F–5 STANDING COMMITTEES Finance and Asset Management Committee

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Approve Internal Lending Program Distribution for Down-Payment Assistance to Faculty Members RECOMMENDED ACTION It is the recommendation of the Finance and Asset Management Committee that the Board of Regents approve an annual distribution from the Internal Lending Program (ILP) Program Fund of $1 million per year from Fiscal Year (FY) 2020 to FY 2022 to fund a pilot Down-Payment Assistance Program (Program) to support recruitment and retention of members of the Faculty.

BACKGROUND

Rising housing prices in Seattle make the recruitment and retention of faculty members more difficult. Many peer institutions the University competes with for these faculty offer housing assistance programs or are located in more affordable housing markets. The proposed Program will make the University more competitive with offers to priority faculty hires. Aside from the economic benefits of housing assistance, down payment assistance programs tend to “ground” faculty to the institution and the area and can reduce faculty turnover. This Program is part of a broader effort to improve housing affordability for all employees at the University. Since 1998, the University has participated in the Hometown Home Loan Program that offers employees a series of discounts on mortgages and access to special programs. More than 3,340 employees have taken part in this program. More recently, the University built a workforce housing project in partnership with Children’s Hospital that included 37 affordable units for those making 65 percent to 85 percent of area median income. The University is currently in a partnership with Seattle Housing Authority to build 150 units for those making 60 percent of area median income. The University also committed to building more affordable housing as part of the Campus Master Plan. THE PROGRAM The Program will be available to all faculty upon recommendation from the Provost and the Vice Provost for Academic Personnel. It will provide a cost-effective alternative to a traditional thirty-year mortgage structure with a 90-percent first mortgage and a 10-percent down payment. The Program will allow for up to 10 percent of the price of a home to be borrowed at a below-market interest rate with deferred monthly payments. Based on the current median price

STANDING COMMITTEES Finance and Asset Management Committee Approve Internal Lending Program Distribution for Down-Payment Assistance to Faculty Members (continued p. 2)

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of a house in Seattle, the Program can save a faculty member nearly $600 per month on his or her mortgage payment. The initial interest rate on the Program will be 3.5 percent, as compared to current market rates for second mortgages of 6 percent. Additionally, the payment of interest on the Program can be deferred for up to seven years. By utilizing the Program, the borrower can also avoid costly Private Mortgage Insurance (PMI). Below is an example of potential savings from using the Program assuming a 10 percent down payment and a $675,000 purchase price:

Years 1-7

Conventional Mortgage (90%/10%)

With UW Down Payment Assistance (80%/10%/10%)

Monthly Savings

1st Mortgage Payment 3,261 2,899 362 Second Mortgage Payment n/a deferred n/a Private Mortgage Insurance 253 0 253 Total Years 1-7 (per month) 3,514 2,899 615 Years 8-30 1st Mortgage Payment 3,261 2,899 362 2nd Mortgage Payment 0 444 (444) Total Years 8-30 (per month) 3,261 3,343 (81) Total Payments (30 years) 1,195,291 1,166,050 29,242

The loan will be payable in full at separation from the University or sale or refinance of the purchased property. If the loan remains outstanding after seven years, the borrowed amount and the accrued interest will amortize for 23 years. The University is partnering with the Washington State Housing Finance Commission (Commission) to service the loans and report on the Program. The Commission is an agency of the State of Washington that is dedicated to increasing housing access and affordability and to expanding the availability of quality community services for the people of Washington. The Commission has extensive experience with managing down payment assistance programs.

STANDING COMMITTEES Finance and Asset Management Committee Approve Internal Lending Program Distribution for Down-Payment Assistance to Faculty Members (continued p. 3)

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Withdrawals from the ILP Program Fund for this purpose requires the approval of the Board of Regents pursuant to Section 4(f) of the University’s Debt Management Policy. A list of Program Fund withdrawals will be included in the annual Program report to the Board. FUNDING PLAN The Program will initially be funded with ILP reserves in the amount of $1 million per year for FY 2020-2022. These funds will be available each June, and will be used to originate Program loans. As loans are repaid, available funds will be used to make future loans. To create a program that funds ten loans a year in perpetuity, approximately $7 million will need to be contributed, or $1 million per year for seven years. In the seventh year, enough loans will be repaid to allow the program to become self-sustaining. Funding has not yet been identified beyond the first three years. The Treasury Office has evaluated the impact of the initial contribution of $1 million per year for three years and believe that making this investment will not have a material effect on ILP rate stabilization. However, any distributions from the ILP increase the likelihood that the ILP rate will need to be increased for internal borrowers. APPROVALS This item has been reviewed and approved by the Provost, the Vice President for Finance, and the University Treasurer. Attachment Faculty Down Payment Assistance Program

FACULTY DOWN PAYMENT ASSISTANCE PROGRAM

BOARD OF REGENTS

FINANCE AND ASSET MANAGEMENT COMMITTEE

April 10, 2019

ATTACHMENTF-5.1/204-19 4/10/19

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Why a Down Payment Assistance (DPA) Program?

