HomeMy WebLinkAboutResolution No. 1472306H JHHW:ACH:ea` 07/30/
RESOLUTION NO. 147
A RESOLUTION OF THE REDEVELOPMENT -AGENCY OF THE CITY OF AZUSA
DETERMINING TO AUTHORIZE THE ISSUANCE OF $20,000,000
PRINCIPAL AMOUNT OF RESIDENTIAL MORTGAGE REVENUE BONDS,
1984 SERIES A, SUCH BONDS TO BE ISSUED PURSUANT TO A
TRUST INDENTURE DATED AS OF THE DATE OF THE BONDS, AUTHORIZING
THE SALE OF SUCH BONDS, SUBJECT TO CERTAIN
TERMS AND CONDITIONS, APPROVING DISTRIBUTION OF
PRELIMINARY OFFICIAL STATEMENT RELATING TO SUCH BONDS,
DIRECTING SUBMISSION OF FINAL IMPLEMENTING AGREEMENTS AND
DOCUMENTS AND PROVIDING OTHER MATTERS PROPERLY RELATING THERETO
RESIDENTIAL MORTGAGE REVENUE BONDS, 1984 SERIES A
WHEREAS, Chapter 8 (commencing with Section 33750) of Part 1 of Division
24 of the Health and Safety Code of the State of California (herein called the
"Act") authorizes redevelopment agencies to issue revenue bonds for the
purpose of financing residential construction within redevelopment project
areas;
WHEREAS, for the purposes of financing residential construction within
the Azusa Central Business District Redevelopment Project Area of the Agency,
the Agency has developed a program (the "Residential Mortgage Financing
Program" or the "Program") with respect to ( i ) the issuance by the Agency of
its Residential Mortgage Revenue Bonds, 1984 Series A (the "Bonds"), to be
issued and secured by a Trust Indenture (the "Indenture"), and (ii) the use of
the Bond proceeds by the Agency to purchase without recourse from the lending
institution (the "Lender") certain mortgage loans (the "Mortgage Loans"), made
to finance single—family dwelling units (the "Residences") intended for use as
the permanent place of residence by qualified persons, which Mortgage Loans
are to be originated and serviced by the Lender pursuant to Mortgage Loan
Purchase Agreement and Servicing Agreement (the "Agreements");
WHEREAS, further to that end, the Agency and the developer of the
Residences will enter into an agreement (the "Commitment Contract"), for the
purpose of setting forth, among other things, the terms and conditions
pursuant to which the developer and the Lender will deliver Mortgage Loans for
purchase by the trustee under the Indenture on behalf of the Agency and the
Agency will reserve proceeds of the Bonds to provide funds for such purpose;
WHEREAS, Miller & Schroeder Municipals, _Inc. (the "Purchaser") as
underwriter to the Agency has caused a Preliminary Official Statement, dated
August 6, 1984, relating to the Bonds, to be submitted to the Agency for
approval for distribution to prospective purchasers of the Bonds;
WHEREAS, the Purchaser has submitted and intends to execute an agreement
for the purchase of the Bonds (the "Bond Purchase Agreement") and it is
desirable that the Bonds be sold at this time only, however, on the terms and
conditions hereinafter provided and in accordance with the provisions of the
form of the Bond Purchase Agreement submitted;
WHEREAS, preliminary forms of the Trust Indenture, the Agreements, the
Commitment Contracts and the other necessary implementing documents have been
presented to and reviewed by the Agency, with the aid of its staff, and such
documents shall be conformed to the terms and requirements of the Purchase
Agreement and be submitted to the Agency for approval for execution in final
form;
NOW, THEREFORE, IT IS HEREBY FOUND, DETERMINED and ORDERED, as follows:
1. The Redevelopment Agency of the City of Azusa Residential Mortgage
Revenue Bonds, 1984 Series A, in a principal amount of $20,000,000 are hereby
determined to be authorized to be issued pursuant to a Trust Indenture dated
as of the date of the Bonds, in form substantially as submitted at this
meeting, which Trust Indenture shall be prepared in final form to conform with
the provisions of the Bond Purchase Agreement and shall be submitted to the
Agency for final approval prior to the delivery of the Bonds to the Purchaser.
2. The Preliminary Official Statement relating to the Bonds, setting
forth such amendments and supplements as shall be necessary or convenient to
accurately describe the Bonds in accordance with this Resolution, the Trust
Indenture, the Purchase Agreement and the other related agreements and
documents, is hereby approved for distribution to such.broker-dealers, banking
institution and other persons as may be interested in purchasing the Bonds.
3. The Bond Purchase Agreement for, purchase of $20,000,000 principal
amount of the Bonds, in the form submitted to the Agency at this meeting is
hereby approved and the Executive Director of the Agency is authorized and
directed to execute the Bond Purchase Agreement on behalf of the Agency,
provided that all of the following conditions are met:
(a) The purchase price of the Bonds shall be not less than ninety
seven and two-tenths percent (97.2%) of the principal amount of the Bonds;
11.25%; and (b) The Bond interest rate for any maturity shall not exceed
(c) The Mortgage Loan interest rate shall not exceed 11.50.
provided that the Underwriters may make provision for adjustment of maturing
amounts of principal of the Bonds and the maturity dates as set forth in the
Preliminary Official Statement thereof in a manner which does not increase the
11.50% annual Mortgage Loan interest rate limitation above set forth. The
Executive Director shall insert and initial the final Bond interest rates and
the final purchase price in the space provided in the Bond Purchase Agreement.
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4. The Commitment Contract (and Reservation of Funds) with the
developer proposing to participate in the Agency's Program, the Mortgage Loan
Purchase Agreement and the Servicing Agreement to be entered into by and
between the City with the Lender proposing to participate in the Agency's
Program in form substantially as submitted at this meeting shall be prepared
in final form to conform with the provisions of the Bond Purchase Agreement
and shall be submitted to the Agency for final approval prior to the delivery
of the Bonds to the Purchaser.
5. This resolution shall take effect from and after its adoption.
ADOPTED and APPROVED this 13th day of August, 1984.
AYES, Members: Cruz, Cook, Latta, Moses
NOES, Members: None
ABSENT, Members: Camarena
ATTEST:
Secretary
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[H&M Doc. No. 0321H - 6/27/84]
PRELIMINARY OFFICIAL STATEMENT DATED , 1984
NEW ISSUE Standard & Poor's: (++)
(See "Bond Rating" herein)
In -the opinion of Bond Counsel, under existing laws, regulations, rulings and
judicial decisions interest on the Bonds is exemot from income taxation by
the United States of America and from personal income taxation imposed by
the State of California and by municipalities and other political subdi-
visions of said State. Such opinion will state that the exemption from
income taxation by the United States of America may become inapplicable
upon failure to meet the 95% requirement or the correction requirement
of Section 103A of the Internal Revenue Code of 1954, as amended, but
will further state that in the opinion of Bond Counsel, the
Agency has established and covenanted to observe
procedures which, upon compliance, meet
those requirements. (See "Legality
and Tax Exemption" herein).
$20,000,000*
REDEVELOPMENT AGENCY OF THE CITY OF AZUSA
Residential Mortgage Revenue Bonds
Series 1984 A
Dated: August 1, 1984 Due: As shown below
The Bonds are issuable as fully registered bonds only in denominations of
$5,000 or any integral multiple thereof. Interest on the Bonds is payable on
February 1, 1985, and semiannually thereafter on August 1 and February 1 in
each year. The principal of the Bonds will be payable at the principal
corporate trust office of Los Angeles, California,
Trustee and interest thereon will be payable by check or draft mailed to the
person entitled thereto.
