of execution of the Loan); acquisition cost
limitations on the price of the residence; the nonreplacement
of an existing mortgage loan; and restrictions on future
assumptions. The Agreement and the Indenture also prescribe
various procedures and techniques to be followed by the
Lending Institution and the Compliance Agent in reviewing or
verifying the affidavits and information provided by the
prospective Mo r t g ago r in compliance with certain administrative "safe harbors*' set forth in the Temporary
Regulations under Section 103A.
Developer Agreements
Under the Developer Agreements the City will
reserve total of approximately $14,494,600 to make Loans to finance the purchase of Residences within the Projects.
The Developers have constructed or are planning to
construct approximately 137 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 originate and sell to the Trustee Loans in the specified amounts by October 1, 1987 (or such later date as may be established in accordance with the Indenture). The Developer may, with the written consent of the City, the Bond Insurer and the Private Mortgage Insurer, transfer all or a portion
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 and following written notice from the City to the Compliance Agent, the Private Mortgage
Insurer and the Bond Insurer, transfer all or a portion of
its reservation to any other developer, who 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 and conditions of the transfer, a description
of the proposed Developer Reserved Single Family Residences,
the proposed transferee and the purpose for the transfer, all
of which must conform to all requirements of the Program and
21
otherwise be acceptable to the City. Except as otherwise provided in the Developer Agreement, no reservation or
portion thereof may be transferred to i3 developer who has not
entered into a Developer Agreement with the City, except upon
the terms and conditions which have been first presented to
and rejected by each of the Developers who have entered into such a Developer Agreement.
Additionally, a Developer may direct that an amount
not exceeding 20% of the money he has reserved for Loans be
used for Residences which are 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 pay to the Trustee in cash a non-refundable, commitment fee of approximately 4.66% of the funds reserved for that Developer. Upon delivery of the Bonds, the commitment fees will be deposited and held by the Trustee in the Program Fund and applied as provided for
moneys therein.
Under the Developer Agreements each Developer is
required to represent with respect to the Residence it
constructs and sells under the Program, among other things,
that:
(i) to the best knowledge of the Developer, such
is to be occupied by a mortgagor who is a first time
homebuyer (except that Loans in an aggregate principal
amount not exceeding at any time 10% of the total
principal amount of all Loans may be made to Mortgagors
who have had a present ownership interest in a principal
residence within the three-year period prior to the date of execution of the Loan) as such mortgagor's principal place of residence within 60 days after making of the
Loan, and the related Loan is made for the purpose of
purchasing the Residence and not for the purpose of
acquiring or replacing any existing mortgage;
(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
22
I
I the closing date of such Loan and at the time thc I
Residence is offered for sale it will be free of any an(
all mechanics' liens;
(v) the Residence was offered for sale tc
qualifying homebuyers on a first-come-first-served basi: or on the basis of a random drawing without regard tc
race, color, religion, age, sex, marital status OX
national origin (except to the extent that some other
basis is required by law, as in the case of 2
condominium conversion); and
(vi) it has no knowledge of any fact, circumstance
or condition with respect to the mortgagor or the Loar
which would lead it to believe that the certification5
required to be made by the mortgagor to the City are not
true.
Ten percent of the Mortgage 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 Mortgage
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 Mortgage 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 October 1,
1987 (or such later date as may be established in accordance with the Indenture), Mortgage Loans in an aggregate principal amount of $14,494,600. Information regarding the Lending
Institution's experience in origination and servicing of
residential mortgage loans is set forth in Appendix B.
The Compliance Agent will monitor the origination of the Mortgage Loans and will undertake certain duties,
including approval oE the Mortgage Loans.
At the closing of a Loan, the Lending Institution
may charge a fee of not more than 0.65% of the original
principal amount of the Loan to be retained by the Lending
Institution for its own account. The Lending Institution may
also collect from the Mortgagor charges for certain customary
costs paid or incurred by the Lending Institution in
connection with the rnaking of a Loan.
23
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 Residence 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 of 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 Mortgagor.
(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 were 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 affidavit 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
* 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.
24
the Loan to become delinquent, or adversely affect the
value or marketability of the Loan, except that the
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
private mortgage guaranty insurance provides coverage, and
(ii) the Lending Institution diligently proceeds on behalf of
the City to declare all sums the payment of 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. 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.
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
with 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 .25% 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 exteint permitted in the Agreement. Additional servicing compensation in the form of assumption fees, late payment charges or otherwise, if any, may be retained by the Lending Institution to the extent not
required to be deposited in the Receipts Account (hereafter
mentioned) it maintains or required to be paid to 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 Institution is to establish and maintain, in the name of the City, a separate account (the "Receipts Account"), into which all payments and collections
received by it with respect to the Loans (including proceeds
26
I
I of insurance and foreclosures, but excluding the servicinc
fees and certain other amounts) are to be deposited on i
daily basis. On the close of business on the fifth anc
twentieth days of each month, on the day preceding each
interest payment or redemption date, or if not a business day
on the next business day thereafter, and whenever else the
Lending Institution has accumulated an amount in excess of
the amounts which are insured by the FDIC or the FSLIC, the
Lending Institution is to remit to the Trustee for deposit
payments of principal of and interest on the Loans and all
other payments paid by the Mortgagors relating thereto,
including insurance proceeds and liquidation proceeds, less
the service fee, escrow payments and any other amounts
permitted to be retained by the Lending Institution pursuant
to the Agreement.
The obligations of the Lending Institution under the Agreement specifically include, but are not limited to, providing, within the time limits applicable thereto, the
Private Mortgage Insurer with any and all notices and claims
for payment which are required in order to collect payments
under the advance payments Endorsement to the Private
Mortgage Insurance E’olicy. In connection therewith, on the 16th day of each month the Lending Institution shall notify
the Trustee and the Private Mortgage Insurer by telephone,
telex or other same day means of communication of the
aggregate amount of monthly installment payments on Loans
which were first due on the preceding first day of such month and payable by the 15th day of such month but which were not received by the Lending Institution. The Lending Institution shall immediately Eollow such notification with written confirmation thereof, with a copy thereof to the Trustee, so that said written confirmation is received by the Private Mortgage Insurer and the Trustee not later than the 19th day of such month. (If the Trustee has not received such notice
by the 19th day of such month, the Trustee shall immediately
file or cause to be filed such notices and claims for payment
which are required to collect payments under said Advance
Payments Endorsement.) The Lending Institution shall also
provide the Trustee and the Private Mortgage Insurer with verbal notification on the 26th day of such month, to be followed immediately by written confirmation, of all Loans remaining delinquent as of the 25th day thereof.
+ On the twenty-fifth day of each month, the Lending Institution is to furnish to the Trustee a statement setting
forth the status of the Loan Service Account of the borrowers
it maintains, as of the close of business on the twentieth
day of such month.
27
Within 120 days after the close of the Lending
Institution's fiscal year, the Lending Institution shall
furnish to the City and the Trustee an auditor's report
relating to the Lending Institution's financial statements
and mortgage loan operations. The Lending Institution shall
also deliver to the Trustee and the City 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 Trustee, on behalf of the City, for cause.
Upon such termination, the Trustee, on behalf of the City, is
obligated to succeed to all rights and obligations of the
terminated Lending Institution concerning services of Loans
and shall be entitled to receive compensation therefor. As
soon as practicable thereafter, the Trustee is to enter a
servicing agreement with another qualified lender, or shall
itself assume such servicing. The Trustee 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 is similar to a
mortgage with power of sale, the deed of trust formally has
three 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 secure payment of the obligations. The trustee's authority is governed by law, the excess provisions of the deed of trust and the directions of the beneficiary.
Upon the default of a Loan, the Lending Institution servicing the Loan is to exercise the City's rights under the
deed of trust's power of sale, subject 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
28
least two full monthly payments are due and unpaid. Thi
power of sale is exercised by posting and publishing a notic1
of sale for at least 20 days after the expiration of thl
three month reinstatement period. Therefore, the effectivt
period for foreclosing upon a Loan could be in excess of si
months after the initial default. Such time delays i
collections could disrupt the flow of revenues available fo
the payment of debt service on the Bonds if such default
occur with respect to a substantial number of Loans. Unde
California anti-deficiency legislation, there is no persona recourse against a mortgagor where the trustee exercises thl
power of sale.
The Lending Institution
The City has entered into an Agreement with Firs
National Bank of North County to originate and providc
$14,494,600 principal amount of Loans to the Trustee fo
purchase on behalf of the City during the delivery perioc which terminates on October 1, 1987 (or such later date a,
may be established in accordance with the Indenture). 11
consideration for the efforts associated with originatinc
Loans, the Lending Institution will charge an origination fe(
of 0.65% of the principal amount of each Loan (plus the cos
of appraisal and credit reports and other customary closinl
expenses).
Certain other information concerning the Lendin! Institution is set forth in Appendix B hereto.
Residential real estate loans originated by thl
Lending Institution are subject to a thorough underwritin1
process in order to assess the prospective borrower's abilit.
to repay and the adequacy of the home as collateral for thl
loan requested. California is an "anti-def iciency" state
which means that, in general, lenders providing credit o
single family properties must look solely to the property fo repayment in the event of default. Accordingly, loa underwriting policies require that loan officers be satisfie1
that the value of the property being financed currentl:
supports, and will support in the future, the outstandinc
loan balance with sufficient excess value to mitigate agains
adverse shifts in real estate values. The appreciation i!
value of California real estate in the past has tended tc
single family home mortgages. Since it is anticipated tha
some Loans under the City's Program may be made on the basi
of a ninety-five percent (95%) loan-to-value ratio, and sincl
no prediction can he made as to future prices of housing, th(
prior experience of the Lending Institution described i
Appendix B may not necessarily be useful in predicting thl delinquency and loss rates to be experienced on the Loans.
- limit loss and foreclosure experience on their portfolios o
29
Errors and Omissions Insurance Policy and Fidelity Bond
The Lending Institution is required to maintain and
keep (and pay the premiums for) an errors and omissions
insurance policy and a fidelity bond.
