HomeMy WebLinkAbout1984-07-17; City Council; 7820 Exhibit 16; OFFICIAL REQUEST TO STATE OF CALIFORNIA FOR MORTGAGE REVENUE BOND ALLOCATION Exhibit 16wart
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mT6 PRELIMINARY OFFICIAL STATEMENT DATED JUNE - , 1983
NEW ISSUE
In the opinion of Bond Counsel, under existing statutes, regulations, rulings
and judicial decisions, interest on the Bonds is exempt from income
taxation by the United States of America subject to compliance
with the requirements of Section 103A of the Internal Revenue
Code of 1954, as amended, and from personal income
taxation imposed by the State of California.
(See "Legality and Tax Exemption" herein. )
* $
CITY OF CARLSBAD, CALIFORNIA
SINGLE FAMILY RESIDENTIAL MORTGAGE REVENUE BONDS, ISSUE OF 1983
Dated: June 15, 1983 Due: As shown below
The Eonds will be issued as fully registered bonds in denominations of $S,OOO eacl
any integral multiple thereof. Principal of the Bonds is payable as set forth below a'
corporate trust office of Security Pacific National Bank in Los Angeles, California, ai
interest thereon is payable semiannually on January 1 and July 1 of each year, commenc
January 1, 1984, by check or draft mailed to the registered owners thereof. The Eonds
subject to redemption prior to their respective stated maturities as set forth herein,
is expected that a substantial portion of the Bonds will be so redeemed.
The Bonds are limited obligations of the City of Carlsbad and will be payable sol
from and secured by the revenues and assets (and any insurance payments made with resp
thereto) pledged therefor. Neither the faith and credit nor the taxing power of the C
the State of California or any political subdivision thereof is pledged to the payment
principal or redemption price of or interest on the Bonds.
The Bonds are being issued to provide funds for a program under which the Trustee
behalf of the City, will purchase from participating lenders mortgage loans which
been made to qualified persons in order to finance the purchase of single family resid
housing (including townhouses and condominium units) within the City. Each mortgage 1
must be the subject of a private mortgage guaranty insurance policy providing 100% cov
of the outstanding balance of the mortgage loan, together with certain endorsements, a
further described herein.
-
a
MATURITY SCHEDULE -+
$ * Serial Bonds
Principal Interest Principal Interest
Due Amount* Rate Price Due Amount* Rate -- July 1, 1986 $ % % January 1, 1991 $ %
January 1, 1987 July 1, 1991
July 1, 1987 January 1, 1992
January 1, 1988 July 1, 1992
July 1, 1988 January 1, 1993
January 1, 1989 July 1, 1993
July I, 1989 January 1, 1994
January 1, 1990 July 1, 1994
July 1, 1990 January 1, 1995
$ % % Term Bonds due 1, 200 Price 100%
$ * % Term Bonds due 1, 201- - Price 100%
(Plus accrued interest)
The Bonds are offered when, as and if issued by the City and received by the
Underwriters, subject to the approval of legality by Stradling, Yocca, Carlson & Rauth,
Professional Torporation, Newport Beach, California. Certain legal matters will be pas
upon for the Underwriters by Orrick, Herrington & Sutcliffe, A Professional Corporatior
Francisco, California. It is expected that definitive Bonds will be available for deli
in New York, New York on or about June 30, 1983.
BLYTH EASTMAN PAINE WEBBER
INCORPORATED
^Preliminary, Subject to change
Dated: June , 1983
e
Y
CITY OF CARLSBAD, CALIFORNIA
City Council
City Manager
Finance Director
r
City Attorney
SPECIAL SERVICES
Bond Counsel
Stradling, Yocca, Carlson & Rauth
a Professional Corporation
Newport Beach, California
Trustee
Security Pacific National Bank
Administrator
Feasibility Consultant
c No dealer, broker, salesperson or other person has been authorized by the City
Carlsbad, California or the Underwriters to give any information or to make any
representations with respect to the Bonds, other than those contained in this Offic
Statement and, if given or made, such other information or representations must not
relied upon as having been authorized by any of the foregoing. This Official State does not constitute an offer to sell or the solicitation of an offer to buy, nor sh
there be any sale of, the Bonds by any person in any jurisdiction in which it is un
for such person to make such offer, solicitation or sale. The information set fort
herein has been obtained from the City of Carlsbad, California, and other sources k
are believed to be reliable, but is not guaranteed as to accuracy or completeness k
is not to be construed as a representation of, the Underwriters. The information i
expressions of opinion herein are subject to change without notice, and neither the
delivery of this Official Statement nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the informat
opinions set forth herein or in the affairs of the City of Carlsbad, California, SI
date hereof.
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVERALLOT (
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT 1
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABLILIZING, I1
COMMENCED, MAY BE DISCONTINUED AT ANY TIHE.
TABLE OF CONTENTS
r
Page -
Introduction ...........................
The Bonds. ............................. Summary of Certain Provisions
of the Indenture ............. Description .......................... Certain Definitions ............
Redemption ........................... Source and Uses of Funds ...............
Nature of Security and
Sources of Payment .................
Flow of Funds ........................
Pledge and Assignment ..........
Establishment of Funds.. .......
Investment of Moneys in Funds..
Covenants of the City ..........
Amendment of the Indenture.....
Default and Remedies ...........
The Trustee.. ..................
No Litigation ....................
Security ............................. Supplemental Indentures ........
Assumptions Regarding Revenues
and Debt Service Requirements ......
The Program ............................ Discharge of Indenture. ........
Legality and Tax Exemption ....... Agreements ......................... Certain Verifications. ...........
Developer Agreement ..................
Mortgage Sale and Service
Foreclosure Laws..................... Underwriting .....................
The Lending Institution .............. Bond Rating ......................
The Administrator. ..................... Additional Information ...........
Insurance.............................. Appendix A - Description of Private Mortgage Guaranty Developer Reserved
Insurance.......................... Single Family Reside
Standard Hazard Insurance Appendix B - The Lending Institut
and Earthquake Insurance........... Appendix C - General Information
Special Hazard Insurance... .......... Concerning the City
Flood Insurance ...................... Appendix D - Summary of Feasilib: Errors and Omissions Insurance Study
Policies and Fidelity Bonds. .......
Payment of Insurance Claims ..........
e
* $
CITY OF CARLSBAD, CALIFORNIA
SINGLE FAMILY RESIDENTIAL MORTGAGE REVENUE BONDS
ISSUE OF 1983
INTRODUCTION
The purpose of this Official Statement of the City of Carlsbad,
California (the "City"), is to furnish information in connection with the sal
of $
Mortgage Revenue Bonds, Issue of 1983 (the "Bonds"). The Bonds are authorizc
to be issued pursuant to Chapters 1-5 of Part 5 of Division 31 of the Health
and Safety Code of the State of California, as amended (the "Act"), an
ordinance of the City passed on June 21, 1983, and a resolution of the City
Council of the City adopted on June 21, 1983. The purpose of the Act is to
prbvide long-term, low interest rate mortgage loans to persons who are unablf
because of their income, to afford conventional mortgage loans.
* principal amount of the City's Single Family Residential
The Bonds are being issued pursuant to a Trust Indenture dated as of
June 15, 1983 (the "Indenture"), between the City and Security Pacific
National Bank, as trustee (the "Trustee1'), for the purpose of providing fund
to purchase from (-1 mortgage banking firms and other financial
institutions (the "Lending Institutions") home mortgage loans (the "Loans")
made to qualified persons and secured by eligible single family owner-occupi
residences (the "Residences") located within the City, all in accordance wit
the Mortgage Sale and Service Agreements (the "Agreements") among the Lendin Institutions, the Trustee, , as Administrator (the "Administrator"
and the City.
( ) developers described in Appendix A hereto (the "Developers") wh
have developed or who plan to construct or develop and market approximately
- single family Residences (the "Developer Reserved Single Family Residences") in over an approximately (2 month period (which mi
be extended in accordance with the Indenture), all in accordance with the
Developer Agreements (the "Developer Agreements") between the Developers anc
the City. The object of the City's affordable housing program (the "Progran
is to provide affordable housing for average and below average income
households.
Funds available to purchase Loans have been reserved by the
Under the Program, each Loan will (i) be made to an eligible mortgagor
(the "Mortgagor") to finance up to 95% of the purchase price of the Resident
(ii) have a term of not less than 29 nor more than 30 years; (iii) provide 1
level monthly payments; (iv) be secured by a first mortgage lien (subject tc
* Preliminary, subject to change.
c
certain permitted encumbrances); (VI be originated substantially in accordanc
with FNPIA or FHLMC current underwriting practices by the Lending Institutions
(vi) be serviced substantially in accordance with FNMA or FHLMC current
underwriting practices by the Lending Institutions; and (vii} be insured by
private mortgage guaranty insurance with primary coverage in the amount of
100% of the outstanding principal balance with advance payments, attorneys'
fees limit waiver, due-on-sale exclusion waiver and nonmonetary default
endorsements. Hazard insurance (including earthquake coverage and flood
coverage, if applicable) and special hazard insurance will be required, and
will be maintained if commercially available, to the extent described herein.
Each Mortgagor must intend to occupy the Residence as his or her
principal residence within sixty (60) days after the date of the Loan and for
a minimum of two years and, generally, may not have had a present ownership
interest in any principal residence during the three years prior to the
execution of the Loan. A Mortgagor's household income may not exceed 150% of
Median Household Income in the case of a Mortgagor who will be the first
occupant of a new or improved Residence and 120% of Median Household Income j
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 $
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 $104,600 and for existing Residence:
is currently $91,600.
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 payment
made with respect thereto) and other funds held under the Indenture (except
for Excess Earnings required to be rebated to the United States pursuant to
the Indenture), and are secured by an assignment of all right, title and
interest of the City in the Loans and certain agreements related thereto (as
more particularly described in the Indenture).
The Bonds do not constitute an indebtedness of the City (except as aforesaid
or a loan of credit thereof within the meaning of any constitutional or
statutory provisions. Neither the faith and credit nor the taxing power of
the City, the State of California or any political subdivision thereof have
been pledged to the payment of the Bonds.