The Bonds are being issued to provide funds for the purchase of Mortgage
Loans to be secured by new single family residences located within
the Redevelopment Project Area located in the City of Azusa,
California. The Mortgage Loans will be insured to the extent described herein.
The Bonds are subject to optional, special mandatory and sinking fund
redemption prior to maturity on the terms described herein. It is expected
that a portion of the Bonds will be redeemed at par prior to their respective
maturities or scheduled sinking fund redemption dates.
The Bonds are special obligations of the Aqency payable solely from
payments made on and secured by a pledge of Mortgage Loans (and any insurance
payments made with respect thereto) and amounts (including certain interest
earnings thereon) held by the Trustee The Bonds will not be payable from any
of the Agency's other revenues, moneys or assets. Neither the faith and
credit nor the taxing power of the City of Azusa, the State of California or
anv political subdivision thereof have been pledqed to the payment of the
Bonds. y
Due Amount Rate Due Amount Rate
$ o Term Bonds Due 1,
$ % Term Bonds Due 1,
Price of all Bonds: _
(Plus Accrued Interest)
The Bonds are offered when, as and if issued and received by the
Underwriter, subject to the approval of their legality by Jones Hall Hill &
White, A Professional Law Corporation, San Francisco, California, Bond
Counsel, and certain other conditions. Certain legal and tax matters will be
passed upon by Haynes & Miller, Washington, D.C., Special Tax Counsel and
Counsel to the Underwriter. It is expected that the Bonds in definitive form
will be available for delivery in California, on or
about , 1984.
MILLER & SCHROEDER MUNICIPALS, INC.
1984
"Preliminary; subject to change,
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No dealer, broker, salesman or other person has been authorized by the
Agency or the Underwriter to give any information or to make any
representations with respect to the Bonds other than those contained in this
Official Statement and, if given or made, such information or representations
must not be relied upon as having been authorized by any of the foregoing.
This Official Statement does not constitute an offer to sell nor the
solicitation of an offer to buy, nor shall there be any sale of the Bonds by
any person in any jurisdiction in which it is unlawful for.such person to make
such offer, solicitation or sale. The information set forth herein has been
obtained from the Agency and other sources which are believed to be reliable,
but is not guaranteed as to accuracy or completeness by, and is not to be
construed as a representation of, the Underwriter. The information and
expressions of opinion stated herein are subject to change without notice.
The delivery of this Official Statement shall not, under any circumstances,
create any implication that there has been no change in the information or
opinions set forth herein or in the affairs of the Agency since the date
hereof.
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY
OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
TABLE OF CONTENTS
Page
Summary Statement ...............................................
Introduction.................................................... 1
TheAgency ......................................................
TheBonds ....................................................... 2
Security for the Bonds and Flow of Funds 5
Disposition of Bond Proceeds .................................... 7
Structure Assumptions and Bondholders' Risks .................... 8
Residential Mortgage Financing Program 10
Insurance....................................................... 19
Summary of the Indenture ........................................ 24
Housing Demand Study ............................................ 29
NoLitigation ................................................... 29
Legality and Tax Exemption ..................................... 29
Underwriting.................................................... 30
BondRating ..................................................... 31
Additional Information .......................................... 31
Appendix A - The Lender ........................................ A-1
Appendix B - The Developers and the Developments ................ B-1
Appendix C - Summary of the Housing Demand Study ................ C-1
AP -i-
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REDEVELOPMENT AGENCY OF THE CITY OF AZUSA
AGENCY MEMBERS
BOND COUNSEL
Jones Hall Hill & White
A Professional Law Corporation
San Francisco, California
TRUSTEE
Los Angeles, California
PROGRAM COMPLIANCE AGENT
HOUSING MARKET CONSULTANT
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SUMMARY STATEMENT
The following summary is subject in all respects to the more complete
information contained in this Official Statement.
Purpose: The Bonds are being issued by the Agency to provide funds to
acquire mortgage loans (the "Mortgage Loans") on newly constructed single
family residential units (the "Residences").located in the
Redevelopment Project Area (the "Project Area") of the Redevelopment Agency of
the City of Azusa (the "Agency"). Funds available to acquire Mortgage Loans
have been reserved by _ developers who have constructed or plan to
construct approximately _ Residences in various developments within the
Project Area.
Use of Proceeds: It is anticipated that proceeds from the sale of the
Bonds and Program Participation Fees will be used to (i) make approximately
$ * principal amount of Mortgage Loans; (ii) provide a Debt Service
Reserve Fund of approximately $ *; and (iii) provide for issuance
expenses and Underwriter's discount (approximately $ )•
Residential Mortgage Financing Program: The Mortgage Loans will be (i)
originated and serviced by Atlas Capital Corporation (the "Lender"); (ii)
secured by first mortgage liens (subject to certain permitted encumbrances) on
the Residences; (iii) insured by private mortgage guaranty insurance and
mortgage pool insurance issued by VEREX Assurance, Inc. (the "Mortgage
Insurer"). The Mortgage Insurer has agreed to provide private mortgage
guaranty insurance which will provide varying amounts of coverage depending on
the initial loan -to -value ratio of the Mortgage Loan. The mortgage pool
insurance provided by the Mortgage Insurer will insure against loss upon the
occurrence of any event of default under any Mortgage Loan, subject to a
limitation of aggregate claims of 5% of the initial aggregate principal amount
of all Mortgage Loans anticipated to be originated. In addition, the mortgage
pool policy will contain an advance payment endorsement providing for monthly
advances on payments of claims in an amount equal to the monthly principal and
interest payments on each Mortgage Loan which has become delinquent in two or
more payments. Standard hazard insurance (including earthquake coverage if
commercially available) and special hazard insurance will be required to be
maintained with respect to each Residence to the extent described herein.
Each Mortgage 'Loan will provide for substantially level payments of principal
and interest and bear interest at a rate of % per annum.
Eligible Mortgagors: Mortgagors must (i) intend to occupy Residences as
their principal residence and (ii) be "first time homebuyers" (except for 10%
of the aggregate principal amount of Mortgage Loans).
Purchase Price Limitations: The maximum purchase price of a Residence the
acquisition of which is financed by a Mortgage Loan may not exceed 110% of the
average area purchase price of single family residences in the Los_
Angeles -Long Beach Standard Metropolitan Statistical Area. As of the date of
this Official Statement, the average area purchase price for single family
residences in the jurisdiction of the Agency according to the "safe harbor"
limitations published by the U.S. Department of the Treasury is $131,000.
Sources of Payme• and Security for the Bonds: Oe Bonds are special
obligations of the Agency and are payable solely from payments made on and
secured by a pledge of the Mortgage Loans (and any insurance payments made
with respect thereto) and all amounts (including interest thereon subject to
the limitations of Section 103A of the Internal Revenue Code of 1954, as
amended) held for the benefit of the Bondholders pursuant to the Indenture.
Tax Exemption: The continuation of the interest exemption for the Bonds
from federal income taxation is dependent, in part, upon the Agency's
performance of certain covenants in the Indenture and the accuracy of certain
certifications and affidavits of mortgagors, sellers of the Residences and the
Lender. In particular, failure to meet the requirement that 950 of all
Mortgage Loans meet certain eligibility requirements may result in the
interest on the Bonds being subject to federal income tax. The Agency
believes that it has established procedures to address the requirements of
Section 103A of the Internal Revenue Code of 1954, as amended, and has
incorporated certain administrative "safe harbors" set forth in temporary
regulations under Section 103A, but no assurance can be made that the
aggregate principal amount of ineligible Mortgage Loans will never exceed 5%
of the proceeds of the Bonds used to purchase Mortgage Loans. See "Legality
and Tax Exemption" herein.