Both the errors and omissions insurance policy and fidelity bond must be in the form and substance required by FHLMC . Such policy and bond are subject to certain
limitations as to amounts of coverage, deductible amounts, conditions, exclusions and exceptions. Accordingly, the
errors and omissions insurance policy and fidelity bond,
respectively, will not provide coverage against all losses
which may be sustained as a result of errors, omissions or
misappropriations.
If either the errors and omissions insurance policy or fidelity bond shall cease to be in effect, or the issuer thereof shall cease to be acceptable to the Trustee, the
Lending Institution is required to exercise its best efforts
to obtain from another insurer acceptable to the Trustee a
replacement policy therefor.
THE COMPLIANCE AGENT
United Guaranty Residential Insurance Company of
Iowa will act as Compliance Agent under the Agreement. The
Compliance Agent is a wholly owned subsidiary of United
Guaranty Corporation, a North Carolina corporation, which is
a wholly owned subsidiary, directly and indirectly, of American International Group, Incorporated. An Annual
Statement for the Compliance Agent, on the Fire and Casualty
Form promulgated by the National Association of Insurance
Commissioners, for the year ended December 31, 1983, is available from the Trustee.
The Compliance Agent is currently acting as
compliance agent for numerous other separate single family
home mortgage revenue bond issues, aggregating in excess of
$1 billion, issued subject to the Mortgage Subsidy Tax Bond
Act of 1980 and amendments.
I NSURANCE
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.
30
Private Mortgage Guaranty Insurance
To qualify for purchase by the Trustee on behalf oi
the City, a loan is required to be covered by a full coveragt private mortgage insurance policy, which is to be issued b:
United Guaranty Residential Insurance Company of Iowa, a1
Iowa corporation (the "Private Mortgage Insurer").
The Private Mortgage Insurer will provide, subject
to insurance underwriting, mortgage guaranty insurance fox the Loans under, and in accordance with the terms anc conditions of, its Full Coverage Master Policy, an Amendment
Endorsement waiving the due-on-sale exclusion and the
Default, Advance Payments and Advances Amendatorj Endorsements thereto (all of which are collectively referrec
to as the "Master Policy") and the Commitments anc Certificates to be issued pursuant thereto (the "Master Policy and each Commitment and Certificate being collective11
referred to as a "I1olicy"). The following description of a
Policy and the coverage thereunder is only a brief outline
and does not purport to be comprehensive or definitive and
such outline is qualified in its entirety by reference to a
Policy.
i
The City, the Trustee and the Lending Institution will be named insureds (collectively, the "Insured"), as
Any default (including mortgagor related non-monetary default such as defaults resulting from a
failure to comply with the requirements of the Program) under a Loan which is the basis for a foreclosure action is covered
under each Policy. No claim (other than a claim under the Advance Payments Amendatory Endorsement) may be filed under a
Policy with respect to the Loan insured thereunder until the
Insured has acquired title to the mortgaged property which
secured such Loan. lJnless otherwise agreed to by the Private
Mortgage Insurer, a claim under a Policy must be filed within
60 days after the Insured acquires title to such mortgaged
property. The failure by the Insured to file a claim for a
particular Loan within such 60 day period shall be deemed an election by the Insured to waive all rights under the Policy with respect to that particular Loan and shall release the
Private Mortgage Insurer from all obligations thereunder with
i I I
I their interests may appear, under each Policy.
i respect to the Loan.
As conditions precedent to the filing and/or
payment of a claim under a Policy, the Insured must (i) have
accomplished all construction, additions and improvements necessary to complete the mortgaged property as contemplated by the Policy, (ii) in the event of any physical loss or
31
..
damage to the mortgaged property, have restored and repaired
the mortgaged property to at least as good a condition as
existed at the effective date of and as contemplated by the
Policy, ordinary wear and tear excepted, and (iii) pending
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 by the Private Mortgage Insurer, (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 the effective date of and as contemplated by the Policy, ordinary wear and tear excepted,
(2) foreclosure costs including court costs and reasonable
attorneys' fees and (3) sales expenses.
Other provisions and conditions of each Policy that
(i) the Loan must be secured by a first lien on the mortgaged property, (ii) no change shall be made in the terms of a Loan without the consent of the Private Mortgage Insurer, (iii) written notice is to be given to the Private Mortgage
Insurer within 10 days after the Insured becomes aware that a
mortgagor is delinquent in two monthly payments due under the
Loan or that any proceedings affecting the mortgagor's
interest in the mortgaged property have been commenced, and the Insured report monthly to the Private Mortgage Insurer the status of any such Loan until the Loan is brought current, such proceedings are terminated or a claim is filed, (iv) the Insured shall commence and diligently pursue foreclosure or appropriate proceedings to acquire title to
and possession of the mortgaged property when the mortgagor
becomes four months delinquent in a sum equal to four or more
monthly payments of the Loan, shall provide the Private
Mortgage Insurer copies of documents relating thereto, shall
notify the Private Mortgage Insurer of the unpaid principal
balance of the Loan and accrued and unpaid interest thereon at least 15 days prior to the sale of the mortgaged property by foreclosure and shall bid such amounts unless the Private Mortgage Insurer specifies a lower or higher amount and
(v) the Insured may accept a deed in lieu of foreclosure only
if the ability of the Insured to assign specified rights to
the Private Mortgage Insurer is not thereby impaired.
The amount of a claim for benefits consists of
(i) the unpaid principal amount of the Loan and accrued and
unpaid interest thereon (exclusive of delinquency charges and
penalty rates and not compounded) 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
32
mortgaged property, (c) amounts expended by the Insured due
to the fault of the Insured, (d) any claim payment previously
made by the Private Mortgage Insurer under the Policy with
respect to the Loan and (e) unpaid premiums.
Within 30 days after a claim for benefits is
properly submitted, the Private Mortgage Insurer, 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
or (b) a sale of the mortgaged property approved by the
Private Mortgage Insurer, at which time the Private Mortgage
Insurer pays the balance of the claim for benefits less the
net proceeds of such sale. If the Private Mortgage Insurer
elects to pay under option (i) or (ii)(a), the Insured must
convey title to the mortgaged property to the Private
Mortgage Insurer upon payment of the claim for benefits,
among other conditions. If the Private Mortgage Insurer
elects to pay under option (ii), it may direct the Insured to
rent and/or sell the mortgaged property and to apply all sums so received to and in reduction of payments due from the
Private Mortgage Insurer.
i (a) the total of such payments equals the claim for benefits
The Advance Payments Amendatory Endorsement
provides for an advance payment procedure pursuant to which
the Private Mortgage Insurer, upon receipt of ten days'
advance notice from the Insured, is required, with respect to a Loan on which a mortgagor is delinquent in one or more
monthly payments of principal and interest but subject to the
coverage limitations of the Policy, to advance to the Insured on, or before, the later of the date requested by the Insured or the 30th day (of the month 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 the Private Mortgage Insurer 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.
33
The Private Mortgage Insurer is a wholly-owned
subsidiary, directly and indirectly, of United Guaranty, a
North Carolina corporation, which is a wholly owned
subsidiary, directly and indirectly, of Ame r i ca n
International Group, Incorporated. The Private Mortgage Insurer is engaged in the business of insuring lenders against loss upon default by a mortgagor in the payment of insured mortgage loans on one to four family residential properties and is approved as a private mortgage insurer by FHLMC and FNMA.
An Annual Statement for the Private Mortgage
Insurer, on the Fire and Casualty Form promulgated by the
National Association of Insurance Commissioners, for the year ended December 31, 1983, is available from the Trustee.
The Private Mortgage Insurer is also serving as the
Compliance Agent on behalf of the City.
Standard Hazard Insurance, Flood Insurance and Earthquake Insurance
The Lending Institution shall cause to be
maintained for each Loan it services fire insurance with
extended coverage on the mortgaged property in an amount
which is at least equal to the principal balance owing on the
Loan, but not less than 90 percent of the insurable value of
the Residence securing the Loan based upon the replacement
cost thereof. Such insurance shall be with Qualified Insurers approved by the Lending Institution and that no other additional hazard insurance is to be required of any
mortgagor, except Flood Insurance where required hereby and
Earthquake Damage Insurance (if commercially available),
other than pursuant to such applicable laws and regulations
as shall at any time be in force and as shall require such
additional insurance.
In the case of condominium units, Loans must be made in conformance with Federal National Mortgage Association or Federal Residence Loan Mortgage Corporation standards, and the applicable declaration of covenants,
conditions and restrictions must require the homeowners'
association established for each project to maintain' a
Standard Hazard Insurance Policy and an Earthquake Damage
Insurance Policy (if commercially available) to cover the
entire project. Such premiums are to be paid by the
homeowners' association. In the absence of such a requirement in the declaration of covenants, conditions and restrictions, the insurance requirements described in the immediately preceding paragraph shall be applicable to each unit which secures a Loan. The association must have
34
excluded in the special hazard insurance policy) includir
losses resulting from the application of any coinsuranc
provisions of the standard hazard insurance policy.
The special hazard insurance policy general1
provides that where there has been damage to a Residenc securing a defaulted Mortgage Loan, and such damage is nr fully covered by the standard hazard insurance policy, t,
F
35
Special Hazard Insurer will pay the lesser of: (i) the cost
of repair or (ii) the sum of (a) the unpaid: principal
balance at the time of acquisition of the mortgaged property by the Insured, (b) the accumulated delinquent interest computed to the date of claim settlement, and (c) hazard
insurance premiums and as necessary and as approved in
advance by the Special Hazard Insurer, real estate property
taxes, property protection and preservation expenses and
foreclosure costs. As a condition precedent to the payment of any claim in accordance with (ii) above, the Insured must
provide the Special Hazard Insurer with good and merchantable
title to the Property. In the event standard hazard insurance coverage is not maintained and a loss occurs which would have been covered by the standard hazard insurance policy, 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 either (i) 1% of the
total initial principal amount of all Mortgage Loans purchased or (ii) twice the largest principal balance of any
Mortgage Loan. The limit of liability under the special
hazard insurance policy will be reduced by the amount of
claims paid, less any net proceeds the Special Hazard Insurer
receives upon disposal of the property. When aggregate claims equal or exceed the policy limits, no further payments will be made by the Special Hazard Insurer.