Cost of housing is making recruitment of faculty more difficult• Seattle remains in the top-10 most expensive metro areas for housing• Seattle area vs. peer institution areas (average):

Despite existing housing assistance programs, UW’s portfolio of support is lagging other institutions in higher priced areas

DPA Program adds to the portfolio of available options to support housing needs for UW faculty and can “ground” faculty to the UW and the Seattle area

Down payment assistance can provide a meaningful benefit with a relatively small investment

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$0

$200,000

$400,000

$600,000

$800,000

Median Home Value

$0

$1,000

$2,000

$3,000

Median Rent Price

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What are UW’s Existing Housing Assistance Programs?

Hometown Home Loan Program offers reduced mortgage costs, assistance programs and education for all UW employees

Partnership with Seattle Children’s to build affordable workforce housing in the U District

Visiting Faculty Office connects people with housing available for temporary use

Whole U promotes affordable housing resources to employees

Partnership with Seattle Housing Authority to build 150 affordable units at 4201 Roosevelt Way

UW commitment to build 300 additional affordable units as part of Seattle Campus Master Plan

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What Housing Programs do Other Schools Have?

Institution Name

Faculty Housing Inventory?

First MortgageOrigination?

DownPayment Assistance?

Grant or Ongoing Subsidy?

UC Berkeley

UCLA

Stanford

U British Columbia

Columbia

USC

Harvard

Ohio State

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How will UW’s DPA Program work?

UW’S DPA PROGRAM WILL OFFER LOANS TO FACULTY WITH FAVORABLE TERMS

AT BELOW MARKET INTEREST RATES

The interest rate is initially set at 3.5%

DPA loans are up to 10% of the home price with a maximum loan amount of $90,000

Payments are deferred for 7 years

Loans are payable upon sale/refinance of the house or separation from the UW

If the loan remains outstanding by year 7, the balance plus interest is payable over the next 23 years (maximum term = 30 years)

LOAN AVAILABILITY AND ALLOCATION

10 faculty loans per year

Participants are determined by the Provost’s Office in consultation with Deans and Chairs

Initially, the Program will focus on new assistant and associate faculty hires

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How Much Could the Program Benefit Faculty?

Over the first seven years, a participant could save about $600 per month on their mortgage payment or about $29,000 over the life of the loan when compared to a traditional 90% first mortgage with a 10% down payment and mortgage insurance

Assumptions:• $675,000 home purchase price (current Seattle median)• 30 year overall term• 5% interest rate on 1st mortgage• 3.5% interest rate on UW Down Payment Assistance Program (interest deferred for 7

years, then amortizing for the remaining term of 23 years)

Years 1-7

Conventional Mortgage (90%/10%)

With UW Down Payment

Assistance (80%/10%/10%)

Monthly Savings

1st Mortgage Payment 3,261 2,899 362

Second Mortgage Payment n/a Deferred n/a

Private Mortgage Insurance 253 0 253

Total Years 1-7 (per month) 3,514 2,899 615

Years 8-30

1st Mortgage Payment 3,261 2,899 362

2nd Mortgage Payment 0 444 (444)

Total Years 8-30 (per month) 3,261 3,343 (81)

Total Payments (30 years) 1,195,291 1,166,050 29,242

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Partnership with Washington State Housing Finance Commission

The Washington State Housing Finance Commission (Commission)• Acts as a bridge between lenders and the University

• Externally administers the program on behalf of the UW

• UW still responsible for managing relationship with the Commission, including operations, Program accounting and Board and UW-wide reporting

The Commission is a State agency with deep experience and expertise in affordable housing lending programs

UW will leverage the Commission’s existing down payment assistance program structure – Community Second Mortgages• Avoids need to get regulatory approval and manage new lending program

Access for UW employees to other Commission programs:• Homebuyer education

• House Key First Loans (Below-market rates)

• Home Advantage Down Payment Assistance (up to 4%)

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How is the Program Funded?

The DPA Program will be initially funded with Internal Lending Program (ILP) reserves

• ILP will contribute $1 million per year for three years

• No fund source has been identified beyond the third year

• The funds identified meet constitutional limitations on lending and the use of funds

Providing 10 loans per year requires an annual contribution of $1 million for about 7 years before the Program becomes self-sustaining

• Actual lending and repayment patterns will determine when the Program is self-sufficient

If less than 10 loans are made in any year, unused Program capacity will be available in the subsequent year

All repaid interest and principal will be used to fund new loans

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Ongoing Program Management

Continued strong partnership between the Provost’s Office, Treasury and Financial Accounting will assure a successful launch

If action is approved by the Board, expect to make first loans by summer 2019

Hiring season reporting will be made to the Regents by the Provost Office• Number of new faculty assisted

• Benefiting departments

• Recruiting impact

Financial status of DPA Program will be shared with Board as part of annual Debt Management Report each spring and will include:• Program Balance

• New loans made

• Loans repaid

• Changes in interest rates for new loans

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