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$20,000,000*
REDEVELOPMENT AGENCY OF THE CITY OF AZUSA
Residential Mortgage Revenue Bonds, Series 1984 A
INTRODUCTION
This Official Statement of the Redevelopment Agency of the City of Azusa
(the "Agency") sets forth information in connection with the sale of
$20,000,000* principal amount of the Agency's Residential Mortgage Revenue
Bonds, Series 1984 A (the "Bonds"). The Bonds are to be issued pursuant to
Chapter 8 of Part 1 of Division 24 of the Health and Safety Code of the State
of California, as amended (the "Act"). The purpose of the Act is to provide
long-term, low interest residential mortgage loans to persons who are unable,
because of their income, to afford conventional mortgage loans.
The Bonds are being issued pursuant to a trust indenture dated as of
August 1. 1984 (the "Indenture"), between the Agency and , as
trustee (the "Trustee"). The proceeds of the Bonds will be used to provide
permanent financing (the "Mortgage Loans") for newly constructed single family
residential units (the "Residences") located in the Redevelopment
Project Area (the "Project Area") in the City of Azusa, California (the
"City"),
The Mortgage Loans will be originated and serviced by Atlantic Capital
Corporation (the "Lender") pursuant to a Mortgage Loan Purchase Agreement and
a Servicing Agreement dated as of August 1, 1984 entered into by the Agency,
the Trustee and the Lender (the "Mortgage Loan Purchase Agreement" and
"Servicing Agreement", respectively). VEREX Assurance, Inc. (the "Program
Compliance Agent") has agreed in a Compliance Agreement dated as of August 1,
1984 (the "Compliance Agreement"), to serve as agent of the Agency for the
purposes of monitoring the compliance of Mortgage Loans and mortgagors with
the requirements of the Agency's Residential Mortgage Financing Program (the
"Program"), including the applicable State of California and federal laws.
The Agency has entered into separate but substantially identical
Commitment Contracts dated as of August 1, 1984 (the "Commitment Contracts")
with developers (the "Developers") in connection with the permanent
financing of approximately newly constructed Residences in the Project
Area (the "Developments") that will be made available under the Program:
Information concerning the Developers and Developments is included in Appendix
B hereto.
Each Residence securing a Mortgage Loan is required to be covered by
standard hazard, earthquake and special hazard insurance, to the extent
described herein. In addition, each Mortgage Loan is to be insured under a
private mortgage guaranty insurance policy and a mortgage pool insurance
policy issued by VEREX Assurance, Inc. (the "Mortgage Insurer"). The private
mortgage guaranty insurance policy will provide varying amounts of coverage
depending on the initial loan -to -value ratio of the Mortgage Loan.. The
mortgage pool insurance provided by the Mortgage Insurer will insure against
loss upon the occurrence of any event of default under any Mortgage Loan,
*Preliminary; subject to change.
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subject to a limitation of aggregate claims of 50 010he initial aggregate
principal amount of all Mortgage Loans anticipated to be originated. In
addition, the mortgage pool policy will contain an advance payment endorsement
providing for monthly advances on pay -vert of claims in an amount equal to the
monthly principal and interest payments on each Mortgage Loan which has become
delinquent in two or more payments.
There follows in this Official Statement a brief description of the Bonds,
the security for the Bonds, the Program, the Mortgage Loan Purchase Agreement,
the Servicing Agreement, the Commitment Contracts. the Indenture and the
insurance policies required with respect to each Mortgage Loan. General
information concerning the Lender and the Developers is included in Appendices
A and B, respecti-ely. A summary of the housing demand study is included in
Appendix C. All references to documents, agreements and insurance policies
are qualified in their entirety by reference thereto, copies of which are
available for inspection at the office of the Agency. Capitalized words and
terms used herein and not otherwise defined shall have the meanings set forth
herein under "RESIDENTIAL MORTGAGE FINANCING PROGRAM - Certain Definitions."
THE AGENCY
[Description to come]
THE BONDS
('PnarAI
The Bonds will be issued as fully registered bonds only in denominations
of $5,000 each or any integral multiple thereof. The Bonds will bear interest
from August 1, 1984, payable on February 1, 1985, and semiannually thereafter
on August 1 and February 1 of each year at the rates, and the Bonds will
mature on the dates and in the amounts, set forth on the cover page of this
Official Statement. Interest will be payable to the person in whose name the
Bond (or any predecessor Bond) is registered at the close of business on the
fifteenth day of the month preceding each interest payment date. The
principal of the Bonds will be payable at the principal corporate trust office
of the Trustee, Los Angeles, California, and interest on the Bonds is payable
by check or draft mailed to the address of the person entitled thereto.
Bonds may be exchanged, and the transfer of Bonds may be registered, at
the principal corporate trust office of -the Trustee, Los Angeles, California.
For every exchange or transfer of any Bond, the Trustee may impose a charge
sufficient to reimburse it for any tax, fee or other governmental charge
required to be paid with respect thereto. The Trustee shall not be required
to make an exchange or transfer of Bonds during the five days next preceding
the date established by the Trustee for selection of Bonds for redemption or
to make any such exchange or transfer after the applicable Bond has been
called for redemption.
If any Bond is mutilated, lost, stolen or destroyed, the Indenture
provides that the Agency shall execute and the Trustee shall authenticate a
new Bond. In the case of a lost, stolen or destroyed Bond, the Agency and the
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Trustee may require *isfactory indemnification pri• to authenticating a new
Bond. The Agency and the Trustee may charge reasonabie fees and expenses in
connection with replacing Bonds mutilated, lost, stolen or destroyed.
Redemption Provisions
Special Mandatory Redemption: The Bonds are subject to special mandatory
redemption at a redemption price equal to the principal amount thereof and
accrued interest thereon, without premium, as a whole at any time or in part
(i) on August 1, 1984, or any interest payment date thereafter from amounts in
the Prior Redemption Fund, into which Pledged Revenues (as hereinafter
defined) are deposited after making all prior deposits as described herein
under "SECURITY FOR THE BONDS AND FLOW OF FUNDS", and (ii) on August 1, 1987
(or August 1, 1988, if permitted by the Indenture), from amounts transferred
to the Prior Redemption Fund from the Mortgage Loan Purchase Account which
have not been applied to purchase Mortgage Loans.
If at any time the amounts in the various funds established pursuant to
the Indenture (except the Mortgage Loan Purchase Account) equal or exceed the
principal amount of the then outstanding Bonds, plus unpaid accrued interest
to the redemption date and all required expenses, the Bonds shall be redeemed
from such amounts on any date in whole at a redemption price equal to the
principal amount thereof, plus accrued interest to the redemption date,
without premium.
Because the Bonds are subject to special mandatory redemption as
aforesaid, it is expected that a portion of the Bonds will be redeemed at par
prior to their scheduled maturities or sinking fund redemption dates. For a
description of the uncertainties inherent in predicting the average life of
the Mortgage Loans (which in turn affects the expected average life of the
Bonds), see "STRUCTURE ASSUMPTIONS AND BONDHOLDERS' RISKS" herein.