In accordance with the Indenture, the Trustee will pay the annual premiums on the special hazard insurance with moneys in the Program Expense Fund, except that the first
annual premium will be paid from proceeds of the Bonds.
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following statements are a brief summary of certain provisions of the Indenture (copies of which may be
obtained from the City and at the corporate 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 full and complete statement of such
provisions. Certain capitalized words or terms used in this
summary and not defined herein are defined in the Indenture
and have the same meaning herein as therein used unless the context requires some other meaning.
36
e
Certain Definitions !
"Bond Year" means the period of twelve consecutive
months ending on the first day of June in any year in which
Bonds are or will be Outstanding.
"Bonds" means the City of Carlsbad, California,
Single Family Residential Mortgage Revenue Bonds, Issue of
1985, authorized by, and at any time Outstanding pursuant to,
the Indenture.
"Bond Reserve Account Requirement" means an amount equal to three percent (3%) of the principal amount of the
i
i "Costs of Issuance" means all administrative fees 1 of the City and items of expense directly or indirectly
payable by or reimbursable to the City and related to the
authorization, issuance, sale and delivery of the Bonds,
"1 - including, but not limited to, advertising and printing
Bond Insurer and any insurer, the City, the Compliance Agent
1 and the Trustee, (including fees and charges for services
through the first Bond Year), legal fees and charges, fees
and disbursements of consultants and professionals, rating agency fees, fees and charges for preparation, execution, transportation and safekeeping of 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 March 1 and
September 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 April 1 and
October 1, will be applicable to the Semiannual Debt Service
Period for which the estimate is being made.
I
1 Loans outstanding as of any date of calculation.
1
;* costs, costs of preparation and reproduction of documents,
- filing and recording fees, initial fees and charges of the
J
"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), (ii) actual losses on Loans, and (iii) in the first Bond Year, the amount of $84,177, and in each Bond Year thereafter
any portion of such amount not taken into account in any
previous Bond Year.
2
37
i
"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 pursuant to which the proceeds of the sale of the Bonds may be invested.
'I I nve s t me n t Se cu r i t i e s 'I means any of the
following: (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 unconditionally guaranteed by the United States of America; (2) bonds, debentures, notes or
other evidence of indebtedness payable in cash issued by any
one or a combination of any of the following federal agencies
whose obligations represent full faith and credit of the
United States of America: Export Import Bank of the United
States, Federal Financing Bank, Farmer's Home Administration,
Federal Housing Administration, Maritime Administration,
Public Housing Authority, and Government National Mortgage
Association; (3) certificates of deposit properly secured at
all times, by collateral security described in (1) and (2)
above. Such agreements are only acceptable with commercial
banks, savings and loans associations, and mutual savings
banks; (4) the following investments fully insured by the
Federal Deposit Insurance Corporation, the Federal Savings
and Loan Insurance Corporation: (a) certificates of deposit,
(b) savings accounts, (c) deposit accounts, or (d) depository receipts of a bank, savings and loan associations, and mutual savings banks; and (5) Investment Agreements approved by AMBAC Indemnity, including the Investment Agreement with Atlantic Capital Corporation.
"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 City, has
purchased or intends to purchase from a Lending Institution pursuant to the Agreement.
38
"Loan 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) any
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 Loan (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 Loan; 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 calculation, the amount required to be paid by
the City on a given date for the retirement 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 Bonds
theretofore, or thereupon being, authenticated and delivered by or on behalf of the Trustee under the Indenture except (1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to which all liability of the City shall have been discharged in accordance with the Indenture, including Bonds (or portions of Bonds) for which the Trustee is holding money in trust for
the 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 Bonds shall have been
authenticated and delivered by or on behalf of the Trustee pursuant to the Indenture.
"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 calculation, such amount as may at any time and from
time to time be fixed or determined by the Trustee, with
39
notice thereof to the City, as necessary to be accumulated in
the Program Expense Fund as a reserve for the uses to which
amounts in such fund may be applied pursuant to the Indenture.
"Qualified Program Expenses" means the following of the City's expenses in carrying out and administering the Program, set forth in their order of priority: (1) the
Trustee's annual fee of .042% of the aggregate principal
amount of the Bonds Outstanding, plus out-of-pocket expenses,
(2) insurance premiums with respect to the special hazard
insurance required to be maintained pursuant to the
Indenture, (3) the one-time up front fee of one thousand
dollars ($1,000), and (4) fees and expenses of the City (but
only to the extent paid or incurred in connection with the
preparation of financial reports required pursuant to the
Indenture plus a monthly administrative fee equal to
one-twelfth (1/12) of one-tenth of one percent (0.10%) of the principal amount of Loans outstanding each month).
"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 November 1 through April 30 and the period from May 1
through October 31 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.
40
Establishment of Fundk
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) ithe Program Expense Fund; (5) the Bond
Fund; (6) the Bond Reserve Fund (consisting of the Interest
Reserve Account and the Principal Reserve Account); (7) the
Redemption Fund (consisting of the General Account and the Loan Principal Prepayments Account) ; and (8) the Municipal
Bond Insurance Fund. .
Bond proceeds are to be deposited as described
under "Sources and LJses 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 moneys 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.
Moneys in all funds and accounts established under the Indenture shall be invested in Investment Securities paying interest and maturing not later than 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 for purposes of making investments, and all
gains and losses shal.l be allocated ratably.
All interest and other profit derived from such
investment shall be deposited when received in the Revenue
Fund. Investment Securities acquired as an investment of moneys in any fund 01: 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
money of any ob1igat:ion allocable thereto shall be valued in
accordance with the Indenture.
*
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
41
disbursement from the fund or account to which such Investment Security is credited, and the Trustee shall not be
liable or responsible for 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 Trustee for payment of the Bonds;
(2) Not to extend or consent to extension of
time for payment or maturity of Bonds;
(3) To provide further assurances of rights
under the Indenture, as required;
(4) To keep or cause to be kept proper books for all the Program transactions described in the
Indenture and to file a copy of its annual report
pertaining to such transactions with the Trustee
and provide such report to each Owner who has filed his name and address with the City or the Trustee for such purpose;
(5) To the extent permitted by law, not to
claim the advantage of any laws which may adversely
affect the covenants and agreements of the
Indenture;
(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
42
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
(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;
to:
(2) Nodify the Indenture subject to consent
(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.
of Owners as described below;
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 aggregate 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 .
Default and Remedies
Events of default are defined as:
(1) Default in the payment of principal,
redemption price or sinking fund installments when due ;
43
(2) Default in the payment of interest when
due ;
(3) Default by the City in the observance of
any of the covenants, agreements or conditions
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 than 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' rights, by any court of competent jurisdiction, of custody or
control of the City or of the whole or any
substantial part of its property, if such custody
or control is not terminated or stayed within 60
days from the date of assumption of such custody or
control.
Upon the occurrence of an event of default, the
Trustee or the Owners of a majority of Outstanding Bonds may,
upon written notice to the City and, so long as the Bond
Insurer is not in default of its obligations under the
Municipal Bond Insurance Policy, upon obtaining the written consent of the Bond Insurer, declare the principal of all
Bonds and the interest accrued thereon to be immediately due
and payable, and upon such declaration, the same is to become
immediately due and payable; provided, however, that if, at
any time after such declaration and before any judgment or
decree for the payment of the moneys due has been obtained or entered, the City deposits with the Trustee a sum sufficient to pay all the principal or redemption price of and interest on the Bonds payment of which is overdue, with interest 01; such overdue principal at 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 Trustee
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 therefor, then, the Owners of not less
than a majority of the Bonds then Outstanding, by written
notice to the City and to the Trustee, may, on behalf of thc
Owners of all of the Bonds, rescind and annul sucl declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall
affect any subsequent default, or shall impair or exhaust ani
right or power consequent thereon.
44
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skill in their exercise, as a prudent man would exercise o use under the circumstances in the conduct of his ow:
affairs. The Trustee is not liable in connection with thc
performance of its duties under the Indenture, except for it
own negligence or default. The Trustee may become the owne
1 of Bonds with the same rights it would have if it were no
Trustee. The City may remove the Trustee at any time unles,
an Event of Default shall have occurred and then bc
continuing and shall remove the Trustee if at any timc
requested to do so by the holders of not less than a majorit:
in aggregate principal amount of the Bonds then Outstandinc or for certain other causes set forth in the Indenture. Thc Trustee also may resign at any time. Upon removal o
resignation of the Trustee, the City shall promptly appoint <
successor Trustee. Any Trustee must be a trust company o
bank having the powers of a trust company, having a corporatc
trust office in Los Angeles, California, or San Francisco
California, having a combined capital and surplus of at leas’
$500,000,000, and must be subject to supervision o
examination by federal or state authority, in addition ti
certain other requirements set forth in the Indenture.
FEASIBILITY STUDY
A market feasibility study with respect to tht
Developments has been prepared by Empire Economics, Redlands, California, a firm specializing in, among other things,
feasibility studies and related matters. A summary of tht
study is included herein as Appendix D. Copies of the entirt
study are on file with the City, the Trustee and, during tht
term of this offering, the Underwriter, and reference is madt
to such study for a full and complete statement of its text.
CERTAIN VERIFICATIONS
Price Waterhouse, a firm of independent certifiet public accountants, has verified the mathematical accuracy of the computations relating to the sufficiency of projectec
cash flow receipts and disbursements on the Residencc
Mortgages and reserve funds to pay the principal of anc
interest on the Bonds, and has prepared the computation:
relating to the actuarial yield on the Loans and the Bonds
supporting the conclusion of Bond Counsel that interest or the Bonds is exempt from present federal income taxation. Price Waterhouse expresses no opinion on the attainability of the assumptions upon which such calculations are based, or or
the attainability of the resultant projections.