There follows in this Official Statement brief descriptions of the Bond
the security for the Bonds, the Program, the Developer Agreements, the
Agreements, the Indenture and the Loan.
included in Appendix C, and a summary of the feasibility study prepared by t
Feasibility Consultant is included in Appendix D.
documents, agreements and insurance policies are qualified in their entiret]
by reference thereto, copies of which are available for inspection during ti
offering period at the offices of Blyth Eastman Paine Webber Incorporated, $
Francisco, California. Certain capitalized terms used herein are defined ir
"Summary of Certain Provisions of the Indenture."
A brief description of the City is
All references to
2 040181-0022-118-4302m 06/05,
THE BONDS
Description
The Bonds will be issued as fully registered bonds in denominations of
$5,000 each or any integral multiple thereof, will be dated June 15, 1983,
will mature on the dates and will bear interest at the rates set forth on the
cover page of this Official Statement, payable semiannually on January 1 and
July 1 of each year, commencing January 1, 1984, by check or draft mailed to
the respective persons in whose names the Bonds (or any predecessor Bonds) art
registered at the close of business on the fifteenth day of the month
preceding the applicable interest payment date.
The Bonds may be exchanged or transferred at the aforesaid office of the
Trustee, or at its office in New York, New York, provided that the Trustee ma
not be required to register the transfer of any Bond during the five days nex
preceding any date established by the Trustee for the selection of Bonds for
redemption. For every exchange or transfer of any Bond, the City or 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
tr5nsfer and may make a charge equal to the customary fee charged by the
Trustee for such exchanges or transfers. If any Bond is mutilated, lost,
stolen or destroyed, the Indenture provides that the City shall execute and
the Trustee shall authenticate a new Bond or Bonds of the same tenor, as the
case may be. In the case of a lost, stolen or destroyed Bond, the City and
the Trustee may require satisfactory indemnification prior to the
authentication of a new Bond. The City and the Trustee may charge the owner:
of the Bonds for their reasonable fees and expenses in connection with
replacing mutilated, lost, stolen or destroyed Bonds.
Redemption
The Bonds are subject to mandatory redemption under the circumstances
described herein; they are not subject to optional redemption.
1, 200 , and Sinking Fund Redemption: The Bonds due on - 1, 201 , are subject to redemption prior to maturity, in part by
lot from Mandatory Sinking Account Payments (as defined in the Indenture), a1
a redemption price equal to the principal amount thereof plus accrued intere!
thereon, without premium, on the dates and in the amounts set forth below:
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040181-0022-118-4302m 06/05/
L
- Bonds Due on 1, 200
Date Amount Date Amoun - -
- 1, 201 Bonds Due on
Date Amount Date Amou - - -
The amount of any such Mandatory Sinking Account Payment shall be redul
as set forth in the Indenture by the amount of Bonds of the applicable
maturity which have been purchased by the Trustee for application against s
Mandatory Sinking Account Payment (in each case during the preceding six
months) or purchased or redeemed under the circumstances described below in
connection with special mandatory redemptions and selected for application
against Mandatory Sinking Account Payments (in accordance with the Indentur
Special Mandatory Redemption: The Bonds are subject to special mandat
redemption prior to their respective stated maturities at the principal amc
thereof plus accrued interest thereon, from amounts deposited in the
Redemption Fund as follows:
1. As a whole or in part on any date on or after July 1, 198
from amounts transferred to the Redemption Fund from the Program Fund
June 1, 198 - ; provided, however, that the Trustee may delay the trans:
4 040181-0022-118-4302111 06/01
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of moneys from the Program Fund to the Redemption Fund and, thus, the
corresponding special mandatory redemption, if it receives (i) an opinio
of counsel acceptable to the Trustee to the effect that such change of
dates will not cause the interest on the Bonds to become taxable for
federal income tax purposes, and (ii) an acknowledgement from Standard &
Poor's Corporation (or such other evidence as may be satisfactory to the
Trustee) that such change of dates will not adversely affect the rating
on the Bonds.
2. As a whole or in part on the next interest payment date with
respect to which notice of redemption can be timely given, from amounts
transferred to the Redemption Fund from the Revenue Fund after the
transfers required to be made therefrom to the Estimated Excess Earnings
Account, the Program Expense Fund, the Bond Fund, and the Bond Reserve
Fund have been made.
3. As a whole on any date when the amounts on deposit in the
Revenue Fund, Bond Fund, Bond Reserve Fund and Redemption Fund are
sufficient to pay all Outstanding Bonds and Qualified Program Expenses
then due and payable.
In the event that Bonds are to be specially redeemed in part under the
circumstances described in clause (1) or (2) above, the amount of Bonds of
each maturity to be specially redeemed shall be determined as nearly as
practicable in such a manner as will leave Bonds Outstanding of each maturit]
after such redemption in the same proportion to the total amount of Bonds thc
Outstanding as the proportion of Bonds of each maturity then Outstanding as
originally issued bore to the total amount of Bonds of maturities then
Outstanding as originally issued.
General Redemption Provisions: If less than all of the Bonds of any
maturity are to be redeemed, the Trustee shall select the Bonds of such
maturity to be redeemed by lot in any manner which the Trustee deems fair.
Bonds of a denomination greater than $5,000 may be partially redeemed but on
in increments of $5,000. Notice of redemption is to be given not less than
nor more than 60 days prior to the redemption date by mail to the registered
owners of Bonds to be redeemed at the addresses appearing on the Bond
registration books of the Trustee.
5
040181-0022-118-4302m 06/05,
%
SOURCES AND USES OF FUNDS
The proceeds of the sale of the Bonds (other than accrued interest) and
other funds collected by the City will be applied as follows:
Source of Funds
Bond Proceedsl/ .......... $
Developer Fees ..........
Application of Funds
Program Fund ...........
Acquisition of Loans ......
Payment of Costs of Issuance2/. - .
Capital Reserve Account ......
Interest Reserve Account .....
Underwriters' Discount ......
$
1/ Accrued interest on the Bonds is to be deposited in the
- 21
- Eond Fund.
Includes fees of Bond Counsel, official statement and bor
printing costs, costs of the housing market demand studit
bond rating fees, initial special hazard insurance premii
and other expenses related to the issuance of the Bonds.
Moneys deposited in the Program Fund are to be used to pay Costs of
Issuance and to purchase Loans relating to the Developer Reserved Single
Family Residences and, in certain cases, relating to existing Residences.
such Loans are originated and delivered to the Trustee, the Trustee will dr
against moneys on deposit in the Program Fund. Any unexpended funds remain
in the Program Fund on June 1, 198 , are required to be transferred to the
Redemption Fund and applied to redeem Bonds on July 1, 198 - , pursuant to th
special mandatory redemption provisions of the Indenture.
NATURE OF SECURITY AND SOURCES OF PAYMENT
Security
The Bonds are limited obligations of the City payable from "Revenues".
The term "Revenues" means all amounts received by the City or the Trustee f
or with respect to any Loan, any 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 i
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 :
any fund or account established pursuant to the Indenture (except the Excer
6 040181-0022-118-4302111 06/0!
8
Earnings Fund), but shall not include (1) Impound Payments, (2) any amount
retained by any Lending Institution (other than the City) as a servicing fee
or other compensation, and (3) Excess Earnings.
The Bonds will not be payable from any of the City's revenues, moneys or
assets other than the Revenues. The Bonds do not constitute an indebtedness
of the City (except as aforesaid), or a loan of credit of the City within the
meaning of any constitutional or statutory provision. Neither the faith and
credit nor the taxing power of the City, the State of California or any of it
political subdivisions is pledged to the payment of the Bonds or the Loans.
The Loans will be secured by first mortgage liens (subject to certain
permitted encumbrances) on Residences in the City. The terms on which Loans
are made must meet or exceed certain criteria established by the City as
discussed herein. See "The Program. I'
Hazard, earthquake (to the extent commercially available) and mortgage
insurance will be required to be maintained at specified levels.
"Insurance"). The City will maintain special hazard insurance, with a polic!
limit of the greater of 1% of the original outstanding principal amount of tl
Residence Mortgages, or twice the original principal amount of the largest
Residence Mortgage, covering certain otherwise uninsured hazard risks such a:
mudslides and losses due to the application of a coinsurance clause. The Bo1
Reserve Fund has been established under the Indenture as a reserve to assist
in payment of principal, sinking account and interest installments in the
event Revenues, including payments on the Loans, prove to be temporarily
insufficient. Prior to delivery of the Bonds, Developer Fees, as described
under "The Program" herein, in an approximate aggregate amount equal to
$ , in cash, will be collected. These amounts are calculated to be
sufficient, together with certain anticipated investment income, to recover
Costs of Issuance and Underwriters' discount associated with undelivered and
prepaid Loans.
Flow of Funds
(See
Under the Indenture, all Revenues (and "Excess Earnings," as hereinafte
defined, prior to their deposit in the Excess Earnings Fund) are to be
deposited in the Revenue Fund.
Bonds shall have been paid or provided for, amounts in the Revenue Fund are
be allocated on the last day of each Semiannual Debt Service Period for
deposit by the Trustee in the following amounts and order of priority;
Until the principal of and interest on the
1. Estimated Excess Earnings Account: the amount, if any, of Estimat
Excess Earnings for the period;
2. Program Expense Fund: the amount, if any, needed to increase the
amount in the Program Expense Fund to the Program Expense Fund
Requirement:
3. Bond Fund: the amount, if any, need to increase the amount in the
Bond Fund to the sum of (1) the aggregate amount of interest becoming (
7
040181-0022-118-4302111 06/05,
(i
and payable on the next interest payment date upon all Bonds then
Outstanding, plus (ii) the aggregate amount of principal becoming due an
payable on the Outstanding Serial 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. Capital Reserve Account: the amount, if any, needed to increase th
amount in such to the Capital Reserve Account Requirement; and
5. Redemption Fund: the balance remaining in the Revenue Fund.
On or before August 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.
c Amounts in the Program Expense Fund shall be used solely for the paying
of Qualified Program Expenses.