Sinking Fund Redemption: The Bonds maturing on 11 _ , are
subject to mandatory sinking fund redemption in part by lot
commencing 1, ; and on each February 1 and August 1 thereafter
at a redemption price equal to the principal amount thereof and accrued
interest thereon, without premium, from sinking fund installments as follows:
Date Principal Amount
The Bonds maturing on 11 are subject to mandatory sinking
fund redemption in part by lot commencing 1, and on each
February 1 and August 1 thereafter at a redemption price equal to the
principal amount thereof and accrued interest thereon, without premium, from
sinking fund installments as follows:
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Date Principal ount
Upon any redemption in part of Bonds from funds other than those
attributable to sinking fund installments, sinking fund installments
established for such Bonds are to be reduced by the amount obtained by
multiplying the principal amount of such Bonds so called for redemption by the
ratio which each sinking fund installment bears to the total sinking fund,
installments and by rounding each such payment to the next lowest integral
multiple of $5,000.
Optional Redemption: The Bonds maturing on or after February 1, 1995, are
subject to redemption prior to their respective stated maturities, at the
option of the Agency; in whole and not in part, on or after August 1, 1994, or
on any interest payment date thereafter, from any source of available funds,
at the redemption prices (expressed as percentages of principal amount) set
forth in the following table, together with accrued interest to the redemption
date:
Redemption Date
Redemption Prices
August
1,
1994
through July 31, 1995
1020
August
1,
1995
through July 31, 1996
101%
August
1,
1996
and thereafter
1000
Method of Redemption: In the event the Bonds are to be redeemed in part
pursuant to special mandatory redemption, the Trustee shall redeem Bonds on a
reasonably proportionate basis from among all the then outstanding maturities
of the Bonds, such basis to be determined and effectuated as nearly as
practicable by the Trustee by multiplying the total amount of moneys available
to redeem such Bonds on the redemption date by the ratio which the principal
amount of all Bonds then outstanding in each maturity bears to the principal
amount of all the Bonds then outstanding. The Trustee shall select Bonds by
lot within a maturity in such manner as the Trustee may determine. In case a
Bond is of a denomination larger than $5,000, a portion of such Bond may be
redeemed, but Bonds may be redeemed only in the principal amount of $5,000
each or any integral multiple thereof. Bonds to be redeemed pursuant to the
above described redemption provisions may also be purchased in lieu of
redemption, all in accordance with the Indenture.
Notice of Redemption: Notice of redemption is to be given not less than
10 nor more than 60 days prior to the redemption date by mail to the
registered owners of any Bonds whose Bonds are to be redeemed. -
Additional Bonds
The Indenture does not permit the issuance of additional bonds payable or
secured on a parity with the Bonds.-
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SECURITY FOR THE BONDS AND FLOW OF FUNDS
The Bonds are special obligations of the Agency payable from "Pledged
Revenues". "Pledged Revenues" mean all payments, proceeds, charges, rents and
all interest and other income derived in cash by the Trustee or the Lender by
or for the account of the Agency from or related to the Program, including,
without limiting the generality of the foregoing, scheduled amortization
payments of principal of and interest on the Mortgage Loans, prepayments,
prepayment penalties, the proceeds of sale of Mortgage Loans, the proceeds of
sale of Residences on foreclosure or other recovery proceedings with respect
to defaulted Mortgage Loans (net of amounts required to be paid to mortgagors
or other owners of Residences), proceeds of resale of foreclosed Residences,
any proceeds of standard hazard insurance, special hazard insurance and
mortgage pool insurance (net of amounts applied to the restoration of
Residences), private mortgage guaranty insurance proceeds and interest earned
or income derived from the investment of moneys held by the Trustee, but not
including escrow payments, servicer's and financing fees and "Excess
Investment Earnings" (as defined herein).
The Bonds will not be payable from any of the Agency's moneys or assets
other than the Pledged Revenues. Neither the faith and credit nor the taxing
power of the City, the State of California or any political subdivision
thereof is pledged to the payment of the Bonds.
Under the Indenture, all Pledged Revenues are deposited in the Revenue
Fund. Amounts in the Revenue Fund are to be allocated semiannually for
deposit by the Trustee in the following amounts and order of priority:
1. Estimated Excess Investment Earnings Account: An amount, if any,
which is estimated to be not less than "Excess Investment Earnings" for
the period.
2. Operating Fund: An amount sufficient to pay current operating
expenses of the Agency associated with the Program (special hazard
insurance premiums, mortgage pool insurance premiums, Trustee fees and
administrative expenses of the Agency).
3, Interest Fund: An amount equal to the interest installment then
payable on the Bonds.
4. Principal Fund: An amount equal to the principal payment then due on
the Bonds or the sinking fund payment required to be used to redeem Bonds.
5. Debt Service Reserve Fund: An amount, if any, required to cause the
amount on deposit in the Debt Service Reserve Fund to be equal to the Debt
Service Reserve Requirement (20 of the outstanding principal balance of
the Mortgage Loans).
6. Prior Redemption Fund: Any remaining amount to be applied to the
special mandatory redemption of Bonds.
Any amount in the Revenue Fund calculated to be available for deposit in
the Prior Redemption Fund on any interest payment date may be applied to the
purchase of Bonds.
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The amount initially deposited in the Debt Service Reserve Fund is greater
than the Debt Service Reserve Requirement. Amounts in the Debt Service
Reserve Fund may be used to make up any deficiency in the Interest or
Principal Fund; on 11 _ (or such later date as permitted in the
Indenture) and on each February 1 and August 1 thereafter, amounts in the Debt
Service Reserve Fund in excess of the Debt Service Reserve Requirement are to
be deposited in the Revenue Fund.
On or before 1 and 1 of each year the Trustee is
required to estimate the maximum investment earnings on nonmortgage
investments held under the Indenture which may constitute Pledged Revenues
("Estimated Maximum Investment Earnings") for the six months ending on the
succeeding and , respectively. "Estimated :Maximum
Investment Earnings" means the product of an interest rate equal to the yield.
as defined by Section 103A of the Internal Revenue Code of 1954, as amended,
and the regulations thereunder (the "Code"), on the Bonds multiplied by the
average daily balance of amounts held (and estimated to be held) under the
Indenture for the appropriate period. "Excess Investment Earnings" means
earnings on nonmortgage investments held under the Indenture (including
unrealized gains and losses upon the retirement of the last outstanding Bond)
in excess of the sum of (i) Maximum Investment Earnings (calculated on the
basis of semiannual compounding), (ii) actual losses on Mortgage Loans, and
(iii) the amount determined as specified by the Agency upon delivery of the
Bonds (to the extent not theretofore taken into account in determining Excess
Investment Earnings). Estimated Excess Investment Earnings will be deposited
in the Estimated Excess Investment Earnings Account on the
succeeding 1 or 1. On or before 1 of each year
the Trustee will make a final calculation as to the Excess Investment Earnings
for the year ended Excess Investment Earnings will be deposited
in the Excess Investment Fund free and clear of the lien of the Indenture and
will be remitted to the United States Department of the Treasury. Amounts, if
any, thereafter remaining in the Estimated Excess Investment Earnings Account
will become available for the purposes of the Revenue Fund.
DISPOSITION OF BOND PROCEEDS*
The following table sets forth the anticipated use of Bond proceeds and
the PrograM Participation Fees (1):
Mortgage Loan Purchase Account(2) $
Debt Service Reserve Fund
Underwriter's Discount
Issuance Expense Account(3)
Total
(1) Accrued interest on the Bonds will be deposited in the Interest
Fund.
(2) The Agency anticipates that it will have $ * available
to acquire Mortgage Loans (of which $ *-will be derived from
Bond proceeds and $ * from the Program Participation Fees and
interest earnings thereon).
