Two California homebuyer assistance programs eliminate due-on calls to conform to new FHA rules.
CalHFA energy efficiency improvement grants
Health and Safety Code §51065.1
Added by A.B. 984
Effective date: August 12, 2013
The California Housing Finance Agency (CalHFA) may now make grants directly to homebuyers to supplement Federal Housing Administration (FHA)-insured energy efficient mortgage (EEM) loans. EEM loans provide financing for homeowners to make energy efficiency improvements recommended by a home energy rating systems (HERS) report.
CalHFA downpayment-assist sleeping seconds assumable on FHA-insured first mortgages
Health and Safety Code §51175, 51504
Amended by A.B. 984
Effective date: August 12, 2013
Downpayment assistance to first-time low- and moderate-income homebuyers is offered through CalHFA’s California Homebuyer Downpayment Assistance Program (CHDAP). The downpayment assistance comes in the form of a sleeping second with a balloon payment of principal and accrued interest. The CHDAP sleeping seconds are now only available directly through CalHFA.
Additionally, before this legislation was passed, the agency was permitted to call these sleeping seconds due and immediately payable when the owner sold, refinanced, or repaid their first mortgage.
CalHFA, acting as the lender on a sleeping second CHDAP trust deed note, may no longer call these sleeping seconds using a due-on trust deed provision when the homebuyer’s first mortgage is owned or insured by the FHA. Thus, CHDAP second mortgages may be assumed by a new buyer by taking title subject to the CHDAP trust deed.
Editor’s note – These “due-on” avoidance rules were made to comply with recent FHA rulings under the 2008 Housing and Economic Recovery Act. For homebuyers with FHA-insured or -owned first mortgages, state and local agencies may no longer call their sleeping seconds due and immediately payable if the owner sells, refinances, or repays the FHA-insured first mortgage.
It’s not clear how many buyers will choose to assume these sleeping second mortgages, since assumption is only an advantage to the buyer in periods of rising interest rates. Nevertheless, the FHA rule prohibits CalHFA from interfering with the transfer of ownership in these cases.
Assumability means longer repayment periods for CHDAP sleeping seconds, but this is trumped by CalHFA’s mission to make homeownership accessible to a greater number of Californians.California made these changes to prevent the FHA ruling from effectively ending the CHDAP program, since 95% of CHDAP participants have FHA loans.
In a forthcoming article, we’ll discuss the implications of taking over CalHFA seconds.