Amounts in the Bond Fund shall be used solely for the purposes of
(1) paying interest on the Bonds as it shall become due and payable (includir
accrued interest on any Bonds purchased or redeemed prior to maturity pursuar
to the Indenture), (2) paying the principal of the Serial Bonds when due and
payable, (3) purchasing, redeeming or paying at maturity the Term Bonds, and
(4) redeeming Bonds when the sum of the amounts held in the Revenue Fund, Bor
Fund, Reserve Fund and Redemption Fund equals or exceeds the principal amount
of Bonds Outstanding, plus interest accrued to the date fixed for redemption,
and required expenses.
insufficient to pay the principal of or interest on the Bonds or any Mandator
Sinking Account Payment when due, the Trustee shall transfer to the Bond Func
the amount of such deficiency by withdrawing said amount from the following
funds or accounts in the following order of priority: (1) the Redemption Fur
and (2) the Bond Reserve Fund.
In the event that the amount in the Bond Fund is
All amounts in the Interest Reserve Account shall be applied solely for
the purposes of making up any deficiency in the Bond Fund. On June 1, 198 ,
all amounts remaining in the Interest Reserve Account shall be transferred-tc
the Revenue Fund.
Amounts in the Capital Reserve Account may be used solely for the
purposes of (1) making up any deficiency in the Bond Fund and (2) redeeming
Bonds. Any amount in the Capital Reserve Acco'unt in excess of the Capital
Reserve Account Requirement shall be transferred to the Revenue Fund on
June 1, 1986, and thereafter on or before the first day of each Bond Year.
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040181-0022-118-4302111 06/05/1
*
Amounts on deposit in the Redemption Fund shall be used solely for the
purposes of (1) making up any deficiency in the Bond Fund, (2) transferring t
the Capital Reserve Account such amounts as may be required to increase the
balance therein to the Capital Reserve Account Requirement, (3) paying for
Qualified Program Expenses and (4) redeeming Bonds, provided that, at any tir
prior to giving notice of redemption as provided in the Indenture, if
practicable the Trustee shall apply amounts in the Redemption Fund (or in thc
Revenue Fund, to the extent the Trustee determines that such amounts would
otherwise be available to redeem Bonds on the following interest payment dab
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 Revenue Fund or the Bond Fund), as the
Trustee may in its discretion determine, not exceeding the par value of such
Bonds.
ASSUMPTIONS REGARDING REVENUES AND
DEBT SERVICE REQUIREMENTS
The City has estimated that payments on the Loans (net of servicing
fees), together with certain earnings derived from the investment of funds a
accounts, will be sufficient to pay the principal of and interest on the Bor
and certain other expenses (including Costs of Issuance and Underwriters1
di-scount).
The estimates of the City are based principally upon the following
assumptions :
1. An aggregate principal amount of $ of Loans will be purchased on or prior to June 1, 198 , at a stated interest rate of %
per annum and at a price of 100% of the then unpaid principal balance, plus
accrued and unpaid interest.
The Developer Fees and the anticipated investment earnings on the
moneys on deposit in the funds and accounts created pursuant to the Indentu
are sufficient to recover Costs of Issuance and Underwriters' discount
associated with undelivered Loans.
2.
3. The Loans will be amortized over and have terms of not less than
nor more than 30 years, with approximately equal monthly installments, and will have a weighted average actual life of not less than years.
4. Either the Loans will be paid substantially on a timely basis in
accordance with their terms or, in the case of defaults and foreclosures, i
settlement of mortgage insurance claims will be made at such time as, and :
an amount and in a form of payment which, together with moneys available ii
the Bond Reserve Fund, will allow the City to make scheduled payments of df
service on the Bonds, notwithstanding certain aspects of the mortgage
insurance programs described under "Private Mortgage Guaranty Insurance".
9 040181-0022-118-4302m 06/0
5. Amounts on deposit in all funds and accounts under the Indenture
will be invested pursuant to an investment agreement between the City and
calculated to yield average annual rates of not less than %.
6. The Lending Institutions' servicing fees and premiums for special
hazard insurance will not exceed 0.
Loans. % per year of the principal amount of
7. The Trustee's fee will not exceed - % per year of the principal
amount of the Bonds Outstanding.
The City has established a maturity schedule for the Bonds based on the
above assumptions and the scheduled amortization payments on the Loans. The
scheduled maturities of the Bonds assume no prepayment of Loans.
Loans are not purchased in the aggregate principal amount set forth above or
prepayments of Loans occur, Bonds will be redeemed pursuant to the special
redemption provisions of the Indenture.
If either
A possible reason for the City's not purchasing Loans in the above
aggregate amount is the competition it may receive in making real estate
loans. Competition in making real estate loans in the City normally comes
primarily from savings and loan associations, commercial banks and other
mo-rtgage bankers in the area. competing for real estate loans is the interest rate charged and because the
Loans are expected to be made at less than currently prevailing market rates
and for a fixed term of approximately 30 years, the Lending Institutions do
not expect significant competition in making the Loans. There are, however,
number of ways in which mortgage loans could become available at rates
competitive with those specified for the Loans, such as through a decline in
market interest rates on conventional loans, the FHA Section 245 (Graduated
Payments Mortgage) program or residential housing mortgage loan programs
established by the State of California, the California Housing Finance Agenc
or by nearby communities which may also issue tax-exempt bonds to provide fo
the financing of such programs.
Because one of the principal factors in
If interest rates on conventional mortgage loans were to decline
substantially and become competitive with the Loans, or the residences are r:
constructed as currently anticipated, the City may not be able to purchase
Loans in the anticipated principal amount. To cover any such eventuality tl-
City has obtained Developer Fees in amounts which, together with the
contributions provided by the City, and certain anticipated investment incorr
earned in funds and accounts held by the Trustee, are calculated to be
sufficient to recover Costs of Issuance and Underwriters' discount associatt
with undelivered Loans.
Another reason for the City's not purchasing Loans in the above aggreg(
principal amount is that the Developers participating in the Program may no'
construct and make available Developer Reserved Single Family Residences fo: sale on a timely basis. Such delays on the part of the Developers could be
result of such things as adverse weather conditions, fires, labor disputes (
shortages of material. In the event that delays in construction of certain
10 040181-0022-118-4302111 06/05
9
the Developer Reserved Single Family Residences do occur for any reason, the
City has retained the right, subject to certain limitations, to substitute
other homes for financing under the Program. (See "The Program - Developer
Agreements" herein. )
The City anticipates that a portion of the Loans will be partially or
completely prepaid or terminated prior to theiit respective final maturities i
a result of events such as sale of the residence, default, condemnation or
casualty loss, or noncompliance with the Program including the requirements c
Section 103A. Because of the lack of historical basis with respect to
prepayments of mortgage loans of a type similar to the Loans described hereir
and the requirement of Section 103A that assignees meet the qualification
standards of Section 103A (See "The Program -- Mortgage Sale and Service
Agreements"), there is no reliable basis for predicting the actual average
life of the Loans. The City does, however, anticipate prepayment of a numbei
of Loans and it is probable that the Bonds will have a substantially shorter
life than the stated maturity of the Bonds.
The assumptions set forth above are based on current market conditions
and practices, and subsequent events may not correspond to such assumptions.
For example, defaults on, and foreclosure proceedings with respect to, a
substantial number of the Loans could disrupt the flow of Revenues available
fo-r the payment of scheduled debt service on the Bonds because of delays
involved in enforcing creditors' rights under California law and in collecti
insurance benefits. The City's ability to collect on defaulted Loans is
described under the "The Program -- Foreclosure". The City's ability to hav
its insurance claims satisfied is dependent upon the solvency of the mortgag
insurer at the time of the claim. The City does not make any representatior
as to the ability of any provider of hazard or private mortgage guaranty
insurance to pay the claims when presented by the City or by a Mortgagor.
While the Bonds are outstanding, events may not correspond to the
assumptions set forth above. It is possible, for example, that physical
damage to the residential housing units securing the Loans may exceed the
limits of, or be caused by a peril not insured under, the standard and spec:
hazard insurance policies, or that the average rates realized on invested
moneys will be less than anticipated. Additionally, the value of the
Residences securing the Loans could decline substantially, and under such
circumstances, actual losses with respect to defaulted Loans could exceed
coverage provided by mortgage insurance. Under such circumstances, revenue
from the Loans, available investment earnings and insurance proceeds may no
be sufficient to pay the principal of and interest on the Bonds when due.
THE PROGRAM
The Trustee, on behalf of the City, will purchase Loans from the Lendi
Institutions using proceeds from the Bonds and the Developer Fees. The Loa
will be made to finance the acquisition by qualified Mortgagors of Residenc
located in the City. Based on current development estimates, Loans to fina
approximately Residences will be purchased. Information concerning tk -
11 040181-0022-118-4302m 06/05
.I
Developer Reserved Single Family Residences is set forth in Appendix A, and
information concerning the Lending Institutions is set forth in Appendix B, tc
both of 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 Agreements, 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 during the three years prior to the
execution of the Loan. A Mortgagor's household income may not exceed 150% of
the applicable Median Household Income in the c:ase of a Mortgagor who will be
the first occupant of a new or improved Residence and 120% of the applicable
FIedian 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.
Loans will provide for level payments of principal and interest based 01
a thirty year amortization. Each Loan is to provide that at the time that a:
Bonds are paid pursuant to the Indenture the Mortgagor's obligation will cea!
and be forgiven. Each Loan will bear interest at a stated interest rate of
Trustee must be qualified pursuant to FNMA or FHLMC underwriting criteria anc
practice.
%. Except as expressly provided otherwise, Loans purchased by the
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 the private mortgage insurer approves and if an
escrow for the supplement is fully funded at the time the Loan is purchased.
During the first five years of the Loan, each mortgagor will be obligat
to pay a prepayment charge equal to six months' interest on all principal
prepaid during each year in excess of 20 percent of the original principal
amount of the Loan.
statute. The validity and amount of prepayment charges are, however, subjec
to legislative and judicial change.
The prepayment charge is authorized by California
Each Mortgagor will also be charged an origination fee of 1/2 of 1% of
the principal amount of the Loan to be paid to the Lending Institution at tl
time the Loan is funded.
Lending Institution in accordance with the guidelines set forth in the
Agreement.