0 0
(3) Issuance Expenses include Bond Counsel and Special Tax Counsel
fees, printing and rating agency costs, initial special hazard
insurance and mortgage pool insurance premiums, initial Trustee fees
and other miscellaneous issuance expenses.
Bond proceeds and Program Participation Fees deposited into the Mortgage
Loan Purchase Account and the Issuance Expense Account will be used to provide
for_issuance expenses and to acquire Mortgage Loans as set forth above. Any
amounts remaining in the Mortgage Loan Purchase Account on June 1, 1987 (or
June 1, 1988, if certain conditions of the Indenture are met) (the "Commitment
Period"). are required to be transferred to the Prior Redemption Fund and used
to redeem Bonds without premium pursuant to the special mandatory redemption
provisions of the Indenture on August 1, 1987 (or August 1, 1988, if the
Commitment Period is extended). See "THE BONDS -Redemption Provisions" herein.
STRUCTURE ASSUMPTIONS AND BONDHOLDERS' RISKS
Payments on the Mortgage Loans, together with amounts held under the
Indenture (including the Program Participation Fees and earnings on amounts
held under the Indenture other than Excess Investment Earnings), are estimated
to generate sufficient Pledged Revenues to pay on a timely basis the principal
of and interest on the Bonds, special hazard insurance premiums, mortgage pool
insurance premiums, and the Trustee's fees and certain other costs (including
issuance expenses and Underwriter's discount), on the basis of the following
assumptions:
1. Mortgage Loans bearing interest at ; per annum will be
Purchased on or prior to June 1, 1987.
2. Payments on the Mortgage Loans will be made substantially on a
timely basis. In the case of defaults and foreclosures on the Mortgage
Loans, any settlement of claims on the private mortgage guaranty insurance
will be made at such time as, and in an amount and in a form of payment
which, together with moneys available in the Debt Service Reserve Fund,
will allow the Agency to make scheduled payments of debt service on the
Bonds.
3. Upon issuance of the Bonds and from time to time thereafter, the
Trustee will invest moneys on deposit and to be deposited in the Mortgage
Loan Purchase Account, Debt Service Reserve Fund, Revenue Fund, Interest
Fund, Principal Fund, and Prior Redemption Fund pursuant to an Investment
Agreement dated as of I I between and the
Trustee (the "Investment Agreement") under which will
enter into an unsecured obligation to provide repayment to the Trustee of
such moneys for the use of such funds in accordance with the Indenture and
to pay interest thereon at specified rates.
4. The Mortgage Loans will have terms of not more than 30 years.
The assumptions set forth above are based on current market conditions and
practices, and subsequent events may not correspond to such assumptions. It
is possible, for example, that physical damage to the Residences securing the
AR -7-
Mortgage Loans may exceed the limits of, or be caussy a peril not insured
under, the standard and special hazard insurance policies or that the average
rates realized on invested moneys will be less than anticipated. Under such
circumstances, revenues from the Mortgage Loans, investment earnings and
insurance proceeds may not be sufficient to pay the principal of and interest
on the Bonds when due. The Agency's ability to have its mortgage insurance
claims satisfied is dependent upon the solvency of the Mortgage Insurer at the
time of the claim. The Agency does not make any representation as to the
ability of the Mortgage Insurer to pay claims when presented by the Agency in
amounts and in the manner required to cover all deficiencies in the Program.
The scheduled maturities of the Bonds assume no prepayment of the Mortgage
Loans. If prepayments of Mortgage Loans occur, an appropriate portion of the
Bonds is required to be redeemed without premium pursuant to the special
mandatory redemption provisions of the Indenture. The Agency does anticipate
that a portion of the Mortgage Loans will be partially or completely prepaid
or accelerated prior to their respective final maturities as a result of
events such as sale of the Residence, default, condemnation or casualty loss,
or noncompliance with the Program requirements. Because of the lack of
historical basis with respect to prepayments of mortgage loans of a type
similar to the Mortgage Loans described herein and the requirements under both
the Act and Section 103A of the Code that in the event of a subsequent sale of
the Residence, the Mortgage Loan is to be accelerated if the purchaser does
not qualify under their respective provisions, there is no reliable basis for
predicting the actual average life of the Mortgage Loans. In addition, normal
inclinations on the part of mortgagors to prepay their Mortgage Loans may be
affected by the fact that Mortgage Loans will be forgiven as to all principal
and interest owed thereon upon final payment of the Bonds and payment of the
sum due the Agency pursuant to the Indenture. The Agency does, however,
anticipate prepayment of a number of Mortgage Loans and it is probable that
the Bonds will have a shorter life than their stated maturities or scheduled
sinking fund redemption dates.
The remedies available to the holders of the Bonds upon an event of
default under the Indenture or other documents described herein and policies
of insurance referred to herein are in many respects dependent upon judicial
actions which are often subject to discretion and delay. Under existing
constitutional and statutory law and judicial decisions, including
specifically Title 11 of the United States Code, the remedies specified by the
federal bankruptcy law, the Indenture and the various Program documents and
policies of insurance referred to herein may not be readily available or may
be limited. The various legal opinions to be delivered concurrently with the
delivery of the Bonds (including Bond Counsel's approving opinion) will be
qualified, as to the enforceability of the various legal instruments, by
limitations imposed by bankruptcy, reorganization, insolvency, rehabilitation
or other similar laws affecting the rights of creditors and insurance
claimants generally.
A substantial portion of the Mortgage Loans will be secured by Residences
located solely within specific Developments and accordingly it is not expected
that there will be extensive geographical distribution of the Residences.
Such concentration makes the Residences securing the Mortgage Loans more
susceptible to loss due to fire, earthquake or other hazards some of which may
not be covered by the various insurance policies or may exceed the limits of
such policies as described herein under "INSURANCE".
Vi
See "LEGALITY AND TAX EXEMPTION" herein for a discussion of the conditions
under which interest on the Bonds may not be exempt from federal income
taxation.
The Lender's competition in making real estate loans in the City normally
comes primarily from savings and loan associations, commercial banks and
mortgage bankers in the area. Because one of the principal factors in
competing for real estate loans is the interest rate charged and because the
Mortgage Loans are expected to be made at substantially less than currently
prevailing market rates, the Lender does not expect significant competition in
making the Mortgage Loans. There are, however, a number of ways in which
mortgage loans could become available at rates competitive with those
specified for the Mortgage Loans, such as through the California Housing
Finance Agency's program, similar mortgage loan programs financed by tax
exempt bonds in neighboring communities or the Federal Housing Administration
Section 245(c) (Graduated Payments Mortgage) program. In.addition, prevailing
interest rates for conventional mortgages in the City could decrease. In the
event that, prior to all the Mortgage Loans being originated, other home
mortgage loans were to become available in the City or in neighboring
communities at rates competitive with those specified for the Mortgage Loans,
or the Residences to be built in the Developments are not constructed as
anticipated (due to lack of performance by the Developers, natural disasters,
strikes, material shortages or other reasons), the Agency might not be able to
purchase Mortgage Loans in the anticipated principal amount. To cover any
such eventuality the Agency has obtained Program Participation Fees from the
Developers in an amount which, together with anticipated investment income
earned on funds held by the Trustee, is calculated to be sufficient to recover
issuance expenses and the Underwriters' discount associated with undelivered
Mortgage Loans. Any Bond proceeds or other funds on deposit in the Mortgage
Loan Purchase Account which have not been used to purchase Mortgage Loans by
the end of the Commitment Period, will be used to redeem without premium an
appropriate portion of the Bonds pursuant to the special mandatory redemption
provisions of the Indenture.