47
RAT I NG
Standard & I?oor*s Corporation is expected to assign
the Bonds a rating of 'IAAA," upon the issuance by the Bond
Insurer, at the time of the delivery of the Bonds, of the
Bond Insurance Policy. Such rating reflects only the view of
the rating agency, arid an explanation of the significance of
such rating may be obtained therefrom. There is no assurance
that such rating will continue for any given period of time,
or that it will not be revised downward or withdrawn entirely
by the rating agency, if in the judgment of such rating
agency circumstances so warrant. Any downward revision or
withdrawal of the rating may have an adverse effect on the market price of the Bonds.
UNDERWRITING
The Underwriter has agreed, subject to certain
conditions, to purchase the Bonds from the City at a purchase price equal to 98.25% of the aggregate principal amount
thereof. The Underwriter * s obligation is subject to certain
conditions precedent, and the Underwriter will be obligated
to purchase all of the Bonds if any are purchased. The Bonds
may be offered and sold to certain dealers, banks and others (including underwriters and other dealers depositing such
Bonds into investment trusts) at prices lower than the
initial offering prices, and such initial offering prices may
be changed from time to time by the Underwriter.
LEGALITY FOR INVESTMENT
The Act prlovides that the Bonds shall be legal
investments under California law for all trust funds, insurance companies, savings and loan associations,
investment companies and banks, both savings and commercial, and shall be legal investments for executors, administrators,
guardians, conservators, trustees and all other fiduciaries.
The Act also provides that the Bonds shall be legal
investments under California law for California school funds
and for any funds which may be invested in county, municipal or school district bonds; and the Bonds shall be deemed to be securities which may properly and legally be deposited with, and received by, any California or municipal officer or by
any agency or political subdivision of California for any
purpose for which the deposit of bonds or obligations of
California is now, oit may hereafter be, authorized by law,
including deposits to secure public funds.
48
A,PPROVAL OF LEGAL I TY
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, and certain legal matters will be
passed upon by Orrick,' Herrington & Sutcliffe, San Francisco, California, Counsel to the Underwriter. A copy of Bond Counsel's opinion wi.11 be printed on the Bonds. Bond
Counsel's fee is contingent upon sale and delivery of the
Bonds.
A
TAX EXEMPTION
In the opinion of Bond Counsel, under existing
statutes, regulations, rulings and judicial decisions, assuming continuing compliance with certain requirements of
Section 103A of the Code, interest on the Bonds is exempt
from present federal income taxation. In the opinion of Bond
Counsel, interest on the Bonds is also exempt from present
State of California personal income taxation.
Section 103A
Section 103A and the regulations promulgated
thereunder provide that interest on the Bonds will be
tax-exempt if certain requirements are met, including, among
other things, that (1) all of the proceeds of the Bonds (net of costs of issuance and reserves) are used to finance
Residences each of which is, or which at the time the Mortgage is executed can reasonably be expected by the City
within a reasonable time to become, the principal residence of the Mortgagor, and each of which is located in the
jurisdiction of the City; (2) the Acquisition Cost of each
Residence does not exceed 120% of the Average Area Purchase
Price; (3) each Mortgagor did not have a mortgage (whether or
not paid off) on the Residence at any time prior to execution of the Mortgage financed with Bond proceeds, and no Bond proceeds are used to acquire or replace existing mortgages
(other than bridge loans or similar temporary initial
financing); and (4) the Mortgages and the Program Documents
permit assumptions only if requirements set forth are met
with respect to such assumptions.
Interest on the Bonds will be taxable if the foregoing requirements are not met, unless (2) the City in
good faith has attempted to meet all such requirements before the Mortgages were executed (i.e., by causing the Prograr
Documents to contain restrictions that permit the financing
of Mortgages only in accordance with such requirements, and
49
by establishing reasonable procedures to ensure compliance with such requirements, including reasonable investigations
by the City or its agent); (b) 95% of Bond proceeds devoted
to owner financing are devoted to Residences with respect to
which, at the time of execution, all such requirements were met (for which purpose the City may rely on certain affidavits to be obtained and examinations to be made); and (c) Mortgages failing to meet such requirements at the time of execution or assumption are corrected within a reasonable period after such failure is discovered. The City believes
that covenants contained in the Program Documents, together
with the procedures established in the Program Documents to
be followed by the City, the Trustee and the Lending
Institution, satisfy the conditions described in (a) and (b)
above, and that the Program Documents contain adequate measures for implementing (c) above.
Section 103A also imposes limitations on the
aggregate amount of qualified mortgage bonds which may be
issued during any calendar year, requires a portion of the
Mortgages to be placed in targeted areas within the
jurisdiction of the City, limits the amount and uses of
arbitrage and investment gain with respect to investments,
and requires the City to file certain reports. Failure to
meet any of these requirements will result in interest on the
Bonds being taxable, unless any such failure to comply is due to inadvertent (e.g., mathematical) error after the City has
taken all reasonable steps to ensure compliance. The City
believes that it has taken all such reasonable steps and is in compliance with these requirements.
NO LITIGATION
Concurrently with the delivery of the Bonds, the
City will deliver a certificate to the effect that there is
no controversy or litigation of any nature pending or, to the
best knowledge of the City, threatened seeking to restrain or
enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any proceedings of the City taken with respect
to the issuance, sale, execution or delivery of the Bonds,
the pledge or application of any moneys or securities
provided for the payment of the Bonds, the existence or
powers of the City, or the title of any officers of the City
to their respective offices.
50
ADDITIONAL INFORMATION
The information contained above is subject tc
change without notice, and no implication is to be deriver
therefrom or from the sale of the Bonds that there has beer
1 no change in the affairs of the City from the date hereof. Any statements in this Official Statement is not to be construed as a contract or agreement between the City and the purchasers or registered owners of any of the Bonds.
The execution and delivery of this Official
Statement has been authorized by the City.
CITY OF CARLSBAD
BY /s/Mary H. Casler Mayor
1
51
APPENDIX A
DESCRIPTION OF DEVELOPER RESERVED SINGLE FAMILY RESIDENCES
Estimated
Bond Funds Price Area
Developer Rese rva Project Name Ranqe Size
The Anden Group $ 6,000,000 Santa Fe Knolls $115,000- 1,512-
$134,000 1,680 sq. fl
2,000,000 Tamarack-Garden $119,000- 1,178- The Woodward
Companies $145,000 1,627 sq. ft
The Woodward 4,000,000 Tamarack-Townhomes $ 96,000- 966-
Companies $114,000 1,413 sq. ft
The Highland Company 3,000,000 Tanglewood $ 92,000- 1,092-
$103,500 1,760 sq. ft
TOTAL : 15,000,000
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 City nor the Underwriter has 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.
First National Bank of North County, organized in
1981, is located in Carlsbad, California. The mortgage division
of the Bank which will handle the origination and servicing of
the Loans is located in Oceanside. It is an approved FHA and VA mortgagee and an approved FNMA and FHLMC seller/servicer. The following table sets forth the single family mortgage loan
origination, servicing and delinquency experience of First
National Bank of North County for their two years of operatior
(fiscal years ended December 31).
1984 1983
Number of Loans Originated 912 225
Principal Amount of Loans Originated $78,579,239 $24,731,555
Number of Loans Serviced 481 155
Principal Amount of Loans Serviced $36,753,189 $11,026,200
Percentage of Loans Delinquent (1)
31-60 Days 1.0% 0.0%
61-90 Days 0.4% 0.0%
Over 90 Days 0.6% 0.0%
Percentage of Loans in Foreclosure 0.0% 0.0%
(1) Percentages are ratios of outstanding principal amount o
mortgage loans that are delinquent as to principal and interez
to outstanding principal amount of mortgage loans being servicec
B- 1
APPENDIX C
THE CITY
i The following information concerning the City
included only for the purpose of supplyinq g eneral informatic regarding the City. Neither the faith and credit nor the taxi1
power of the City, the State of California or any p olitici subdivision thereof is pledqed to the payment of the Bonds, ai
the Bonds are limited obligations of the City payable solely frc
and secured by the revenues and assets pledged therefor.
Named for the famous European spa, Karlsbad Bohemit Carlsbad consists of 37-112 square miles situated on the Pacifj coast. The City is located approximately 35 miles north of St
Diego and 90 miles south of Lo? Angeles. Incorporated in 195;
the City is governed by a mayor, city council and city manager
The City provides its own police, fire and emergency services.
The Carlsbad climate is Mediterranean, with an averac temperature of 59.2 degrees during the year. Annual rainfall i limited to an average of 9.45 inches. Over 306) acres c
beautiful recreation areas, parks, picnic and play areas dot th
City, with one community swimming pool and two in the plannin
stages. Carlsbad enjoys 30 tennis courts, numerous golf courses
226 campsites and four miles of public beach. Aqua Hedio d
Lagoon, nationally known for its water sports, offers two boa
landings, fishing, swimming, sailing, and water skiing. Th internationally known La Costa Resort Hotel and Spa in Carlsba
annually hosts several golf and tennis tournaments.
1
The City has experienced considerable population growt
during the past two decades. Since 1960 the City's populatio
has increased fourfold. the population has increased from
level of 9,200 in 1960 to 35,500 in 1980.