All Loans will be serviced by the originating
12 040181-0022-118-4302m 06/05
Under the Program, the Mortgagor must be a first time homebuyer who
intends to occupy the Residence as his or her principal residence and the
acquisition cost of the residence may not exceed 110% of the applicable
Average Area Purchase Price. In the case of a Residence on leased land, 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. Currently,
the Average Area Purchase Price for new residences in the San Diego SMSA, in
which the City is located, as set forth by the Treasury as a I'safe harbor"
guideline is $104,600, and the Average Area Purchase Price for existing
residences in the San Diego SMSA as so set forth is $91,600. A Loan may only
be assumed if the new Mortgagor and the Residence meet similar eligibility
requirements.
With respect to each Loan, the Mortgagor, the Developer and the Lending
Institution are required to submit to the Administrator and the Trustee
affidavits or certificates, under penalty of perjury, certifying facts and
intentions which exhibit the Mortgagor's compliance with the requirements of
Section 103A as to intent to occupy the unit as a principal residence: no
ownership interest in a principal residence for the prior three years;
acquisition cost limitations on the price of the residence; the nonreplacemer
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 Trustee in reviewing or
verifying the affidavits and information provided by the prospective Mortgagc
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 a total of
approximately $
within the Projects.
to make Loans to finance the purchase of Residence
The Developers have constructed or are planning to construct
approximately Residences. See Appendix A: "Description of Developer
Reserved Single Family Residences" herein.
Appendix A agrees to use its best efforts to construct and make available a
sufficient number of Residences to enable the Lending Institution to origina
and sell to the Trustee Loans in the specified amounts by June 1, 198 (or
such later date as may be established in accordance with the Indenture). The
Developer may, with the written consent of the City, transfer all or a porti
of its reservation to another developer which has previously entered into a
Developer Agreement with the City; and the portion of the reservation so
transferred may be used pursuant to the transferee's Developer Agreement.
Upon a determination by the Trustee that the same will not adversely affect
the rating of the Bonds, the Developer may, with the written consent of the
City, transfer all or a portion of its reservation to any other developer, k 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 ar
conditions of the transfer, a description of the proposed Residences, the
proposed transferee and the purpose for the transfer, all of which must
Each Developer listed in
13 040181-0022-118-4302m 06/05
conform to all requirements of the Program and otherwise be acceptable to the
City. No reservation or portion thereof may be transferred to a developer whc
has not entered into a Developer Agreement with the City, except upon terms
and conditions which have been first presented to and rejected by each of the
Developers who has entered into such a Developer Agreement.
Additionally, a Developer may direct that an amount not exceeding 20% of
the money he has reserved for Loans be used for Loans for Residences which ar
not Developer Reserved Single Family Residences but which otherwise comply
with the requirements of the Program.
At the time the Developer Agreement is executed each Developer is to pal
to the trustee in cash a commitment fee of % of the funds reserved for that
Developer. After the Bonds are delivered t6 commitment fees will be held bl
the Trustee in the Program Fund.
Under the Developer Agreements each Developer is required to represent
with respect to the Residence it constructs and sells under the Program that:
to the best knowledge of the Developer, such is to be occupil
by a mortgagor who is a first time homebuyer as such mortgagor's
principal place of residence within 60 days after making of the Loan, a
the related Loan is made for the purpose of purchasing the Residence an
not for the purpose of acquiring or replacing any existing mortgage;
(i)
(ii) to the best knowledge of such Developer, the household incom
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 11 of the Average Area Purchase Price;
(iv) the Residence financed by such Loan will be free of material
damage, constructed in a good and workmanlike manner and will be in
general good repair on the closing date of such Loan and at the time tl
Residence is offered for sale it will be free of any and all mechanics
liens :
(v) the Residence was offered for sale to qualifying homebuyers t
a first-come-first-served basis or on the basis of a random drawing
without regard to race, color, religion, age, sex, marital status or
national origin (except to the extent that some other basis is require(
by law, as in the case of a condominium conversion); and
(vi) it has no knowledge of any fact, circumstance or condition w
respect to the Mortgagor or the Loan which would lead it to believe th
the certifications required to be made by the mortgagor to the City ar
not true.
14 040181-0022-118-4302m 06/0!
Ten percent of the Loans, in dollar amount, at any given time, may be
originated to Mortgagors who are not first time homebuyers.
If, after the Trustee has purchased a Loan, it is determined by the City
that the acquisition cost exceeded 110% of the Average Area Purchase Price,
the Developer is required immediately to purchase the Loan from the Trustee a
a price equal to the unpaid principal balance thereof together with interest
accrued thereon.
Mortgage Sale and Service Agreements
Pursuant to the Agreements the Lending Institutions agree to use their
best efforts to originate and sell without recourse to the Trustee on behalf
of the City by June 1, 198 , Loans in an aggregate principal amount of
$ . Information Yegarding the Lending Institution's experience in
origination and servicing of residential mortgage loans is set forth in
Appendix B.
The Administrator will administer the origination and servicing of the
Loans and will undertake certain duties, including approval of the Loans and supervision of performance of the Lending Institutions as servicer.
Administrator may establish and, from time to time, revise reasonable writte
standards detailing uniform procedures to be used and complied with by the
Lending Institutions.
reasonable standards, and to submit such reports, provide such documents and
permit such access to information as the Administrator may reasonably reques
At the closing for a Loan, a Lending Institution may charge the Mortgac
a fee of not more than 1/2 of 1% of the original principal amount of the
Mortgage Loan to be retained by the Lending Institution for its own account.
A Lending Institution may also collect from the mortgagor charges for certai
customary costs paid or incurred by the Lending Institution in connection wi
the making of a Loan.
The
The Lending Institutions agree to comply with such
The Lending Institution will represent, among other things, with respec
to each Loan originated by it for purchase by the Trustee that:
(1) The Mortgagor has certified by affidavit that (a) such Loan :
secured by a Residence; (b) the Mortgagor intends to occupy the Reside1 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) fc
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
the Residence does not exceed 110% of the Average Area Purchase Price;
the Mortgagor had no present ownership interest in a principal residen
at any time during the 3-year period prior to the date of execution of
the Loan*/; and (f) the Loan is nut being used to replace an existing
loan of The Mortgagor.
15 040181-0022-118-4302m 06/OE
(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 01
condition with respect to the Loan or the mortgagor which (a) could
* 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 interes
in a principal residence within the 3-year period prior to the date of
execution of the Loan.
reasonably be expected to cause the Lending Institution to regard the
Loan as an unacceptable investment for its own portfolio, cause the Loan
to become delinquent, or adversely affect the value or marketability of
the Loan, except that the interest rate on the Loan may be below a marke
interest rate and the loan-to-value ratio may be greater than that which
is otherwise acceptable to private lenders; or (b) would lead it to
believe that the certifications required to be made by the Mortgagor and
the Developer are not true and correct.
r
(5) The Loan has been finally endorsed (or a firm Commitment
received) for insurance under the private mortgage insurance policy
described under "Insurance - Private Mortgage Guaranty Insurance" hereir
(6) The Lending Institution has obtained a current ALTA or
equivalent title insurance policy (or firm commitment therefor) that
insures that title to the mortgaged property is vested in the mortgagor
subject only to the lien of the deed of trust and to permitted
encumbrances.
(7) Based on an inspection conducted by the Lending Institution,
construction of the property securing the Loan is complete and free of
any apparent material damage and is in general good repair.
(8) The Residence is covered by a fire insurance policy with
extended coverage and an earthquake endorsement (or a commitment
therefor) assigned in favor of the Lending Institution, the Trustee and
the City as their interests may appear, in the amount specified under
"Insurance-Standard Hazard Insurance" m
16
040181-0022-118-4302m 06/05/
In connection with assumptions of Loans, the Lending Institution will
represent to, among other things, the matters summarized in items (l), (3) an
4(b) above.
If at any time any document or documents submitted by the Lending
Institution in connection with a Loan are, in the opinion of the
Administrator, defective or inaccurate in any in.ateria1 respect, the Lending
Institution is required to cure the defect or inaccuracy within 60 days from
the time the Administrator notifies it of the existence of the defect or
inaccuracy. Under the Agreement, the Lending Institution agrees that if any
such material defect cannot be cured within such 60-day period, it will, not
later than 90 days after the Administrator's notice to it respecting such
defect or inaccuracy, repurchase the related Loan from the City at a price
equal to (i) 100% of the principal remaining unpaid on such Loan plus (ii)
unpaid accrued interest thereon to the date of the repurchase.
Notwithstanding anything set forth in the preceding paragraph, in any
case in which the Lending Institution is required to repurchase a Loan by
reason of a defect, inaccuracy or misrepresentation in a Mortgagor's
affidavit, the Lending Institution need not repurchase the Loan so long as (
such defect, in accuracy or misrepresentation constitutes a default under thl
Loan with respect to which the private mortgage guaranty insurance policy
pr%vides coverage, and (ii) the Lending Institution diligently proceeds on
behalf of the City to declare all sums the payment of which is secured there.
to be immediately due and payable and to take all steps necessary to collect
benefits pursuant to the private mortgage guaranty insurance policy.
Moreover, in any case in which the Lending Institution is required to
repurchase a Loan because a Developer incorrectly indicated in an affidavit
submitted to the Lending Institution that the acquisition cost of a Residenc
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.
Each Lending Institution shall service the Loans it originates and shal
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. Each Lending Institution shall service the Loans in accordance
with the standards set forth in the FHLMC Servicerls Guide.
As compensation for its activities under the Agreement and in
consideration for servicing the Loans it originated, each Lending Institutic
shall retain from each Mortgagor's monthly payment allocable to interest an
amount equal to 1/12 of . of 1% of the unpaid principal amount of the Loar
In addition, each LendingTnstitution shall be entitled to servicing
compensation out of insurance proceeds or liquidation proceeds to the exten
permitted in the Agreement. Additional servicing compensation in the form 1
assumption fees, late payment charges or otherwise, if any, may be retained
the Lending Institution to the extent not required to be deposited in the
Receipts Account (hereafter mentioned) it maintains or required to be paid
the Private Mortgage Insurer. The Lending Institution shall be required to
pay all expenses incurred by it in connection with its servicing activities
17
040181-0022-118-4302m 06/05
*
and shall not be entitled to reimbursement therefor, except as specifically
provided .
