Housing values in Miami-Dade County have steadily increased in the past five years, making homeownership a huge challenge for potential low-income buyers. In one year from 2002 to 2003 the average sales price in Miami-Dade County increased from $154,000 to $174,000. Assessed values of properties have increased as they are sold, thereby making real estate taxes higher. Insurance premiums have also continued to increase.

In this context of rising housing prices, Miami-Dade Housing Agency (MDHA) is charged with the responsibility of using Surtax, SHIP, and HOME programs to make homeownership affordable for qualifying low-income families through a second mortgage. In an effort to maximize the limited funds, MDHA has required borrowers to pay the highest monthly payment for which they qualify. All of this makes it difficult for low-income borrowers to bridge the gap between the increasing market value and their stagnate income.

The Problems

MDHA has chosen to use policies and procedures for second mortgage loan approval and funding that are too slow and unclear, include unnecessary steps or documents, and ask lenders to do things that violate federal law.

• MDHA confuses and mixes the required income certification of the borrower for SHIP eligibility and the qualifying income of the borrower for the loan. While SHIP requires projecting income for the whole household ahead for a year, standard underwriting criteria requires using only the loan applicants income from the past.
  


• MDHA often insists that lenders violate the Federal Equal Credit Opportunity Act (ECOA) by asking lenders to obtain and provide to them documentation on persons who are not part of the loan transaction (i.e. a spouse who is not applying).
  


• MDHA is often needlessly more restrictive than the federal or state government or local lenders regarding citizenship status.
  


• MDHAs random, arbitrary, and unannounced changes in the guidelines mean that lenders are unaware of the requirements.
  


• The MDHA chart is ambiguous regarding the second mortgage amount and the interest rate, meaning that any two reasonable people could select a different loan amount and different interest rate. This results in MDHA staff restructuring the loan and delaying the closing.
  


• MDHA staff are expected to carry out functions for which they have not been trained. Staff do not keep up with the changing nature of the mortgage lending law and practice.
  


• MDHA staff add unnecessary steps to the preparation for closing, even after their supervisor or the lender clearly points out the problem. MDHA often delays the entire process significantly beyond industry standards from checking in the file initially to closing the loan.
  


• MDHA will change the funding source for loan part way through the approval process and require addition documentation.
  


• Some files are not opened for one to two weeks after a lender submits it. Delays in opening the file mean that borrower documents are stale before the file is opened. MDHA has no system to inform lenders which staff is handling their file.
  


• House inspections required by MDHA are often not requested until the rest of the loan is nearly ready for closing, rather than immediately upon receiving the file, needlessly extending the closing date. Often the inspection will reveal issues that need to be resolved before closing that could be addressed while other things are proceeding.
  


• MDHA staff do not all ask for the same documents so that the lender does not know for sure how to prepare the file.
  


• MDHA demands verification of employment for SHIP/SURTAX-funded loans rather than proof of an effort to obtain it which is what SHIP/SURTAX requires; this difference delays the preparation of the file.
  


• Too often MDHA staff attempts to re-process and re-underwrite the loan, which seriously delays the closing; they often dont trust their lender partners work.
  


• MDHA adopted the strange lending practice of allowing lenders to submit loans only during a three-day window every two months.
  


• MDHA does not make available to its lending and CDC partners the amount of funds available from each of the funding sources.
  


• MDHA has set an artificial cap on the sales price that has no relation to the local housing market.
  

The context and the problems with the second mortgage program at MDHA cry out for change and improvements. The original concept for the second mortgage program is exactly what Miami-Dade County needs. Those people who created the program were visionary people who know what this community needed. The following are two options to improve the delivery of the funds to eligible homebuyers.

Option One

MDHA makes the required changes and improvements to the program and the process in order to overcome the problems and close loans in a timely manner.