With easy access to major freeways (Interstate 5 an Highway 78) Carlsbad is only a short ride from neighboring Nort
County communities, downtown San Diego, or the Internationa
Border with Mexico. The Santa Fe Rail Company provides excellen
freight service to major American cities. An Amtrak terminal i
Oceanside serves passengers boarding the seven regular1
scheduled commuter runs on the San Diego-Los Angeles Line. Th
North County Transit District provides efficient local bu
service; Greyhound Lines offers state and interstate bus trave from a station in Oceanside; and more than 160 trucking service serve Carlsbad. The McClellan-Palomar Airport is located withii the city, and the Sail Diego International Airport is just 31
miles away.
c-1
The City's major employers are as follows:
Nurnbe r 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-Manufacturinq
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 industria
property that is slated for future development, including the 561
acre Carlsbad Research Center, the Palomar Airport Business Par1
located near the Palomar Airport and the Palomar Oaks Industria
Park.
c-2
i
i
I EMPIRE ECONOMICS -
CITY OF CARLSBAD
MORTGAGE REVENUE BOND ISSUE
MARKET/FEASIBILITY STUDY
1985
SUHHARX AND CONCLUSIONS
Prepared
for
City of Carlsbad
Mary Casler, Mayor
Claude Lewis, Mayor Pro-tem
Ann Kulchin, Councilmember
Richard Chick, Councilmember
Mark Pettine, Councilmember
Frank Aleshire, City Manager
Marty Qrenyak, Building & Planning Director Chris Salomone, Redevelopment Manager
by
Empire Economics
Joseph T. Janczyk, Ph.D. 300 East State Street, Suite 502
Recllands, California 92373
May 30, 1985
SUMMARY AND CONCLUSIONS
PREFACE
The "Summary and Conclusions" has a dual purpose:
First, to provide you with a synthesis of the comprehensive market/feasibility study, including the following:
* The methodology underlying the market/ feasibility study.
# The primary findings on the demographic/ economic trends and housing market demand/supply conditions in the project
market area.
* The competitiveness of the candidate projects relative to other comparable projects.
* The estimatedabsorption schedules for
the candidate projects.
* The feasibility of the candidate projects in the mortgage revenue bond program for the most probable as well as other potential economic/financial scenarios that may materialize when the projects are being marketed.
Secondly, to provide you with timely information on the impacts of changes in the candidate projects and/or market demand/financial conditions that have occurred since the original market/feasibility study.
While the "Summary and Conclusions" should provide you with a timely synthesis on the characteristics and feasibility of
the candidate projects,it is meant to be only a summary and
so we strongly recommend that you review the comprehensive market /feasibi 1 i ty study.
I
_.I.. .. .- ---. --.-..--
INTRODUCTION
Background
The city of Carlsbad, baaed upon its concerns about the adve impacts that high mortgage interest rates are having upon affordability of housing, is authorizing the issuance of mort{ revenue bonds to provide assistance to qualified househo: Since the interest paid on the bonds is tax-exempt, accordin{
the opinion of Bond Counsel, the mortgage rate for household: the program is expect,ed to be significantly lower than eit
FHAIVA or conventional market rates. Consequently, m households that are presently excluded from the housing mar will, through the lowrer mortgage rate that this program off
be able to qualify for loans, and thus purchase housi Furthermore, the development of these projects will gener employment opportunities that will directly benefit Carlsb citizens as well. For a description of the expected econc benefits of!' the Carlsbad Mortgage Revenue Bond Program, refe
Chart A.
- Descripti-on - of Carlsbad
Carlsbad, incorporated in 1952, is situated adjacent to Pacific Ocean in the northern portion of San Diego County son miles north of San Diego City. Carlsbad's population rose dramatic rate recently: from 15,000 in 1970 to 40,500 in 1' an increase of some 1,825 people per year during this 1 period, for an annualized growth rate of approximately 3
Carlsbad's population growth has generated a substantial ami of construction activity in its residential, commercial industrial sectors. Specifically, Carlsbad had about 13,400 residential units during the 1970-84 period. While the tc valuation of new commercial and industrial s.tructures amounte For furl $1 11 million and $46 million, respectively. information on the recent population and construction trend:
Carlsbad, refer to Chart B.
Carlsbad's recent population and economic growth car attributed to its economic bases: the primary economic b local industry, consists of the following major employers:
Name of Company Product Employ ----_-----.~---------~~.------- ........................ ------
Manufacturinq
Hughes Aircraft Electronic Components 1,15
Oak Systems Communication Communication Equipment 75 Burroughs Corporation Computer Components 37
Eaton Leonard Tube Binding & Measuring 30
Bec kman Ins t rumen t s Reactors 20
Dyna Industries Emergency Medical Care 175
Sierracin/Magdadime Electric Motor & Generators 156 Watkins Manufacturers Spa Equipment 100
Non-manufacturing La Costa Resort Resort 1,100
Car Country Auto Dealers Auto Dealers 460
Carlsbad Union School Education 350
Products, Computer Hardward/ Software, etc.
District Olympic Resort Resort 100
Source: Carlsbad Chamber of Commerce
Pqlomar Airport Business Director, 1985
The favorable growth prospects for new industry in Carlsbad a exemplified by the Carlsbad Research Center, a 560 acre state
the art industrial park.
The secondary economic base, commuters, is a result of Carlsbac relatively "affordablefv housing that has attracted ma households who are employed in the San Diego City Metropolit Area but cannot afford housing there. Such households, giv their strong preferences fo-r homeownership, establish the residences in Carlsbad and commute to their employment positic in the San Diego City Metropolitan Area. Carlsbad's thi economic base is tourism: La Costa is a premier reso destination that features spas as well as tennis and golfi activities. Therefore, considering its location along with t general growth prospects for its economic bases, Carlsbad expected to experience strong population growth during t remainder of the 1980's.
Description - of Candidate Projects
For each of the candidate projects in the Carlsbad Mortga Revenue Bond Program, information was compiled on the followi factors:
* Developer * Name of Project * Location * Housing Product Type * Density (Units/Acre) * Development Status Total Units, including Units Built, Sold/Reserve
* Mortgage Request and Units in Bond Program * Product Mix: For each of the Housing Produ Plans, information is provided on the number units, bedrooms, baths, prices and sizes of livi areas
and Planned for Future Phases
* Special Features and Amenities
tivirinc C~UIYUIVIIUQ -
In summary, the housing units in the candidate projects expected to be in the $105,500-$124,125 price range with s 1,200-1,600 square feet of living area, on the average.
mortgage -requests for these projects amounted to a total of e $15 million; this would be used to provide financing for some units. For a summary of the primary characteristics of candidate projects, refer to Chart C,
Components of the Economic Model ---
Empire Economics will utilize a forecasting-simulation hou: model to estimate the marketability and economic feasibility the candidate projects for the most probable as well alternative economic/financial scenarios that may emerge in future. Specifically, the housing model represents integration of the economic/financial concepts and princip underlying real estate development, in general, with the act demographic, employment and residential trends and pattern: San Diego County and Carlsbad, in particular. Thus, the mar demand analysis systematically proceeds from the gene demographic, economic!, and financial market conditions to absorption schedules for the candidate projects and
feasibility of the Carlsbad Mortgage Revenue Bond Program. Fc comprehensive description of the methodology underlying market/feasibility analysis, refer to Chart D,
Market Areas
Based upon a consideration of the demographic, economic, housing market factors that will influence the success of candidate projects in the Carlsbad Mortgage Revenue Bond Progi
the following market areas have been delineated:
- Los Angeles Metropolitan -- Area: The Los Angeles Metropolitan 1 economy includes San Diego, Los Angeles, Orange, San Bernard Riverside and Ventura counties. While most of the demograpl economic, and construcztion activity was originally concentr: in Los Angeles County, there has been a substantial spillovei such activity to the other counties during the past seve decades.
- San Diego County: Saln Diego County includes all of the varJ cities/communities w:ithin the geographical boundaries of
county.
San Diego Regional -- Markets: three regions, according to their particular demographic economic characteristics, as follows:
North Region: Carlsbad, Oceanside, Escondido, Vista,
and San Marcos
Central Region: San Diego City, La Jolla and Ramona,
San Diego County is partitioned : -
among others
South Region: Chula Vista, Imperial Beach and Otay
For additional information on the boundaries of the vari market areas, refer to Map A.
THE HOUSING DEMAND SCHEDULE
FOR THE CANDIDATE PROJECTS
The demand schedules for housing in the North Regionof San Dit County, as a whole, and for the candidate projects, particular, are determined through a systematic analysis of following factors: First, the demographic, employment i construction activity inter-relationships between the Los Ange Metropolitan Area and San Diego County ape analyzed. Second
employment, population and housing demand are forecasted for Diego County's North Region; the composition of demand accord to various market segments is also presented, including lo( industry, commuters, retirees and resorters as well as househo in the support sector. Third, the distribution of housing dem by price ranges and housing product types is derived, based u
the income distribution of households in the various mar! segments along with their desire to use the assets that they have accumulated. Fourth, the housing demand for the candidi projects is adjusted according to the criteria that the projet and purchasers must fulfill, namely the maximum prices of 1 housing units and the income limits for.purchasers, among othe Thus, the result of the analysis is the potential housing deml by qualified purchasers for the candidate projects during 1 time period of the mortgage revenue bond program. The prim:
findings are as follows:
* A comparative analysis of the demographic, employmi
and construction activity in the' Los Angel Metropolitan Area and San Diego County has revealed following: San Diego County captured an increas share of the Los Angeles Metropolitan Are population, employment and construction activ (commercial and industrial) during the 1970-84 tj period while its share of residential, construct] ac ti vi ty remained re lative 1 y stab le.
San Diego County's
Share of Los Angeles Metropolitan Area -------------------
1984
Population (1970) 12% 14%
---e--
1975
---e--
Employment 10% 12%
EMPIRE ECONOMICS -
Construction Residential 24% 23% Commercial 12% 14%
Industrial 10% 12%
* The forecasts for population and employment growth
well as their resulting demand for housing are ba: upon the assumptions regarding the growth paths of economic baaes in the North Region along with parameters underlying the economic base analysis. accuracy and reliability of the forecasts of populat growth and housing demand can be evaluated by compar them to their recent trends. The forecasts i somewhat higher than their recent trends but they not exceed the peak that was attained in 1977. instance, the forecast for housing demand amounts some 3,400 units for 1985. By comparison, the acti demand for 1984 was 5,100 while the peak demand 9,600 units in 1977. For additional information, re to Graph 1.