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 of
insurance and foreclosures, but excluding the servicing fees and certain othei
amounts) are to be deposited on a daily basis.
each month, the Lending Institution is to remit to the Trustee for deposit thc
sum of: (1) the scheduled payments of principal of and interest on the Loans
received by it on or before the twentieth day of the month and not previously
remitted to the Trustee, (ii) Loan Principal Prepayments received by it on or
before the twentieth day of the month, and (iii) an amount equal to all
scheduled payments of principal of and interest on the Loans which (a) are
then delinquent, (b) have not been previously remitted to the Trustee, and (c
are not yet payable by the Private Mortgage Insurer, less, (iv) the service
fee, escrow payments and any other amounts permitted to be retained by the
Lending Institution pursuant to the Agreement. Notwithstanding the foregoing
each Lending Institution is also required to remit immediately to the Trustee
any portion of the Receipts Account which is in excess of the lesser of
$100,000 or the amount insured by FDIC or FSLIC, whichever is applicable.
On the twenty-fifth day of
c The obligations of and , unde
and , respectively. The requirement
the Agreements described in (i), (ii) and (iii) above will be guaranteed by
of the Lending Institution to remit by the 25th day of each month amounts
equal to principal and interest due on each Loan regardless of the receipt
thereof from the Mortgagor, as set forth in (iii) above, will be additionall]
covered by an endorsement to the private mortgage insurance policy issued by
the Private Mortgage Insurer requiring advances by the 25th day of the month
upon notice from the Trustee in the event the Lending Institution does not
remit amounts required in (iii) above by the 25th day.
In the event a Lending Institution and its guarantor will be unable to
make the payments set forth in clause (iii) above by the twenty-fifth day of
month, the Lending Institution will, pursuant 'to the terms of the Agreement,
so notify the Trustee by the eighteenth day of such month. The Trustee will
then notify the private mortgage insurer of the inability of the Lending
Institution and its guarantor to make such payments on the next business day
in order to provide the private mortgage insurer sufficient time to make the
payments required under its mortgage guaranty insurance policy on the
twenty-fifth day of such month (See "insurance-Private Mortgage Guaranty
Insurance. I' )
On the twenty-fifth day of each month, the Lending Institution is to
furnish to the Administrator a statement setting forth the status of the
Receipts Account it maintains, as of the close of business on the twentieth
day of such month and showing, for the period covered by such statement, the
aggregate of deposits irito and withdrawals from such Receipts Account. Such
statement shall begin in a form prescribed by the Administrator and shall a1
include (i) information as to the principal balances of Loans outstanding at
la 040181-0022-118-4302m 06/05/
*
the close of business on the twentieth day of such month, (ii) information as
to Loans upon which a combined total of two required monthly payments of
principal and interest are delinquent, as of the close of business on the las
day of the preceding calendar month and (iii) the unpaid outstanding principa
amount of Loans and the estimated fair market value of any real estate
acquired through foreclosure or grant of a deed in lieu of foreclosure.
Within 120 days after the close of the Lending Institution's fiscal year
the Lending Institution shall furnish to the Administrator an auditor's repor
relating to the Lending Institution's financial. statements and mortgage loan
operations. The Lending Institution shall also deliver to the Trustee and th
Administrator a certificate stating that (i) a review of the activities of tk
Lending Institution during the preceding year and of its performance under tk
Agreement has been made, and (ii) based on the review, there is, as of such
date, no default by the Lending Institution in the fulfillment of any of its
obligations under the Agreement, or if there is any such default, specifying
each such default and the nature and status thereof.
The Lending Institution's servicing duties may be terminated by the
Administrator for cause. Upon such termination, the Administrator is
obligated to succeed to all rights and obligations of the terminated Lending
Institution concerning servicing of Loans and shall be entitled to receive
cohpensation therefor. As soon as practicable thereafter, the Administrator
is to enter a servicing agreement with another qualified lending institution
or shall itself assume such servicing. The Administrator may, if it shall bt 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 common
used real property security device in California.
similar to a mortgage with power of sale, the deed of trust formally has thr
parties -- the debtor trustor (similar to a mortgagor), the thirdparty grant
called the trustee, and the lender-creditor (similar to a mortgagee) called
the beneficiary. The trustor grants the property, irrevocably until the deb
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 express
provisions of the deed of trust and the directions of the beneficiary.
Although a deed of trust
Upon the default of a Loan, the Lending Institution servicing the Loan
to exercise the City's rights under the deed of trust's power of sale, subje
to the constraints imposed by California law for the transfer of title to
property by private sale.
filing of a formal notice of default, the Mortgagor will be entitled to reinstate the Loan by making overdue payments.
procedures, the filing of the notice of default does not occur unless at lei
two full monthly payments are due and unpaid. The power of sale is exercisc
by posting and publishing a notice of sale for at least 20 days. Therefore
the effective period for foreclosing upon a Loan could be in excess of six
months after the initial default. Such time delays in collections could
During the three-month period beginning with the
Under standard servicing
19
040181-0022-118-430211-1 06/05
(r
disrupt the flow of revenues available for the payment of debt service on the
Bonds if such defaults occur with respect to a substantial number of Loans.
Under California antideficiency legislation, there is no personal recourse
against a mortgagor where the trustee exercises the power of sale.
The Lending Institutions
The City has entered into Agreements with the companies listed in
Appendix B hereto as Lending Institutions to originate and provide $
principal amount of Loans to the Trustee for purchase on behalf of the City
during the delivery period which terminates on June 1, 198 . In consideratio
for the efforts associated with originating Loans, each Mortgagor will pay an
origination fee of 1/2 of 1% of the principal amount of each Loan (plus the
cost of appraisal and credit reports and other customary closing expenses) tc
the Lending Institution.
The Lending Institutions, the amount of the Program Fund allocated to
each for the purpose of originating Loans and certain other information
concerning the Lending Institutions are set forth in Appendix B hereto.
Residential real estate loans originated by the Lending Institution are
subject to a thorough underwriting process in order to assess the prospectivc
borrower's ability to repay and the adequacy of the home as collateral for t'
loan requested. California is an "anti-deficiency" state, which means that,
in general, lenders providing credit on single family properties must look
solely to the property for repayment in the event of default. Accordingly,
loan underwriting policies require that loan officers be satisfied that the
value of the property being financed currently supports, and will support in
the future, the outstanding loan balance with sufficient excess value to
mitigate against adverse shifts in real estate values. The appreciation in
value of California real estate in the past has tended to limit loss and
foreclosure experience on their portfolios of single family home mortgages.
Since it is anticipated that some Loans under the City's Program may be made
on the basis of a ninety-five percent (95%) loan-to-value ratio, and since r
prediction can be made as to future prices of housing, the prior experience
these Lending Institutions described in Appendix B may not necessarily be
useful in predicting the delinquency and loss rates to be experienced on the
Loans.
THE ADMINISTRATOR
[To Come]
INSURANCE
The Residences securing each of the Loans purchased by the Trustee mus
be covered by a standard hazard insurance policy and a special hazard
insurance policy.
guaranty insurance policy issued by
In addition, each Loan must be insured by a mortgage
20 040181-0022-118-4302111 06/05
Private Mortgage Guaranty Insurance
To qualify for purchase by the Trustee, on behalf of the City, a
Loan must be insured in full under a mortgage guaranty insurance policy issue by ( 'I 'I).
/a insurance company, will provide, subject to
underwriting, mortgage guaranty insurance for the Loans under, and in
accordance with the terms and conditions of, its full coverage master policy,
an amendatory endorsement waiving the due-on-sale exclusion and the
non-monetary default, advance payments and advances amendatory endorsements
thereto (all of which are collectively referred to as the "Master Policy") ar
the Commitments and Certificates issued pursuant thereto (the Master Policy
and each Commitment and Certificate being collectively referred to as a
"Policyt'). The following description of a Policy and the coverage thereunde
is only a brief outline and does not purport to be comprehensive or definiti
and such outline is qualified in its entirety by reference to a Policy itsel
The City, the Trustee and the Lending Institution will be named insured
(collectively, the "Insured"), as their interest may appear, under each Poll
Any default (including mortgagor-related nonmonetary default, such as
defaults resulting from a failure to comply with the requirements of the
Ci'tyls Program or a failure to comply with the requirements of Section 103A)
under the Loan which is the basis for a foreclosure action is covered under
the Policy. No claim may be filed under a Policy with respect to a Loan
insured thereunder until the Insured has acquired title to the mortgaged
property which secured such Loan.
claim under a Policy must be filed within 60 days after the Insured acquires
title to such mortgaged property.
Unless otherwise agreed to by
As conditions precedent to the filing and/or payment of a claim under i
Policy: the Loan must be secured by a first :Lien on the mortgaged property. and, the Insured must (i) have accomplished all construction, additions and
improvements necessary to complete the mortgaged property as contemplated b,
the Policy, (ii) in the event of any physical loss or damage to the mortgagi
property, have restored and repaired the mortgaged property to at least as good a condition as existed at the effective date of the Policy and as
contemplated by the Policy, ordinary wear and tear excepted, and (iii) pend
the filing and settlement of a claim, advance (a) hazard insurance premiums
and real estate property taxes and (b) as necessary and approved in advance
mortgaged property and to maintain it in at least as good a condition as
existed at the effective date of the Policy and as contemplated by the Poli
ordinary wear and tear excepted, (2) foreclosure costs including court cost
and reasonable attorneys' fees and (3) sales expenses.
, (1) expenses to preserve, repair and prevent waste to the
Other provisions and conditions of each Policy provide that (i) no cht
shall be made in the terms of a Loan without the consent of I (ii) written notice is to be given to within 10 days after the
Insured becomes aware that a mortgagor is delinquent in two monthly payment
due under the Loan or that any proceedings affecting the mortgagor's inter!