RESIDENTIAL MORTGAGE FINANCING PROGRAM
Certain Definitions
The following definitions are used herein in describing the Program and
summarizing the Mortgage Loan Purchase Agreement, the Servicing Agreement and
the Commitment Contracts:
"Acquisition Cost" means the cost of acquiring a Residence as a completed
residential unit. Such cost includes (i) all amounts paid, either in cash or
in kind, by the mortgagor (or a related party or for the benefit of the
mortgagor) to the developer or other seller (or a related party or for the
benefit of the developer or other seller) as consideration for the Residence;
(ii) if a Residence is incomplete, the reasonable costs of completing the
Residence whether or not the cost of completing construction is to be financed
with Bond proceeds; and (iii) where a Residence is purchased subject to a
ground rent, the capitalized value of the ground rent, using a discount rate
equal to the yield on the Bonds, but does not include (i) usual and reasonable
a
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settlement or financi' costs, (ii) the value of ser*s performed by the
mortgagor or members of his or her family in completing the Residence, and
(iii) the cost of land which has been owned by the mortgagor for at least two
years before the date on which construction of the Residence begins.
"Average Area Purchase Price" means the higher of: (i) the average area
purchase price safe harbor limitations as most recently published by the
United States Treasury Department for the Los Angeles -San Bernardino Standard
Metropolitan Statistical Area or (ii) such amount as shall be determined by
the Agency as the average purchase price of all single family residences in
the statistical area for the most recent 12 month period for which sufficient
statistical information is available (based upon (i) a comprehensive survey
(which survey shall be based upon data in the relevant county assessor's
office) of residential housing sales in the appropriate statistical area and
(ii) an opinion of nationally recognized bond or tax counsel that the purchase
price or prices so determined by the Agency will not cause interest on the
Bonds to be subject to federal income taxation). The Average Area Purchase
Price as of the date of this Official Statement is $131,100.
"First Time Residencebuyer" means an individual who has not had a present
ownership interest in his or her principal residence at any time during the
three year period ending on the date he or she executes a deed of trust
securing a Mortgage Loan.
"Maximum Acquisition Cost" means an amount which does not exceed 110% of
the Average Area Purchase Price for New Residences and for Exls_ting
Residences. The Maximum Acquisition Cost as of the date of this Official
Statement $124,410.
"Program Participation Fee" means the amount paid to the Agency pursuant
to the Commitment Contracts in order to reserve funds for the acquisition of
Mortgage Loans by the Trustee.
"Residence" means real property improved with a residential structure and
located within the Project Area, the financing of which is permitted under the
Act and the Indenture. Residence includes single family attached or detached
residential units, townhouse residential units and condominium residential
units.
"Section'103A" means Section 103A of the Internal Revenue Code of 1954, as
amended, and the regulations thereunder.
General Program Terms
In connection with the Program, the Trustee on behalf of the Agency will
purchase the Mortgage Loans originated by the Lender and meeting the
requirements established by the Agency. The Agency has entered into separate
Commitment Contracts with the Developers providing for the allocation of funds
under the Program for the permanent financing of approximately Residences
constructed or to be constructed by the Developers in the Developments. See
Appendix B for a description of the Developers and the Developments. The
Developers have paid to the Agency in connection with such allocations a
Program Participation Fee in an amount equal to (i) _6 in cash of the
amount of funds reserved for such Developer, or (ii) _6 in cash and a _6
-10-
letter of credit of the amount of funds reserved for such Developer. The fee
will be deposited with the Trustee upon delivery of the Bonds.
Each Mortgage Loan will be secured by a first mortgage lien (subject to
permitted encumbrances) on the Residence being financed thereby. To qualify
for purchase_, each Mortgage Loan must be insured to the extent described
herein and must meet specific eligibility criteria and guidelines set forth in
the Mortgage Loan Purchase Agreement, the Servicing Agreement, the Indenture
and -the Rules and Regulations of the Agency.
Each Mortgage Loan will bear interest at a stated interest rate of
per annum, and will have a term of approximately 30 ✓ears. The Mortgage Loans
will provide for level payments of principal and interest based on a thirty
year amortization. The amount of the Mortgage Loan may not exceed 950 of the
lesser of the sales price or appraised value of the Residence. Except as
expressly provided otherwise in the Mortgage Loan Purchase Agreement, Mortgage
Loans purchased by the Trustee must be Qualified pursuant to the Mortgage
Insurer and FNMA or FHLMC underwriting criteria and practice. _
Under Section 103A of the Code, the mortgagor must be a First Time Home
buyer (except in the case of Mortgage Loans not exceeding loo in aggregate
principal amount of all Mortgage Loans) who intends to occupy the Residence as
his or her principal residence. The Acquisition Cost of the Residence may not
exceed the Maximum Acquisition Cost. Each Mortgage Loan must be for the
purpose of financing the purchase of a Residence and not for the purpose of
refinancing any existing debt secured by or related to such Residence. A
Mortgage Loan may only be assumed if the new mortgagor and the Residence meet
similar eligibility requirements.
With respect to each Mortgage Loan, the mortgagor. the seller and the
Lender are required to submit to the Program Compliance Agent, the Agency 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 of the Code, which include mortgagor's intent to
occupy the unit as a principal residence; no ownership interest in a principal
residence for the prior three years (except in the case of Mortgage Loans not
exceeding loo in aggregate principal amount of all Mortgage Loans);
Acquisition Cost limitations on the price of the residence; the nonreplacement
of an existing mortgage loan; and restrictions on future assumptions. The
Mortgage Loan Purchase Agreement, the Compliance Agreement and the Indenture
also prescribe various procedures and techniques to be followed by the Agency,
the Program Compliance Agent, the Lender and the Trustee in reviewing or
verifying the affidavits and information provided by the prospective mortgagor
in compliance with certain administrative "safe harbors" set forth in the
Temporary Regulations under Section 103A of .the Code.
Mortgage Loan Purchase Agreement
The Trustee on behalf of the Agency is to purchase Mortgage Loans
originated by the Lender. Pursuant to the Mortgage Loan Purchase Agreement,
the Lender agrees to use its best efforts to originate Mortgage Loans by June
1, 1987 (or June 1, 1988, if permitted by the Indenture) in an aggregate
principal amount equal to the amount available therefor in the Mortgage Loan
Purchase Account.
—11— a
0 0
The Mortgage Loan Purchase Agreement provides that a Developer may buy
down the interest rate on a Mortgage Loan, thereby reducing the monthly amount
payable by a mortgagor. The term of the buydown period may not be less than
one year; the initial buydown may not be greater than 30; and the reduction in
the amount of the buydown must occur annually and no such reduction may result
in an increase in the monthly Mortgage Loan payments in excess of 7.5e over
the prior year's monthly Mortgage Loan payments. The result of such a buydown
will be to effectively reduce the.monthly payments on the subsidized Mortgage
Loan for a specified period following the execution of _he Mortgage Loan based
on the reduced monthly payments for the first year of the Mortgage Loan. The
Developer, with respect to such buydown, must deposit moneys in an escrow
account prior to the purchase of the Mortgage Loan and such moneys must be
sufficient to make all monthly payments provided under the buydown.
Each mortgagor will be charged an origination fee of 1; of the principal
amount of a Mortgage Loan, to be paid to the Lender for its own account at the
time the Mortgage Loan is purchased. All Mortgage Loans will be serviced by
the Lender in accordance with the guidelines set forth in the Servicing
Agreement.