* The demand for housing in the market region for vari price ranges, is as follows:
Price Ranges Annual (Approximate) Demand
$ 0- 55,000 1,175
$105-1 30,000 610
_._-.- 0 - ..- - - 0 0 -0 - --
$ 54- 90,000 1 ) 362
$ 90-105,000 394
$1 30-250,000 300 $250,000+ 90
* The composition of the housing demand in the mar region by housing product types:
Product Housing
Demand
.-o..oo
Market Segment Type
Local Industry Attached 1,991
-0 0 0- - - ._ - - - - - - - - ----------_
Support Sector (including
Local Industry Detached 1,142
Support Sector
Commute 'rs Detached 542
RetireeJResort Attached/ 256
apartments)
Households Detached
The federal and state legislation that authorizes the issuance Mortgage Revenue Bond Funds requires that the purchasers housing units in the bond program fulfill certain criteria order to ensure that these funds are used according to t objectives of the program.
* The maximum price for the housing units may not excf
110% of the average sales price for housing in t designated area, i.e., the San Diego Prima Metropolitan Statistical Area. According to the Sa Harbor Guidelines, the average sales price for n housing units in the San Diego PMSA is $120,300: 11 of this is $132,330. For existing housing units, t estimated average sales price is $130,100: 110% this is $143,110. Consequently, the maximum pric
that apply to the housing units in the program a $132,330 and $143,110 for new and existing housi units, respectively.
* The "new" homeowner requirement means that 90% of t purchasers in the mortgage revenue bond program may r have been homeowners at any time within the prior th? years.
* The housing demand forecast is now modified accordi to the criteria that purchasers must fulfill,
applying the proportion of purchasers that qualify
the forecasts of housing demand. The modified annu average demand forecasts for the 1985-88 period amour: to 1,112 units per year for the market region.
* The state legislation authorizing the issuance mortgage revenue bonds requires that the purchase! income be below a certain level. Accordingly, t maximum income limits for purchasers in the program a
based upon the designated median income as well
their use of entitlement funds which represent 150%
the median income. So, the maximum income limits f purchasers who use entitlement funds is $43,107.
* The income "windowsrt for the candidate projects can
guaged by comparing the minimum income required f households to qualify for the project's housi products with mortgage revenue bond's maximum allowab income based upon the state legislation. The inco windows are computed using two types of loans: a 3 year fixed and a 3-2-1 buydown with an expect mortgage rate of 11%. The analysis assumes t standard underwriting ratios along with a downpayme of 5% of the sales price. The results of this analys reveal the following: For a fixed mortgage rate, t candidate projects have income windows of ($410) $9,257 while for a 3-2-1 buy down, the projects ha
EMPlHt tC;UNUMIL;S -
windows of $2,930 to $11,855. For information on income "windowst1 for the candidate projects in Carlsbad Mortgage Revenue Bond Program, refer to Gr
2.
COMPETITIVENESS OF THE CANDIDATE PROJECTS
AND THEIR CAPTURE RATES
The study now turns to an analysis of the competitiveness of
candidate projects in the Carlsbad Mortgage Revenue Bond Prog as compared to the other projects that are on the mar presently, so that their capture rates can be estimat Specifically, the determination of the capture rates for candidate projects requires a consideration of the followi First, the number of comparable projects that are on the mar presently; these are identified through market surve Secondly, the competitiveness of the candidate projects with comparable projects, considering their product types, pr ranges and market segments; this is accomplished through vari statistical techniques.
Empire Economics conducted market surveys of the resident developments in the North Region of San Diego County to ident the projects that are on the market presently and obt, information on their characteristics, so that the projects wh are comparable to the candidate projects could be identified.
* There are some 100 residential developments in North Region of San Diego County that are on the mar presently. Empire Economics' market surveys of th projects involved the compilation of information on major characteristics of the projects, including
following: project size, total sales, land-I density, prices, square footages of their hous products, financing, location, and the market segme to which they are oriented. Furthermore, the characteristics of each project are summarized i statistic known as the "real annual payment" which
based upon the following formula: the annual mortg payment is determined using the price of the hous unit along with the mortgage interest rate and yearly homeowners association fees are added to th then, the result is divided by the average squ footage of living area for the housing products in project. Finally, the special amenities of the vari projects were evaluated, based upon the quality
their neighborhoods, common areas and recreatio facilities. For information on the summary of characteristics of the housing projects that comparable to the candidate projects refer to Table
-.-.. .. .- ---. ._._..__ I
The estimation of the most probable capture rates for t candidate projects involves an analysis of their competitivene
relative to the comparable projects that are on the mark presently.
* The candidate projects' pro-rata shares of housi demand are based upon the number of comparable projec in the project market area, considering their mark segments, product types, and price range Specifically, since there are 33 attached and comparable projects with attached and detached prodc types, respectively, the pro-rata capture rates amoi to 3.03% and 2,449, respectively.
The pro-rata capture rates are now modified accordi to the competitiveness of the candidate projec relative to the comparable projects, based upon t following: First, the real annual payments of t candidate projects are computed: these represent t annualized mortgage payments divided by the size of t living area. Secondly, their housing prices a adjusted for the distance that the projects are fr
the San Diego Metropolitan Core. Since the comparab and candidate projects are located in the North Regi of San Diego County, no adjustment is made because th all have similar commuting costs. Third, the candida project's prices are adjusted for special features th enhance a projects marketability such as being in ir!
Master Planned Community. The results of this analys reveal that the candidate projects have an adjust capture rate of some 4.25, on the average.
Although the mortgage rate offered by projects in the Carlsb Mortgage Revenue Bond Program has not yet been established, t
mortgage rate is presumed to be some 11% for purposes of t following analysis. By comparison, the market FHA/VA conventional rates may be either above or below this level duri
the 1985-88 period. Consequently, it is necessary to assess h
this may affect the absorption of projects participating
Carlsbad's Mortgage Revenue Bond Program. Accordingly, t inter-relationships between housing prices and absorption rat under various financial scenarios are now analyzed.
* The analysis reveals that the potential impact th
higher prevailing market mortgage rates will have
the absorption of residential projects in the mortga revenue bond program depends upon the differenti between the market FHA/VA and conventional mortga rates as compared to the expected mortgage revenue bo rate of some 11%. If the prevailing market mortga rates should rise above 115, then the absorption rat of those projects in Carlsbad's Mortgage Revenue Bc Program would increase commensurately. Specificall
the competitiveness of the non-participating projec
*
I
I
tivirinr K~WIYWIVII~~ -
would decline substantially since their month payment levels would increase i.e., the projec presently on the market would not be able to low their prices sufficiently while the projects enteri
the market in the future would have to offer mo economical product types.
California allocates the state's mortgage revenue bo funds among various cities and counties in Californl So, it is possible to determine the particular mortga revenue bond issues that have occurred recently as we as those that may materialize in the near futur Specifically, in the North Region of San Diego Count there have been several other mortgage revenue bo issues :
Issuer Year (millions) Units Utilize
1985 $25 256
* The Mortgage Bond Allocation Committee of the State
---I- ------- ..-... I.. .--Ill- ..---.ao--
Oceanside 1983 $20 200 $15
Escondido 1985 $15
.
157 - ---- ---a- e-..
$56 613 $15
FEASIBILITY OF CARLSBAD'S
MORTGAGE REVENUE BOND PROGRAM
The above findings on the expected population-employment grob and market demand-supply conditions in San Diego County's Nor Region as well as the competitiveness of the candidate projec are now all utilized to determine the feasibility of Carlsbal Mortgage Revenue Bond Program.
Capture Rates
The feasibility of the Carlsbad Mortgage Revenue Bond Program now assessed according to whether or not the housing units in 1 candidate projects can be absorbed within the three year IC origination period. Specifically, there are two types of captr rates, one for the candidate projects, as a whole, and the otl for each of the candidate projects, in particular; according these are now presented.
The required capture rates for the candidate projects, a$ whole, are estimated by comparing the number of housing units
the mortgage revenue bond program, some 140 units, with t various levels of housing demand; the results are as follows:
1
1 Demand for Required
Measure of Housing Units Capture Housing Demand (+years 1 Rates ~~~~~~-~-~---~~--~---~--~-~~~~~~ --..-----__- ----e---
Sross Demand 11,800 1.2%
Demand by Qualified Households 3,300 4.1%
(All housing units)
(Adjusted for bond program criteria: first-time buyer, etc. 1
Net Qualified Demand 2,800 5*0%
(Adjusted for housing units in other bond programs)
Thus, the candidate projects, as a whole, need to capture some of the net housing demand by qualified buyers to be absor within the three year time period.
The capture rate for each of the candidate projects, particular, determines if the housing units that a candid project has in the mortgage revenue bond program can be absor during the designated loan origination period. This is deri by utilizing the net demand for housing by qualified purchase the competitiveness of each candidate project, and the number units the project has in the mortgage revenue bond progr Additionally, the time that the project is expected ta enter market is also taken into consideration, since its estima absorption rate will not commence until it is actually on market. .The results reveal that the time period required absorption of the candidate projects amounts to some three yea on the average, and the maximum time period of three years is by two of the three projects. For additional information on required absorption times for the candidate projects, re to Tables 2 and 3.
The absorption of the candidate projects will be substantia influenced by the relationship between conventional mortg rates and the expected rate of 11% for the Carlsbad Mortg Revenue Bond Program. Specifically, if conventional rates r above this level, then the projects in the bond program will h a competitive financing advantage. While if conventional ra decrease below this level, then the projects in the bond prog may not use their mortgage allocations. Accordingly sensitivity analysis was performed to analyze the expec absorption time of the projects under the alternative financ scenarios. As expected, the higher conventional rates relative to the bond rate, the more quickly the candid projects are absorbed and vice versa.
tiwrint: ~CIUIVUIVIIL~ -
Conclusions
Therefore, based upon the expected demographic-economic trend< the housing market demand-supply conditions, the competitivene:
of the candidate projects, and the expected financial markt conditions, we conclude that the candidate projects in tl Carlsbad Mortgage Revenue Bond Program can use most of the $ million in bond funds within the three year loan originatic period.