21 040181-0022-118-4302111 06/0
*
in the mortgaged property have been commenced, and the Insured report monthly
to the status of any such Loan until the Loan is brought current,
such proceedings are terminated or a claim is filed, (iii) the Insured shall
commence and diligently pursue foreclosure or appropriate proceedings to
acquire title to and possession of the mortgaged property when the mortgagor
becomes delinquent in four or more monthly payments on the Loan, shall notify
with
copies of documents relating thereto, shall notify
principal balance of the Loan and accrued and unpaid interest thereon at leas
15 days prior to the sale of the mortgaged property by foreclosure and shall bid such amount unless
(iv) the Insured may accept a deed in lieu of foreclosure only if the ability of the Insured to assign specified rights to
impaired.
of the institution of such proceedings and provide
of the unpaid
specifies a lower or higher amount, and
is not thereby
The amount of a claim for benefits consists of (i) the unpaid principal
amount of the Loan and accrued and unpaid interest thereon and (ii) the amour:
of advances made by the Insured in accordance with a Policy less (a) all rent
or other payments collected or received by the Insured (other than the
proceeds of hazard insurance) which are derived from the mortgaged property,
the mortgagor, an insurance company or any other person, (b) hazard insurance
proceeds in excess of the amount required to restore the mortgaged property,
(c’) amounts expended by the insured due to the fault of the Insured, (d) any
claim payment previously made by under the Policy with respect to
the Loan, and (e) unpaid premiums.
When a claim for benefits is properly submitted, , 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 o
(ii) the delinquent regular monthly payments specified in the Loan plus
advances required of the Insured and described above and thereafter the
regular monthly payments specified in the Loan until (a) the total of such
payments equals the claim for benefits or (b) a sale of the mortgaged proper approved by , at which time pays the balance of the cla
for benefits less the net proceeds of such sale. If the net proceeds of SUC
sale exceed the claim for benefits, the Insured shall immediately account fo and remit to such excess. If elects to pay under opti
(if or (ii)(a), the Insured must convey title to the mortgaged property to
upon payment of the claim for benefits, among other conditions.
elects to pay under option (ii), it. may direct the Insured to rez
and/or sell the mortgaged property to apply al.1 sums so received to and in
reduction of payments due from
The advance payments amendatory endorsement provides for an advance payment procedure pursuant to which , upon receipt of specified
notice from the Insured, is required, with respect to a Loan on which a
mortgagor is delinquent in two or more monthly payments of principal and
interest but subject to the coverage limitations of the Policy, to advance
the Insured an amount equal to all delinquent payments of principal and
interest (except payments due solely as a result of acceleration of the Loa]
and is required to continue to make such delinquent payments until the Insu
22 040181-0022-118-4302m 06/05
files (or should have filed) a claim for benefits with respect to the Loan foi
which such payments have been made. The insured is required to reimburse
for such advance payments either from payments received by the
Insured on account of the Loan from the mortgagor, an insurer of the mortgage1
property or the proceeds of the foreclosure sale or conveyance of the
mortgaged property. Any unreimbursed advance payments will be offset against
any claim payment to the Insured.
The Policy also provides for advance payment of delinquent installments
of principal and interest on Loans not later than the thirtieth day of each
month if a Lending Institution fails to make such payment on the twenty-fifth
day thereof as required by the Agreement and if the institution which
guaranteed the Lending Institution's payment thereof fails to honor its
guarantee.
Standard Hazard Insurance and Earthquake Insurance
For a Residence to qualify for purchase by the Trustee on behalf of the
City, the related Residence must be covered by a standard hazard insurance
policy issued by an insurance carrier qualified to issue such insurance in tl
State of California. The standard hazard insurance policy will insure again!
physical damage to or destruction of improvements on the property by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. The policy must insure the Residence from loss in an amount at leas
equal to 90% of its replacement cost.
In addition, each Residence is to be insured against risk of loss due t
earthquake in an amount not less than 90% of the principal balance owing on
such Loan, subject to a 5% deductible per occurrence. The premiums are to b paid by the Mortgagor. Such coverage is required at the time the Loan is
purchased, but need be maintained thereafter only if commercially available.
Special Hazard Insurance
The Trustee will cause a special hazard insurance policy to be obtained
to provide limited protection with respect to certain risks, including flood
mud flows and (to a limited extent) building collapse, and losses resulting
from the application of coinsurance provisions of the standard hazard
insurance policy. The special hazard insurance policy will not cover again:
losses caused by floods if a Residence is located in an area designated as i
flood hazard zone by federal or state authorities and separate flood insurai
is not maintained. The Trustee will pay the premiums for the special hazarc
insurance policy from the Program Expense Fund established pursuant to the
Indenture. The special hazard insurance policy will be issued by
(the "Special Hazard Insurer''
The special hazard insurance policy will provide that where there has
been damage to a Residence securing a defaulted Loan, and such damage is no
fully covered by such policy, the Special Hazard Insurer will pay the lesse
of: (i) the cost of repair, or (ii) the unpaid principal balance of the Lo
23 040181-0022-118-4302m 06/05
,
at the time of acquisition of the claim settlement at the rate of interest
specified in the Loan, plus advances, less any net proceeds in the event the
Residence is sold or transferred in accordance with the policy. The special
hazard insurance policy shall continue in force until (i) each Loan either has
been paid in full or no longer secures the Bonds, or (ii) all Bonds have been
fully paid or provision for such payment has been provided for pursuant to the
Indenture. The special hazard insurance policy will provide that the Trustee
will cause to be maintained standard hazard insurance policies, insuring each
Residence against casualty loss.
and a loss occurs which would have been covered by such standard hazard
insurance policy, then the claim under the special hazard insurance policy
shall be reduced by the amount which the standard hazard insurance policy
would have covered.
In the event such coverage is not maintained
The maximum amount payable under the special hazard insurance policy will
be the greater of 1% of the aggregate initial principal balance of the Loans
or twice the original principal amount of the largest Loan purchased. The
residual coverage under the policy will be reduced by the dollar amount of
claims paid, less any amounts realized by the insurer upon disposition of any
Residence. If aggregate claims exceed the special hazard insurance policy
limit, no further payments will be made by the insurer, any losses resulting
thereafter will be borne by the bondholders.
c
If the issuer of the special hazard insurance policy shall cease to be
licensed in the State, the Trustee shall exercise its best reasonable efforts
to obtain a comparable replacement policy with coverage at least equal to the
then existing coverage of the special hazard insurance policy.
Flood Insurance
If a Residence is located in an area designated as a flood hazard zone b
federal or state authorities, the Lending Institution servicing the Loan
secured by such Residence will cause to be maintained for such Loan a flood
insurance policy in the form of a Federal homeowner's flood insurance policy
in an amount which is equal to the lesser of the maximum insurable value of
the Residence securing the Loan or the principal balance owing on such Loan,
whichever is less.
Errors and Omissions Insurance and Fidelity Bonds
If the Lending Institution fails to perform its obligations under the
Program Documents due to an error or omission of its officers or employees,
coverage will be provided within the limits of the errors and omissions
insurance policy required to be maintained by the Lending Institution. If ar
officer or employee of the Lending Institution misappropriates funds from the
Lending Institution, coverage therefor will be provided within the limits of
the fidelity bond required to be maintained by the Lending Institution. The
Lending Institution is required to pay the premiums for its errors and
omissions insurance policy and fidelity bond.
required to deposit any amounts collected under any such errors and omission
insurance policy or fidelity bond into its Receipts Account.
The Lending Institution is
24
040181-0022-118-4302m 06/05/
\
Both the errors and omissions insurance policies and fidelity bonds mus
be in the form and substance required by the FHLMC or FNMA. Such policies a:
bonds are subject to certain limitations as to amounts of coverage, deductib
mounts, conditions, exclusions and exceptions. Accordingly, the errors and
omissions insurance policies and fidelity bonds, respectively, will not
provide coverage against all losses which may be sustained as a result of
errors, omissions or misappropriations.
If either the errors and omissions insurance policy or fidelity bond
shall cease to be in effect, or the insurer thereof shall cease to be
acceptable to the Trustee, the Lending Institution is required to obtain frc
another insurer acceptable to the Trustee a replacement policy therefor.
Payment of Insurance Claims
The City makes no representation as to the ability of any insurer issuj
mortgage guaranty, standard hazard, special hazard, earthquake, flood or
errors and omissions insurance to make payments under their policies at the
times and in the amounts specified in such policies.
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following statements are a brief summary of certain provisions of
Indenture (copies of which may be obtained from the City and at the corpora
trust office of the Trustee, in Los Anqeles, California). The summary does
not purport to be complete and reference is made to the Indenture for a ful
and complete statement of such provisions. Certain capitalized words or te
used in this summary and not defined herein are defined in the Indenture an
have the same meaning herein as therein used unless the context requires sa
other meaning.
Certain Definitions
"Bond Year" means the period of twelve consecutive months ending on tk
first day of July in any year in which Bonds are or will be Outstanding.
'1Bonds11 means the City of Carlsbad, California, Single Family Resident
Mortgage Revenue Bonds, Issue of 1983, authorized by, and at any time
Outstanding pursuant to, the Indenture.
"Capital Reserve Account Requirement" means an amount equal to two
percent (2%) of the principal amount of the Loans outstanding as of any da,
of calculation.
ItCosts of Issuancett means all administrative fees of the City and iter
of expense directly or indirectly payable by or reimbursable to the City ai
related to the authorization, issuance, sale and delivery of the Bonds,
including but not limited to advertising and printing costs, costs of
preparation and reproduction of documents, filing and recording fees, init
fees and charges of any insurer, the City and 'the Trustee, (including fees
25 040181-0022-118-4302m 06/0
.
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 oi
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 May 1 and November 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 Truste
estimates, as of each Way 1 and November 1, will be applicable to the
Semiannual Debt Service Period for which the estimate is being made.
"Excess Earnings" means earnings on investments held hereunder (exclusiv 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) Maxyimum Earnings (calculated on tk
basis of semiannual compounding) and (ii) actual losses on Loans.
"Impound Payments" means all deposits made by a Mortgagor in order to
obtain or maintain mortgage insurance or guarantees or fire and other hazard
in-surance 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 customari
required to be deposited in advance by a Mortgagor and impounded pending the
payment for the item or items for which the deposits were impounded.