The Lender will represent with respect to each Mortgage Loan originated by
it for the Trustee that, among other things, no facts have come to the
attention of the Lender which would cause the Lender to disbelieve or doubt
the truth of the following facts with respect to such Mortgage Loan: (a) the
related Residence is located within the Project Area; (b) the Residence will
be occupied by the mortgagor as the mortgagor's principal place of residence
within 60 days following execution of the Mortgage Loan and the mortgagor
intends to occupy the Residence so long as the Mortgage Loan is outstanding;
(c) the mortgagor does not expect to use the Residence in a trade or business
or as an investment property or as a recreational Residence or for the land
appurtenant to the Residence to provide, other than incidentally, a source of
income; (d) the mortgagor is a First Time Homebuyer (except for 100 of the
aggregate principal amount of Mortgage Loans); (e) the Acquisition Cost of the
Residence does not exceed the Maximum Acquisition Cost at the time the
Mortgage Loan is executed; (f) the mortgagor has not entered into any
agreement with the seller of the Residence, the Developer, the contractor, or
any other person pursuant to which the mortgagor has agreed to pay monies in
excess of the Acquisition Cost of the Residence (other than rentals, in an
amount not to exceed the fair rental value of the Residence as determined by
the Lender, pursuant to a temporary rental agreement between the mortgagor and
the seller pending purchase by the Trustee on behalf of the Agency of the
Mortgage Loan secured by the Residence) or pursuant to which any portion of
the Residence has been left unfinished or any fixtures or other architectural
appointments have been omitted or removed from the Residence in order to
reduce the Acquisition Cost; (g) the Residence is not located on leased land
or, if the Residence is purchased subject to any ground lease, then the
capitalized value of such ground lease has been included in the Acquisition
Cost; (h) the mortgagor has not been a party to any form of owner—financing
(whether or not paid off) on the Residence at any time prior to execution of
the Mortgage Loan; (i) the mortgagor will not use any portion of the proceeds
of the Mortgage Loan to acquire or replace an existing mortgage or deed of
trust (except for construction or other temporary financing); (j) the
mortgagor and seller have read the mortgagor's affidavit and seller's
affidavit, respectively, required by the Mortgage Loan Purchase Agreement;
—12— i
W authorized representatives of the Lender have coned investigations to
assure the truth of the certifications contained in the mortgagor's affidavit
and seller's affidavit at the time of execution of the Mortgage Loan and the
mortgagor and seller have provided such information or access to such
information, including but not limited to income tax returns of the mortgagor
as deemed appropriate by the -ender in connection with its investigation; (1)
the Residence is a single family Residence, the construction or improvement of
which is complete; (m) all the :and being sold or leased with the Residence
reasonably maintains the basic livability of the Residence andsts do not is not subject
to further subdivision; (n) the settlement and 9
the usual and reasonable costs that would be paid by the mortgagor where
financing was not provided through the Bonds; and (o) the Lender has no
knowledge of any circumstances or conditions with respect to the
Monvestorse Loan
or the mortgagor that could reasonably expect it to cause private
to
regard the Mortgage Loan as an unacceptable investment, cause the Mortgage
Loan to become delinquent, or adversely affect the value or marketability of
the Mortgage Loan, except that the annual interest rate on the Mortgage Loan
may be a below-market interest rate.
In connection with the submission of each Mortgage Loan for purchase, the
Trustee is to receive a Mortgage Loan Application Package including, among
other things, an appraisal of the Residence, a credit report on the mortgagor,
a mortgagor's affidavit and a seller's affidavit and a commitment
from these, the
Mortgage Insurer to insure the Mortgage Loan. Upon app P
escrow company will be instructed to close the escrow when it receives: (i)
the mortgagor's down payment; (ii) the original mortgage note; (iii) the
mortgage fully executed in recordable form assigned to the Trustee and either
recorded or accompanied by irrevocable instructions to record upon closing of
the escrow; (iv) a current American Land Title Association tortgatle geptitland
insurance policy endorsed to the Trustee (or a preliminary
irrevocable instructions to close the escrow when the policy can be issued);
(v) standard hazard insurance and earthquake insurance policies; (vi) a
private mortgage insurance certificate; and (vii) a final' subdivision report
and certificate of occupancy.
If any document required by the Mortgage Loan Purchase Agreement to be
delivered by the Lender to the Trustee is not so delivered or is defective in
any material respect, the Lender is required to deliver the document or cure
the defect within 60 days from the time the Trustee notifies the Lender of the
absence of the document or the existence of the defect'and if such document
cannot be provided or the defect cannot be cured within such period, the
Lender is required not later than 90 days after the Trustee's notice to it
respecting such defect, to repurchase such Mortgage Loan from the Trustee at a
price equal to 1000 of the principal remaining unpaid on such Mortgage Loan
plus accrued and unpaid interest thereon to the date of repurchase.
If the Lender discovers, or is notified by the Agency or the Trustee, that
(i) all or any portion of the mortgagor's affidavit contains any materially
incorrect statement of fact, or (ii) the Mortgage Loan has been assumed in
violation of the provisions thereof, the Lender is to provide notice of
default to the mortgagor, to declare the entire unpaid balance of the Mortgage
Loan due and payable and, if the mortgagor does not pay in full theremaining
balance of the Mortgage Loan, together with accrued interest, to pursue
foreclosure remedies on behalf of the Agency and, to the extent possible,
collect private mortgage insurance benefits.
+ -13-
0 0
Servicing Agreement
Pursuant to the Servicing Agreement, the Lender is to service the Mortgage
Loans for a monthly servicing fee equal to 1/12 of 3/8 of 1% of the
outstanding principal balance of each Mortgage Loan.
The Lender is to exercise all reasonable efforts to collect payments due
from --mortgagors with respect to Mortgage Loans. The Lender is to establish
and maintain, in the name of the Agency, a saoarate Custodial Account, into
which all payments and collections received by it with respect to the Mortgage
Loans (including proceeds of insurance and foreclosures, but excluding the
servicing fees) are to be deposited on a daily basis. On the 15th day and
30th day of each month (or the last day of the month, if earlier), each Lender
is to remit all amounts in the Custodial Account to the Trustee. The
custodial account must be insured by the Federal Deposit Insurance Corporation
("FDIC") or the Federal Savings and Loan Insurance Corporation ("FSLIC").
However, the Servicer must deposit with the Trustee all Mortgage Loan
prepayments, net mortgage insurance proceeds, net hazard insurance, special
hazard insurance and mortgage pool insurance proceeds and net Mortgage Loan
foreclosure or Residence sale proceeds received by the Servicer, to the extent
any such proceeds are in excess of $2,500, on the next business day following
receipt thereof. If at any time the Mortgage Loan receipts in the custodial
account exceed the amount of FDIC or FSLIC insurance, the Lender must remit
such amounts to the Trustee on the next business day.
Upon the sale of a Residence subject to a Mortgage Loan, the Lender and
the Mortgage Insurer may approve an assumption of the Mortgage Loan if, among
other things, the requirements with respect to principal residence, absence of
present ownership interest and Acquisition Cost are satisfied.