1
C..I. I* IC bwwl~~lvllv~
CHART A
CITY OF CARLSBAD
ECONOMIC BENEFITS OF THE MORTGAGE REVENUE BOND PROGRAM
~~o~~~o~~~~w~w~~o~o~~~~~~~w~~~~~~~~~o~~~~.~~~o~~~~w~o~~~~~~~~~~
Comparison of a Typical vs Bond Program Purchase
~~~~o~~~~~-o~o-oo~~-~~-~~ooo~~oo~~o~~.o-~~~~~~~~~~~
Bo rid
Typical Propam Comparison -------- -_o--.--o ---oo--o ..... $0
$0
$0
$213.67
Price..... $1 17,000 $1 l7,SOO
Downpayment......... $5,850 $5 9 850 Loan.... $111,150 $111,150
Mortgage Rate....... 13.50% 11 .OO% 2.50% Monthly Payment .....$ 1,279.08 $1,065-42
.........
Required Income. .... $51,112 $42,574 -16.701
Mortgage Payment Savings
~~-~~~~~~~~o~~~~~~~~~~o~~~~~~~~~o~~~~~o~o~~oo-~~-~
Per Unit All Units
Monthly ............. $214 .......... $29,986
Annually ............ 2,564 .......... 359,829
Loan: 30 yrs........ 76,920 .......... $10.79 million
Employment Impacts
~~~~oo~-~~~~~~~~o~~~~-o~~~o~~o~-~--~-~-~-~~-~---o-
Value of Housing Units,. ...... $16.368 million
Price-avg ......... $116,630 Number of Units...
Employment Positions........,. 1,412
Primary Sector.... 491
Secondary Sector.. 927
$25,000 per year
$20,000 per year
~~~~~~~~_~~_~~~~~~_~~~~~~~~~~~~~~~~~~~~-----.--~------------o-----
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4...... 4....40....e.4~~~~~~~4~~~~~1~~ ~RODu~OM 0..4...........4.U..Q...................~~*~~ ... 4.4 ... ... ... DKSCXIPTIOY OF Tm CITY/COUWTX DESCRIPTIO# OC TEE CANDIDATZ PROJKCTS 4..
.4. @ Rooeot D.sogmphic (:rowth Projwt axid Dor.1op.r 4.. e.. 0 Roooot Cooatruotioo kotlV%tt 4 ~~oiopmoot statu: coostruot./nuk*ta **e .** @ Rowing Stook I Bacrlaoy Ratoa * ProdWt nix: Priooa h tiring &LC.- ..4 e.. @ Typ.8 of ecooofio Buea 4 Paaturea h Amonltloa ..e .H ...
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4.4 BASIC AssmPT10ns PrnML#QIZAL PARu4EmXs
4.4 @ Growth Paths for Eoooorio 8ru.a 4 Compoaltloo of the Ecooomlo me 4.4
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4 4 4
AOUSXMG DSIAUD Bf PUALIFItD PU1ICXASEBS 4 ROUSIUU SUPPLX MD CAPTURK RATZS
4 FOR 5Ht CMDIDATE PROJECT:! 4 4 FOR rpII CASDIDATZ PXOJECTS 4
* 4 Roc000 Doeogmphia. Eaplopecit aod 4 4 SLUV~ Of the AOtl-RWda+irl PwWtS * Cooatructloo lctlvltr Treoda * * LB tb mt R.8100 Forocaats ror Fap1o)root Poiulatloo Cos~bla Projoots io tho Hwmt Rogioor * Mmet Sogaoota. Pricsa h Produot Typos 4 e 4 * Pro-Rata Capture Ratma For Profeats with 4
aod H0Wir)g Donaod: 19d5-8b Cosparison of Por.o.sta witB Recoot 4 Houslng Troodr * Dotaoa.4 axid Att8ChOd Rouafng Produota
4 4 Compoaitfoo of Housing Do..atl by Wico 4 4 Coupotitivoooaa of Couparablo Projeots
R80g.S. Markmt S.g.Eta and !iOU8tng m 4 A8aOrdlOg to thotr Red AOOUll PlWts: 4 Produot TYPO8 4 4 (Aoouol Nortgago Pa~ots/Llviog Areas) 4 nodfflcatioo of Housing D-nb For Bond 4 * Adjutted Capture Ratoa of tho Candidat. . Program Critorla: . Projwts : 4
4 Mubrsll Price w - Rod barul P8p@Ota for the CaOdldat8
4 First-tho Buyor a 4 Relative to tho Cos~.rablo Prol4ots 4
4 Ouoer OUCUP~OCT e - Prorlaty of tho Project to a FWOW~T
4 Maximum Inoom. for Purchaaors w 4 4 Co=potftlvooeaa of Caodldata brojoats duo 4
4 Suppleo.0t.l : 120s of M.dla10 4 4 eo their Speolal Pinanclog R8t.a 4
4 Entitl.mont : 150S of Modrtn 4 4 Compotitiroaoaa of Projoots La Prior 4
4 fnconn Window#: nariarn TS Qualifying 4 4 Mortgago Rovonuo Bood Program 4
t............o......e**4~~~~~*~~**~~***4*~**~***~ 4..*...4b...m........4............4.44.....~....
4 e e
4 Incomo \Iiodorn for Candidat. Projwts 4 - M8at.r Pt880.d COUUOltT *.OOltf*S audifying Iooome:Prioo/nortgago Rata 4
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4...... 41..0........~*4*44** PEISnfun Or TEC Born PROCRM 4*********************~***
4.. w..
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4.. - Dem8nd ?or ROucllOl 87 QUl1fi.d Purchas*rs 4 .4
4.. - Expectmi Capturo Rate8 for tho Candidate Proj*cta 4..
4.. 4 Caodidato Proj.dt's Rousing Doitr Lo tho Bond Program e..
44. 4 ~ino Required ror the Caadldato Projeat to bo Absorbod 4..
4.. ( Noto: If tho ~xfavn tino period or 3 years 1s not DO.
4.. fulflll~i, tho^ tho eegreo of project's particlpatioo 4..
4.4 io bond progr8n my bo r.duc.4 co.uoaur8toL~~) 4..
4.. 4..
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TABLE 2
MORTGAGE REVENUE BOND MARKET DEMAND STUDY: SUMMARY OF CONCLUSIONS AND FEASIBILITY CITX OF CARLSBAD
Presumed Mortgage Rate: 11.00%
4 4 a Bo t I I a. 4 a e 4 4 4 4 4 INTRODUCTION @ 4 4 4 ''
Housing Stock
Product Units Vacancy
Recent Growth Trends ............................. ......................................
Population Growth/Yr....---- 1,866 Rate
Residential Permits/Yr...... 827 Comercia1 Constr/Yr..mlll.-
4 4 14 I) i I)
Single.. . 0 0.00s Multiple. 0 0.00% Industrfal Constr/Yr..mill.. t::a; Total.. .. 0 O.OO$
ECONOMIC ASSUMPTIONS UNDERLYING FORECASTS ' ' '
Basic Mort a e Rate....... 1 00 Housing Ap reoiatlon...... 6.00% Inflation Bate.. %: ooj Cost Inflation.. 6.001
HOUSING SUPPLY CONDITIONS 4 a a
.......... .......... ' * * 8 DEMAND FOR HOUSING 4 4
Market Regfon Forecasts Comparable Projects
Economic Recent Detached Projects...... . 41 Indicators Trends Forecasts
Housing Un'its/Yr 3,452 3,934 Attached Projects ....... $11.75 Employment /Yr.. 3,192 3,549 Detached Projects ....... $9.44 Population /Yr.. 11,723 11,357 (Annual Mortgage Payment/Living Area)
Program Criteria Capture Rates for Candidate Projects
New Homes............ $132,330 Attached Products....... 3.031 Existing Homes....... $143,110 Detached Products....... 2.441
Average.. ............ $28,738 Entitlement.......... $43,107 Capture Rate for the
...................................... ......................................
Attached Projects ....... 33
Real Annual Payments ---------------- --------- ----------
.................................... ......................................
Maximum Housing Prices Pro-Rata Capture Rates
Maximum Purchaser Incomes Real Annual Payments ....... $8.62
Supplemental.. ....... $34,486 Projects-Annually ..... 4.67%
' ** ' *' * FEASIBILITY OF THE BOND PROGRAM 44.4.
Units......... 137 Capture Rate Required Category of Housfng Demand 3-Year Period Annually ( 3-pears) .................................... -------------- ------------- ---------
Gross Demand for Houstng. ............. 11,801 3,934 1.161
Demand Adjusted for Housing Price dr
Purchaser Requirements .............. 3,337 1,112 4.101
Demand Adjusted for Projects ln Prior I Proposed Bond Programs ....... 2,794 931 4.90% .....................................................................................
EMPIRE ECONOMICS -
TABLE 3
HORTCACE REVENUE BOND HARKET DEHAND STUDY: SUHHARY OF CONCLUSIONS AND FEASIBILITY
CITY OF CARLSBAD
Expected Mortgage Rate: 11 .OO%
.....................................................................................................
BOND PROCRAH SALES INCOME POT --------------- ENTITL. SUPPL. PRICES SALES TIHE WINDOW HOR
(000,000) 100.00$ 0.OOl (ENTITL I (000
Santa Fe Knolls 50 $6.000 $6.000 $0.000 $126,986 22-93 2.75 $1,311 $6.6 The Anden Group
PROJECT h DEVELOPER UNITS ALLOCATION FUNDS FUNDS (AVC) PER YEAR (YEARS) (3-2-1) USA .....................................................................................................