"Investment Agreement" means one or more agreements in form and substan
satisfactory to the City, dated as of the date on which the Bonds are issued
by and between the Trustee and
which the proceeds from the sale of the Bonds may be invested.
pursuant to
"Investment Securities" means any of the following which at the time ar
legal investments under the laws of the State of California for moneys held
hereunder and then proposed to be invested therein: (1) direct obligations
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 Unitec
States of America) or obligations the principal of and interest on which arf
guaranteed by the United States of America; (2) interest-bearing demand or
time deposits (including certificates of deposit) in banks (including the
Trustee) or savings and loan associations, insured at all times, in the man]
and to the extent provided by law, by either the Federal Deposit Insurance
Corporation or the Federal Savings and Loan Insurance Corporation;
(3) certificates of deposit with any bank or savings and loan association t'
securities of which carry the highest rating by Standard st Poor's Corporati
if not secured by such collateral; and (4) the Investment Agreement.
"Loan" means a loan, evidenced by a Note secured by a first lien
Mortgacwhich meets the requirements of the Agreement and which the Trust
26 040181-0022-118-4302m 06/0'
*
on behalf of the Issuer, has purchased or intends to purchase from a Lending
Institution pursuant to the Agreement.
"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, including any
prepayment penalty, fee, premium or other such additional charge, less the
amount retained by any Lending Institution as servicer of such Loan as
additional compensation on account of such prepayment; (2) the sale,
assignment or other disposition of any Loan; (3) the acceleration of any Loa!
(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 calculatio
th-e amount required to be paid by the City on a given date for the retiremer
of Term 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
hereunder in investments other than Loans during the period for which the
calculation is being made, calculated on the basis of semiannual compoundint
"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, authenticate
and delivered by or on behalf of the Trustee under the Indenture except
(1) Bonds theretofore cancelled by the Trustee or surrendered to the Truste for cancellation; (2) Bonds with respect to which all liability of the Issu
shall have been discharged in accordance with the Indenture, including Bond
(or portions of Bonds) for which the Trustee is holding money in trust for
payment of particular Bonds (or portions thereof); and (3) Bonds for the
transfer or exchange of or in lieu of or in substitution for which other Bo
shall have been authenticated and delivered by or on behalf of the Trustee
pursuant to the 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 calculatic
such amount as may at any time and from time to time be fixed or determinec
the Trustee, with notice thereof to the City, as necessary to be accumulatf
in the Program Expense Fund as a reserve for the uses to which amounts in :
fund may be applied pursuant to the Indenture.
27 040181-0022-118-4302111 06/0
c
"Qualified Program Expenses" means the following of the City's expenses
in carrying out and administering the Program: (1) 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) and the
Trustee and (2) insurance premiums with respect to any special hazard
insurance required to be maintained on or with respect to any one or more
Loans pursuant to the Indenture.
''Revenues'l means all amounts received by the City or the Trustee from or
with respect to any Loan, any Agreement, any Developer Agreement or any polic:
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 this Indenture (except the Excess Earnings
Fund), but shall not include (1) Impound Payments, (2) any amount retained by
any 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 January 1 through June :
and the period from July 1 through December 31 in any year in which there art
Bokds Outstanding.
Pledge and Assignment
Pursuant to the Indenture, the City assigns all of the Revenues (as
hereinafter defined), all of the proceeds of the Bonds and amounts (other th
Excess Earnings) held in any fund or account established under the Indenture
together with all of the right, title and interest of the County in each Loa
each Agreement and each Developer Agreement for the benefit of the owners of
the Bonds.
Establishment of Funds
The Indenture establishes the following funds and accounts to be held k
the Trustee: (1) the Revenue Fund; (2) the Estimated Excess Earnings Account
(3) the Excess Earnings Fund; (4) the Program Expense Fund: (5) the Bond Fur
(6) the Bond Reserve Fund; and (7) the Redemption Fund.
Bond proceeds are to be deposited as described under llSources and Uses
Funds" herein, and the transfer and disbursement of Bond proceeds and Revenr
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 t
Indenture (other than those monies in the Program Fund which have been
reserved to pay Costs of Issuance on the Bonds) shall be invested by the
Trustee in Investment Securities to maximize investment income, with proper
28 040181-0022-118-4302m 06/05
L
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 County as to such investment..
Moneys in all funds and accounts established under the Indenture shall b
invested in Investment Securities paying interest and maturing not later thal:
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 fc
puroses of making investments, and all gains and losses shall be allocated ratably.
All interest and other profit derived from such investment shall be
deposited when received in the Revenue Fund.
as an investment of moneys in any fund or account established under the
Indenture shall be credited to such fund or account. For the purpose of
determining the amount in any such fund or account, the amount of any
obligation allocable thereto shall be equal to the purchase price of such
obligation (not including accrued interest, if any, paid on the purchase of
such obligation) plus the amount of any discount below par accounting for an
such discount ratably each year over the term of such obigation (i.e., by
dividing the amount of such discount by the number of interest payment dates
having passes since the date of purchase); provided, however, that the
amcountof any accrued interest on any obligation shall be crdited to the
Revenue Fund or to any fund or account to which such amount or any portion
thereof may have been transferred from the Revenue Fund.
Investment Securities acquired
The Trustee may sell at the best price obtainable, or present for
redemption, any Investment Securities so purchased whenever it shall be
necessary in order to provide money to meet any required payment, transfer,
withdrawal or disbursement from the fund or account to which such Investmen.
Security is credited, and the Trustee shall not be liable or responsible fo:
any loss resulting from such investment.
Covenants of the City
The City warrants and covenants, among other things:
(1) To punctually pay all Revenues received by it to the 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,
re quire d :
(4) To keep or cause to be kept proper books for all the Prograr
transactions described in the Indenture and to file a copy of its ann1
report pertaining to such transactions with the Trustee and provide SI
report to each Owner who has filed his name and address for such purpc
29 040181-0022-118-4302m 06/0
.
*
(5) To the extent permitted by law, not to claim the advantage of
any laws which may adversely effect 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 aLI 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 Agreements
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 an
redemption premium, if any, and interest on the Bonds and any expenses
and other amounts required to be paid under the Indenture and the
Agreements, and after full payment of all of said amounts, to execute an
documents or do such other things as may be necessary to relieve the
Mortgagors of their obligations remaining under the Loans.
Supplemental Indentures
Supplemental Indentures may be adopted at any time to:
(1) Add covenants and agreements to further secure the Bonds or tc
surrender any right or privilege of the City reserved or conferred undei
the Indenture;
(2) Nodify the Indenture subject to consent of Owners as describe
below;
(3) Cure ambiguities and defects or inconsistent provisions of an
add clarifying provisions to the Indenture; and
(4) Permit qualification of the Indenture under the Trust Indentu
Act of 1939, as amended, or similar statute.
Amendment of the Indenture
With the exception of amendments outlined 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 Ownei
of at least 60% of the principal amount of Bonds outstanding, such consent I
be obtained in writing.
maturity of any outstanding Bonds, or any interest date or reduce the
principal amount or redemption price or rate of interest without the consenl
No such amendment may change the redemption or
30 040181-0022-118-4302m 06/ 0 5
n
%
of the Owners affected nor may the percentage required for consent be reduce1
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;
(2)
(3)
Default in the payment of interest when due;
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 right
by any court of competent jurisdiction, of custody or control of the
County of 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 concurrence of an event of default, the Trustee or the Owners
c
a majority of outstanding Bonds may, upon written notice to the City, declar
the principal of all Bonds and the interest accrued thereon to be immediate1
due and payable, and upon such declaration, the same is to become immediate]
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 t
Bonds payment of which is overdue, with interest on such overdue principal i
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 therefoi
then, the Owners of not less than a majority of the Bonds then outstanding,
written notice to the City and to the Trustee, may, on behalf of the Owners
all of the Bonds, rescind and annual such declaration and its consequences 2
waive such default; but no such rescission and annulment shall extend to or
shall affect any subsequent default, or shall impair or exhaust any right 01
power consequent thereon.
Upon the happening of an event of default, the Trustee may, and shall
upon written request of the Owners of at feast 25% of outstanding Bonds,
proceed to enforce its rights or the rights of such Owners by such appropri:
proceeding as it may deem effectual to protect and enforce such rights.
31 040181-0022-118-4302m 06/05,
.
In the event of an insufficiency of funds to pay principal and sinking
fund installments, redemption prices or interest then due (after payment of
expenses, charges and liabilities of the Trustee and other required expenses)
the balance of funds then available (other than funds held for the payment or
redemption of particular Bonds which have theretofore become due at maturity
or by call for redemption) shall be applied as follows if less than all Bonds
are due and payable:
First, to payment of interest in the order of maturity of
installments, or, if funds are insufficient to pay any installment in
full, ratably, by amounts due, without discrimination or preference.
Second, to payment of unpaid principal or sinking fund installments
or redemption price of Bonds which are due in the order of due dates,
and, if insufficient to pay in full all Bonds due on any one date,
ratably, by amount due, without discrimination or preference.
If all the Bonds are due and payable, and a like insufficiency exists, available funds shall be applied to payment of principal and interest,
ratably, without preference or priority, according to total amounts due.
The timing of such payments on default is in the discretion of the
Trktee. The method of conducting remedial proceedings by the Trustee may I:
directed in writing by Owners owning a majority in principal amount of the
Bonds; provided, however, the Trustee may decline to follow any such directi
which, in the opinion of the Trustee, would be unjustly prejudicial to other
Owners.
No Owner has any right to institute any suit, action or other proceedir
under the Indenture or for the protection or enforcement of any right therei
granted or any right granted under the law, unless such Owner has given to t
Trustee written notice of the event of default or breach of duty on account
which suit, action or proceeding is to be taken, and unless the Owners of nc
less than 25% in principal amount of the Bonds then outstanding have made
written request to the Trustee to exercise the powers granted in the Indenti
or to institute such action, suit or proceeding in its name and unless, alsc
there shall have been offered to the Trustee reasonable security and indemn
against the costs, expenses and liabilities to be incurred therein or there1
and the Trustee shall have refused or neglected to comply with such request
within 60 days after such written request and tender of indemnity; and such
notification, request, and offer of indemnity are declared in every such ca
to be conditions precedent to the execution of the powers under the Indentu
or for any other remedy under law. The Indenture prohibits actions which m
adversely affect rights and interests of Owners.