• MDHA must separate the income certification of the borrower for SHIP eligibility and the qualifying income of the borrower for the loan. MDHA staff will do the income certification of the borrower for SHIP eligibility and the participating lenders will do the qualifying income of the borrower for the loan. MDHA does not need to duplicate the work of the lender; it must have a reasonable trust in the capacity of lenders to do the loan processing and underwriting that they are in business to do. Lenders who prepare unsatisfactory loan files will be asked to leave the program.
  


• MDHA must stop requiring lenders to gather information from borrowers that violate federal law. MDHA must stop adding requirements that federal and state programs do not require.


• MDHA must establish unambiguous, public underwriting guidelines for the program, with the loan amount and interest rate chart revised to reasonable clarity.


• MDHA must establish a policy for not pushing the ratios to the limit thereby pushing folks out of the housing market or creating homeowner financial instability when taxes and insurance go up and there is no margin to absorb it. The lenders recommend that the housing ratio is acceptable if it is between the range of 30-33% of borrowers gross monthly income. The combined CLTV (combined loan to value) must accommodate the second mortgage subsidy.


• MDHA must hire knowledgeable staff and provide adequate training at all staffing levels, recognizing that the mortgage lending industry continues to change. MDHA at all levels must require its staff to consistently follow the guidelines of the program and not allow staff to independently determine the rules. Staff who choose not to use the guidelines must be disciplined and/or dismissed.


• MDHA must establish clear, public, timely, and ongoing internal processes for taking a loan from intake to closing so that lenders and borrowers know that the inspection has been ordered, how the loan is being funded, and who is doing what and when. This means establishing a certain number of days for certain tasks, such checking the file in and confirming the reservation of funds with the lender within three days.


• All MDHA staff must ask for the same documents and MDHA administration must stop requiring verification of employment for SHIP-funded loans and ask only for proof of an effort to obtain it.


• MDHA must announce no less than monthly the amount of funds available from each of the funding sources and the number and dollar amount of loans closed in the previous month.


• MDHA must establish a sales price cap, similar to FHA and Fannie Mae that adjusts each year reflecting the previous years housing market activity.
  


• MDHA must establish a regular monthly meeting with lenders and CDCs in order to review and improve loan underwriting guidelines and general expectations of the program.
  

MDHA does not re-underwrite the loan, instead, MDHA bootstraps onto the underwriting that has already been done for that transaction.

• Under this option, MDHA would not directly underwrite its loans. Instead, it would establish the desired underwriting criteria for its second mortgage program and would do the income certification of the applicants.
  


• The participating private sector lenders would originate, process, and underwrite their loans based on the criteria set by MDHA. MDHA does not re-underwrite the loan.
  


• After the private sector lender has completed its underwriting, the file would be submitted to MDHA which would then review income, family size, the amount of the loan, and interest rate. If the private sector lender had underwritten the loan correctly MDHA would proceed expeditiously by sending the request to the accounting department for funding the loan. Each lender will sign a certification to MDHA for each file that the loan was approved in accordance with the standards of the mortgage lending industry. Lenders who prepare unsatisfactory loan files will be asked to leave the program.


• If implemented, this procedure would be similar to what other local government agencies are already doing with their second mortgage programs (Miami-Dade Housing Finance Authority, City of Miami, and Broward Housing Finance Authority).


• MDHA must establish a regular monthly meeting with lenders and CDCs in order to review and improve loan underwriting guidelines and general expectations of the program.
  

Conclusion

It is clear that the management and implementation of the second mortgage program at Miami-Dade Housing Agency has reached a crisis point. Unlike the present situation, the lender partners associated with the program must be allowed a material role in the policy and decision making process involving these and any agency-recommended policy and procedure changes going forward. As lender partners we assert that our position is valid based on individual and corporate experience. As regulated financial institutions with a federally legislated mandate to serve this vital segment of the population, we can no longer continue our support of a Miami-Dade County housing assistance program whose often uninformed policies and arbitrary decisions directly and adversely affect our ability to serve the needs of homebuyers of low and moderate income. To perpetrate such an environment will only continue to erode each of our institutions hard-earned corporate goodwill with the citizens of our community.