Tamarack-Garden 16 $2.000 $2.0QO SO.OOO $134,681 2.73 5.72 $635 $0.9 The Yooduard Companies
1
Tamarack-Townhomes 39 $4.000 $4.000 $o.ooo $106,863 7.36 5.35 $7,619 $1.9: The Woodward Companies 1
Tanglewood 32 $3.000 $3.000 $0.000 $97,991 32.71 0.99 $10,069 $9.1' The Highland Company
Totals.......... 137 $15.000 $15.000 $0.000 65.73 $18.64
Avevages....... . 34 $3.750 $3.750 $0.000 $116,630 16.43 3.70 $4,908 $4.61 ---_-----------__--_-..----------------------~-----------------*--------------------------------------.
ASSUMPTIONS AND QUALIFICATIONS
The methodology underlying this study has been designed to tz into account all of the various demographic, economic, F housing market factors that will influence the success of t various projects in CarLsbad's Mortgage Revenue Bond Progr Specifically, the data used in the analysis have been gathei from sources that are regarded as being reliable. Furthermo
the forecasts of housing demand are based upon the most probat assumptions regarding the economic and housing market conditi that are Likely to prevail in the future.
While a high degree of conscientiousness has been exercised w
respect to the above factors, we nevertheless take special c to state the assumptions and qualifications underlying the sti. Specifically, data presented in the study are not guaranteed terms of their accuracy or reliability. The forecasts of hous demand are also not guaranteed, since there are numer economic, physical and political factors that appear to inconsequential at the present time but may ultimately hav substantial effect on the success of the program.
Furthermore, the success of the mortgage revenue bond prog depends upon some events which are completely beyond our contl First, the competitiveness of the various projects in program, as compared to other projects that may come on market, depends upon their interest rate differential. Shc mortgage rates decline significantly after the issuance of
bonds, so that the market rates are below the bcnd rates, t
the financing competitiveness of the projects in the pro€ would diminish, and so more time may be required for tf absorption. Secondly, the success of a particular project depends upon the quality of the housing products as well as
effectiveness of its marketing program; this is also beyond control.
EXHIBIT E AMBk AMBAC Indemnity Corporation 2jO East Kilbourn Avenue P.O. BOX 488, ,Milwaukee. LVisconsin 33201 Administrative Otiice - .\tunicipaI Bond insurance
One State Street Plaza, New York. New York 10004
Municipal Bond
Insurance Policy
Issuer: Policy Number:
Bonds: Prem ium :
AMEiAC INDEMNITY CORPORATION
(AMBAC)
A Stock Insurance Company
in consideration of the pavment of the premium and subject to the terms of this Policy, hereby agrees to pay to the United Stat Company of New York, as trustee, or its successor(the “Insurance Trustee”), for the benefit oi Bondholders, that portion of the p of and interest on the above-described debt obligations (the ”Bonds”) which shall beco r Payment but shall be unpaid bi of Nonpayment by the Issuer.
AMBAC will makesuch pavments to onpayment. Upon holder’s presentation and surrender uncanceled and ii form and free oi any adverse claim, t of principal and which is then Due tor Pavment but is he surrendered Boi coupons and shall be iullv subrogate
In cases where the Bonds are issuable only in a form ders or their assigns. surance Trustee shall disburse principal to a Bondtnolde r to the Insurance Tri the unpaid Bond, uncanceled and free of any a form satisfactory tc surance Trustee, dulv executed by the Bondho , so as to permit owne such Bond to be registered in the name ble only in a form whereby is payable to registered Bondhoiders o to a Bondholder as aforesaid on presentation to the Insurance Trustee the payment ot interest on the 6c delivery to the Insurance Trus to the Insurance Trustee, duly executec claimant Bondholder or suc to AMBAC all rights under such Bond to the interest in respect payment on registe
As used herein, the or ot a coupon app mandatory redemp date on which pay celeration or other a has been reached. ” full of all principal
This Policv is noncancelab rnaturitv. This Policy does become due in respect ot any Bond, nor against risk other than Nonpayment.
In witness whereof, AMBAC has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by authorized oificers in facsimile to become effective as its original seal and signatures and binding upon AMBAC by virtue of the c signature ot its dulv authorized representative.
J
i
ing fund installment has been reached and does not refer to an:
mption (other than by application ot required sinking fund installmer
mium on this Policy is not refundable for any reason, including payment of the Bonds against loss of any redemption, prepayment or acceleration premium which at any tic
i d&* Pres iden t
Effective Date:
Authorized Representative
UNITED STATES TRUST COMPANY OF NEW YORK acknowledges that it has agreed to perform the duties of Insurance Trustel
this Policv.
Authorized Officer
STBADLING, YOCCA, CARLSON & RAUTH
A PROFESSIONAL CORPORATION
JOHN E. I
FRITZ R. STRADLING SCOTT E. MCCONNELL ATTORNEYS AT LAW
NICU E. YOCCA RENA C. STONE
C. CRAIG CARLSON RANDALL J. SHERMAN
WILLIAM R. RAUTH 111 BRUCE FEUCHTER n. c. SCHAAF MARU J. HUESSCH
RICHARD C. GOODMAN KIRK F. YALDONADO
JOHN J. MURPHY PEG1 A. GROUNDWATER
THOMAS P. CLARU, JR. WNALD J. HAMMAN
OEN A. FRYDMAN JOHN J. SWIGART, JR.
DAVID R. MCEWEN NEILA R. OERNSTEIN
PAUL L. GALE TONY L. LOWE
RUDOLPH C. SHEPARD CHRISTOPHER J. KILPATRICU ROBERT J. MANE NANCY RADER WHITEHEAD
M. 0. TALBOT LEWIS 0. FELDMAN
BRUCE C. STUART SYLVIA 0. LAUTSCH
DOUGLAS E. HIGHAM CLARK H. LIoENSON
E. nuRT YEAGER ERNEST W. KLATTE Ill
ROQERT J. WHALEN LAWRENCE B. COHN
ROBERT E. RICH ANN D. CATRON
PETER J. TENNYSON
THOMAS A. PISTONE
DARYL
OF
TEL
660 NEWPORT CENTER DRIVE, SUITE I000
WST OFFICE BOX 7680
NEWPORT BEACH, CALIFORNIA 92660-6401
TELEPHONE (714) 640-7035 (714)
June 27, 1985
Honorable City Council
City of Carlsbad
1200 Elm Avenue
Carlsbad, California 92008
Re: $15,000,000 City of Carlsbad, California,
Single Family Residential Mortgage Revenue
Bonds, Issue of 1985
Dear Councilmembers:
We have examined the Constitution and laws of the State of
California, a certified record of the proceedings submitted to
us relative to the authorization and issuance of the City of
Carlsbad, California, Single Family Residential Mortgage
Revenue Bonds, Issue of 1985, in the principal amount of
$15,000,000 (the "Bonds"), and such other information and
documents as we consider necessary to render this opinion.
The Bonds have been issued pursuant to Part 5 of Division
31 of the Health and Safety Code of the State of California, as
amended (the "Act"), a resolution of the City adopted on
June 12, 1985, and an indenture dated as of June 1, 1985 (the
"Indenture"), by and between the City of Carlsbad (the "City" )
and First Interstate Bank of California, as trustee (the
"Trustee" ) .
The Bonds issued as fully registered bonds without coupons
are dated as of June 1, 1985, are of denominations of $5,000 or
any integral multiple thereof, mature on November 1, 2017, and
bear interest from June 1, 1985, or such later date as may be
provided for therein, payable semiannually on May 1 and
November 1 of each year, commencing November 1, 1985, at the
interest rate per annum of 8.75%.
Honorable City Council.
City of Carlsbad June 27, 1985
Page Two
The Bonds may be transferred and exchanged, all as provided
in the Indenture, and are subject to redemption prior to their
respective stated maturities, at the times, upon the terms, and
subject to the conditions set forth in the Bonds and in the
Indenture.
Principal of and interest on the Bonds are payable in lawful money of the United States of America which at the time of payment is legal tender for the payment of public and
private debts. Principal of the Bonds is payable at the
principal corporate trust office of the Trustee in Los Angeles,
California, and interest on the Bonds payable by check or draft
mailed to the person in whose name such Bond (or one or more
predecessor Bonds) is registered at the close of business on
the fifteenth day of the month preceding an interest payment date.
The Bonds are limited obligations of the City payable solely from and secured, to the extent provided in the
Indenture, by a pledge of the loans, the revenues, insurance
proceeds and all funds and accounts held by the Trustee (except as otherwise specifically provided therein), and as defined and
pledge of the faith and credit of the City of Carlsbad, the State of California, or any other political subdivision thereof.
The Indenture and the rights and obligations of the City, the holders of the Bonds and the Trustee may be modified and amended in the manner and subject to the conditions set forth
in the Indenture.
A
A provided in the Indenture. The Bonds are not a debt nor a
We are of the opinion: (i) that the Bonds have been duly and validly authorized and issued and constitute legally
binding limited obligations of the City enforceable in
accordance with their terms, and (ii) that the Indenture has
been duly and legally authorized, executed and delivered, and is a valid and legally binding obligation of the City,
enforceable in accorda:nce with its terms, and creates a valid
pledge of that which it purports to pledge, subject to the provisions of the 1nde:nture.
We are further of the opinion that, 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. We are also of the opinion that, in order for interest on the Bonds to be exempt from federal income taxes from the date hereof,
Honorable City Council City of Carlsbad
June 27, 1985
Page Three
Section 103A of the Internal Revenue Code of 1954, as amended, requires that the City meet certain requirements on a
continuing basis. The City has covenanted in the Indenture to
comply with these requirements. We are 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 the
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.
and obligations under the Bonds, the Indenture, and the loans
are subject to bankruptcy, insolvency and other Paws affecting the enforcement of creditors? rights in general, and the
application of equitable principles if equitable remedies are
sought.
With respect to the opinions expressed herein, the rights
Respectfully submitted,
,hl;””yd’ cdcL-.-(