Discharge of Indenture
Full payment of principal, interest and redemption price of all
outstanding Bonds terminates all rights and obligations under the Indenture
32 040181-0022-118-4302m 06/0.
The lien of the Indenture and the pledge of the Revenues are also fully
discharged if (i) there shall have been deposited with the Trustee and set
aside in a special trust fund either moneys or direct and general obligation:
of the United States of America, the principal and interest on which when duc
will be sufficient to pay all principal or redemption price and interest due
or to become due on or prior to maturity or redemption date of the Bonds, an
(ii) with respect to Bonds to be redeemed prior to their maturity, notice of
such redemption shall have been given in accordance with the provisions of t
Indenture or provision satisfactory to the Trustee shall has been made for t
giving of such notice.
The Trustee
Security Pacific National Bank is the Trustee. Unless an Event of
Default shall have occurred and be continuing, the Trustee shall perform on1
such duties as are specifically set forth in the Indenture and the Agreement
During the existence of an Event of Default, the Trustee shall exercise suck
of the rights and powers vested in it by the Indenture, and use the same
degree of care and skill in their exercise, as a prudent man would exercise
use under the circumstances in the conduct of his own affairs. The Trustee
not liable in connection with the performance of its duties under the
Indenture, except for its own negligence or default. The Trustee may become
th> owner of Bonds with the same rights it would have if it were not Trustet
The County may remove the Trustee at any time unless an Event of Default shi
have occurred and then be continuing and shall remove the Trustee if at any
time requested to do so by the holders of not less than a majority in
aggregate principal amount of the Bonds then Outstanding or for certain otht
causes set forth in the Indenture. The Trustee also may resign at any time
Upon removal or resignation of the Trustee, the County shall promptly appoi a successor Trustee. Any Trustee must be a trust company or bank having th
powers of a trust company, having a corporate trust office in Los Angeles,
California, having a combined capital and surplus of at least $100,000,000,
and must be subject to supervision or examination by federal or state
authority.
NO LITIGATION
There is no litigation or controversy of any nature now pending or
threatened to restrain or enjoin the sale, execution, issuance or delivery
the Bonds or in any way contesting the validity of the Bonds or any
proceedings of the City taken with respect to the authorization, sale or
issuance of the Bonds, or the pledge or appli.cation of any moneys, Pledged
Revenues or securities provided for the payment of or security for the Bonc
the existence or powers of the City or the title of any officers of the Cii
to their respective positions, or having any significant effect on the soul
of income to be collected which contribute to the Revenues. The City will
certify upon delivery of the Bonds.
33 040181-0022-118-4302111 06/0
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LEGALITY AND TAX EXEMPTION
General
All legal matters in connection with the issuance of the Bonds are
subject to the approval of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Newport Beach, California, Bond Counsel. Certain legal matters
will be passed upon by Orrick, Herrington & Sutcliffe, A Professional
Corporation, San Francisco, California, Counsel. to the Underwriters. Fees
payable to Bond Counsel are contingent upon the sale and delivery of the Bonc
In the opinion of Bond Counsel, under existing statutes, regulations,
rulings and judicial decisions, interest on the Bonds is exempt from present
federal income taxes and from present State of California personal income
taxes. Bond Counsel is further of the opinion that, in order for interest or
the Bonds to be exempt from federal income taxes from the date the Bonds are
delivered, Section 103A, requires that the City meet certain requirements on
continuing basis.
least ninety-five percent (95%) of the proceeds of the Bonds used to purchasl
Loans is devoted to Loans which meet the requirements of said Section 103A a
the time such Loans are executed, and assuming further that the City complie
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.
Bond Counsel is further of the opinion that, assuming at
Section 103A provides that interest on "mortgage subsidy bonds", such a
the Bonds, is exempt from federal income taxation under certain conditions.
The following conditions imposed by Section 103A relate to future events: (
all Loans are required to be made with respect to Residences which can
reasonably be expected to become the principal residence of the Mortgagor
within a reasonable time and which are located within the jurisdiction of th
City; (2) at least 90% of the principal amount of the Loans must be made to
Mortgagors who have not had a present ownership interest in a principal
residence at any time during the 3-year period prior to execution of the Loa
(3) the acquisition cost of Residences financed with Loans may not exceed 11
of the Average Area Purchase Price; (4) none of the Bond proceeds may be use
to acquire or replace an existing mortgage: and (5) any person permitted to
assume a Loan is required to meet the conditions set forth above in (l), (2)
and (3).
In connection with the execution or assumption of Loans, temporar]
regulations of the Internal Revenue Service authorize the City to rely on
affidavits or mortgagors as to (1) intention to use a Residence as a princi]
residence; (2) no present ownership interest within the 3 prior years
(accompanied by federal income tax returns); and (3) affidavits of the
mortgagor and the seller of the Residence that the Loan is not replacing an
existing loan and the acquisition cost does not exceed the applicable
percentage of the Average Area Purchase Price which is fixed by reference ti
"safe harbor" amounts published and to be published by the Internal Revenue
Service. Loans on Residences covered by the City's Program as required wil
not replace existing mortgages within the meaning of Section 103A.
34 040181-0022-118-4302111 06/05
Section 103A(c)(2)(B)(ii) and (iii) and the temporary regulations thereunder
provide that, if the conditions summarized above are met at the time the Loar
were executed with respect to 95% of the Bond proceeds available for making
Loans and corrective measures were taken with respect to those Loans which d:
not meet those conditions, interest on the Bonds will remain exempt from
federal income taxation. Section 103A also contains certain other
requirements affecting the structure of the Program, the terms of the Loans
and arbitrage earnings (if any) with respect to certain funds. The City mus'
make a good faith attempt to meet these additional requirements and any
failure by the City to meet these requirements is permissible only if due to
an inadvertent error after taking reasonable steps to comply with such
requirements. The City has also covenanted in the Indenture to meet these
requirements and the City has agreed to take all steps necessary to comply
with these requirements so long as any of the Bonds are outstanding.
Developer Agreements, the Agreements and the Indenture to do incorporate the
"safe harbor" procedures of Section 103A and require certain affidavits and
certifications (and provide penalties for inaccuracies of such affidavits an
certifications) by the City, the mortgagors, the sellers of the Residences a the Lending Institutions which, if accurate, are believed by the City to mee these conditions. In the opinion of Bond Counsel, the Agreements and the Indenture have been drafted so that these structuring and safe harbor
requirements are satisfied.
co%enants described above should assure compliance with Section 103A.
Nevertheless, if it is determined that more than 5% of the principal amount
Loans violate certain requirements of Section 103A, the interest payments on
the Bonds may lose their federal income tax exemption.
The
The City believes that the procedures and
CERTAIN VERIFICATIONS
, a firm of independent certified public accountant has verified the mathematical accuracy of the computations relating to the
sufficiency of projected cash flow receipts and disbursements on the Loans a
reserve funds to pay the principal of and interest on the Bonds.
the Bonds supporting the conclusion of Bond Counsel that the Bonds are not
arbitrage Bonds within the meaning of Section 103(c) and comply with Section
103(A)(i) of the Internal Revenue Code of 1954, as amended.
assumptions upon which such computations are based nor on the attainability
the resultant projections.
has also computed the actuarial yield on the Loans and
expresses no opinion on the attainability of the
UNDERWRITING
The Underwriters have agreed, subject to certain conditions, to purchas
less than the initiz the Bonds from the City at a price which is $ public offering prices set forth on the cover page.
obligations are subject to certain conditions precedent, and they will be
obligated to purchase all the Bonds, if any Bonds are purchased.
may be offered and sold to certain dealers, banks, and other parties at pric
The Underwriters'
The Bonds
35 040181-0022-118-4302m 06/05,
lower than the initial offering prices, and such initial offering prices may
be changed from time to time by the Underwriters.
ADDITIONAL INFORMATION
Any statements in this Official Statement involving matters of opinion,
whether or not expressly so stated, are intended as such and not as
representations of fact. This Official Statement is not to be construed as a
contract or agreement between the City or the Underwriters and the purchases,
holders or owners of any of the Bonds.
The execution and delivery of this Official Statement has been duly
authorized by the City. Concurrently with the delivery of the Bonds, the Cit
will furnish a certificate executed on behalf of the City by an authorized
officer of the City to the effect that this Official Statement, as of its dat
and as of the date of delivery of the Bonds, does not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements herein, in the light of the circumstances under which the
were made, not misleading.
CITY OF CARLSBAD
BY
36
040181-0022-118-4302111 06/05
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3
APPENDIX A
[TO COME]
A- 1
040181-0022-118-4302m 06/05,
lf6 7%So r'
1
7/\7/ I 9 5 &-
FJ&% APPENDIX B
THE LENDING INSTITIJTIONS
Gene r a1
Loans to be originated by the Lending Institutions are to be under-
written generally in accordance with the standards established by FHLMC in
order to assess the prospective mortgagor's ability to repay the mortgage
loan. California is an "anti-deficiency" state which means that, in general
lenders on single family residences must look solely to the property for
repayment in the event of default. Accordingly, the loan underwriting proce:
is intended to insure that the value of the property being financed current11
supports, and will in the future support, the Loan with such excess value
sufficient to mitigate a limited adverse shift in the real estate market. TI
Lending Institutions will sell Loans to the Trustee on a nonrecourse basis
except as to the representations made at the time of sale.
Each Lending Institution will originate and service Loans in the
following amounts :
Lending Institution Allocation
The Lending Institutions
The following is a summary of each Lending Institution's experienc
in origi- nating and servicing residential family mortgage loans.
information regarding each Lending Institution was provided by each Lending
Institution, and neither the City nor the Underwriters 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 Institutions 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 Lendj
Institutions.
The
B- 1
(1
I
APPENDIX C
THE CITY
The following information concerning the City is included only for
the purpose of supplying general information regarding the City. Neither th
faith and credit nor the taxing power of the City, the State of California o
any political subdivision thereof is pledged t-o the payment of the Bonds, an
the Bonds are limited obligations of the City payable solely from and secure
by the revenues and assets pledged therefor.
c