Compliance Agreement
Under a Compliance Agreement, the Program Compliance Agent will, among
other things, undertake to (a) review the types and amounts of the estimated
settlement and financing costs, fees and other similar charges collected by
the Lender to verify that they do not contain any items which are not, or
amounts in excess of, usual and reasonable settlement and financing costs,
fees and other similar charges which would be paid by the mortgagor where the
financing is not provided through a qualified mortgage bond issue; (b) (except
for 10% of the aggregate principal amount of Mortgage Loans) with respect to
whether a mortgagor of a Residence is a First Time Homebuyer, to examine, in
addition to the required affidavits, copies of the mortgagor's federal income
tax returns to confirm that, during the preceding three years, the mortgagor
did not claim deductions for taxes or interest on indebtedness with respect to
real property constituting his or her principal residence or, if any such tax
returns are not provided by the mortgagor or otherwise obtained, an
appropriate affidavit and any other documentary evidence obtained by the
Lender to ascertain the accuracy and completeness of such evidence; (c) with
respect to whether the Acquisition Cost of the Residence exceeds the Maximum
Acquisition Cost, to examine the Lender's calculation of the Acquisition Cost
for such Residence and compare such calculation with the definition of
Acquisition Cost and with the appropriate items listed on the affidavits or
certificates; and (d) generally to review and examine each of the required
=14- a
affidavits individua#y and collectively, for complAess and internal
consistency and compliance with the requirements of Section 103A of the Code
set forth under the Program.
The foregoing procedures are not exhaustive and in no way limit the
obligation of the Program Compliance Agent under the Compliance Agreement to
review and examine affidavits and other documentation provided in accordance
with the Mortgage Loan Purchase Agreement. The Compliance Agreement provides,
however, that in no event shall the Program Compliance Agent have
responsibility for the loss of the tax-exempt status of the Bonds or for the
curing or repurchase of any defective Mortgage Loan.
Bondholder's Limited Riqhts with Respect to Moneys Held by the Lender
The funds held by the Lender for the Trustee under the Servicing Agreement
will be remitted to the Trustee on the 15th day and 30th day for last day of a
month, if earlier) of each month or sooner to the extent any such funds held
by the Lender exceeds the amount of FDIC or FSLIC insurance coverage.
Although the arrangements with respect to remittance by the Lender of Mortgage
Loan receipts to the Trustee are designed to protect the rights of the
Bondholders with respect to funds held by the Lender, the Bondholders' claim
with respect to unremitted funds might, in the event of insolvency of a
Lender, rank equally with but not superior to the rights of the Lender's
depositors and other unsecured general creditors. Furthermore, the Lender
will not be required to provide any collateral to secure the rights of the
Bondholders with respect to such funds. Accordingly, in the event of
insolvency of the Lender, the Bondholders may be treated as general unsecured
creditors of the Lender and bear the risk of losing the entire amount which is
held by the Lender at that time.
Foreclosure
Upon the default of a Mortgage Loan, the Lender servicing the Mortgage
Loan is to exercise the Agency's rights under the deed of trust's power of
sale, subject to the constraints imposed by California law. During the
three-month period beginning with the filing of a formal notice of default,
the mortgagor will be entitled to reinstate the Mortgage Loan by making
overdue payments. The power of sale is exercised by posting and publishing a
notice of sale for at least 20 days. Therefore, the effective period for
foreclosing upon a Mortgage Loan could be in excess of six months after the
initial default. Such time delays in collections could disrupt the flow of
revenues available for the payment of debt service on the Bonds if such
defaults occur with respect to a substantial number of Mortgage Loans.
(However, see "INSURANCE" below with regard to the advance payment endorsement
to be obtained from the Mortgage Insurer). Under California antideficiency
legislation, there is no personal recourse against a mortgagor where the
trustee exercises the power of sale. If the Residence is damaged, repair of
such damage is required prior to conveyance to the Mortgage Insurer in order
to collect insurance benefits.
INSURANCE
Private Mortgage Guaranty Insurance
In order to qualify for purchase by the Trustee on behalf of the City, a
Mortgage Loan is required to be insured under a private mortgage guaranty
-15-
VEX policy. EX Assurance, Inc. (the "Mortgo. Insurer") has agreed
to provide, subject to certain conditions, mortgage guaranty insurance for the
Home Mortgages under a master policy (the "Policy"). The City, the Trustee
and the Lending Institution will be named insureds (collectively, the
"Insured"), as their interests may appear, under each Policy.
Each mortgagor is required to maintain throughout the term of each
Mortgage Loan private mortgage guaranty insurance under the Policy with the
following coverages:
Required
Insurance
Initial Loan -to -Value Ratio Coverage
91% - 950 ....................................... 40%
86% - 90% ....................................... 35%
81% - 85% .......................................
30%
71% - 80% .......................................
25%
61% - 70%
20%
.......................................
60% or less .....................................
15%
Under the policy a claim includes unpaid principal, accrued interest to
the date of tender of the property to the Mortgage Insurer and certain
expenses. When a claim is presented, the Mortgage Insurer will have the
option of paying the claim in full, taking title to the Residence and .
arranging for its sale, or paying the Insured a percentage of the claim and
allowing the Trustee to retain title to the Residence.
As conditions precedent to the payment of a claim under the Policy, the
Lending Institution or Trustee must, among other things., (i) in the event of
any physical loss or damage to the Residence, have restored and repaired the
Residence to at least as good a condition as existed at the effective date of
the Policy, ordinary wear and tear excepted (the Residences are to be insured
as described under "Standard Hazard Insurance" and "Special Hazard
Insurance"), (ii) pending the filing and settlement of a claim, advance hazard
insurance premiums, real property tares and property protection and
preservation expenses, sales expenses and foreclosure costs and (iii) tender
to the Mortgage Insurer good and merchantable title to and possession of the
Residence.
Claims must be made within 60 days after the Lending Institution, on
behalf of the City, has acquired merchantable title to the property through
foreclosure or otherwise. A claim must be paid within 30 days after the
Lending Institution makes the claim. In no event, however, will the Mortgage
Insurer pay an amount which exceeds its coverage, which coverage limitations
are set forth above.
Information relating to the Mortgage Insurer's assets, capital and
surplus, statutory and contingency reserves, total insurance in force, ratio
of expenses to premiums written, ratio of claims paid to premiums earned and
other financial and statistical matters are contained in its annual statement
filed with and available from the insurance departments of the various states.
i -16-
Mortgage Pool Insurance
The Trustee is to maintain a mortgage pool insurance policy covering all
Mortgage Loans, which will be issued by VEREX Assurance, Inc. (the "Mortgage
Insurer").
The policy will provide insurance coverage on the full amount of any loss
realized as a result of default in payments by a mortgagor and subsequent
Mortgage Loan foreclosure to the extent losses are not covered by the private
mortgage guaranty insurance policy required to be maintained by each Lending
Institution. The mortgage pool insurance policy is subject to a limitation on
aggregate claims of 50 of the aggregate original principal amount of all
Mortgage Loans.
As a condition to payment of a claim under the policy the Lending
Institution must advance hazard insurance premiums and, if necessary, real
estate taxes, property sales expenses and foreclosure costs (including court
costs and reasonable attorneys' fees). If there has been any physical loss or
damage to the property, it is a further condition to payment of a claim that
the Lending Institution restore the property to its condition at the time of
the issuance of the policy (reasonable wear and tear excepted).
The amount for which claim may be made under the mortgage pool insurance
policy is the sum of (i) the unpaid principal balance owing on the Mortgage
Loan at the time of default, plus (ii) the amount of the accumulated
delinquent interest computed to the date of claim settlement (excluding
applicable late charges and penalty interest), plus (iii) all costs associated
with obtaining merchantable title to the property, reduced by any amounts paid
under the private mortgage guaranty insurance policy. Upon payment of a
claim, the Mortgage Insurer will receive title to the property and assume
responsibility for resale. Alternatively, if the Trustee or a Lending
Institution receives an offer for the purchase of the property prior to claim
payment, the property may be sold if the sale is first approved by the
Mortgage Insurer. In such case the amount paid by the Mortgage Insurer under
the policy will be the claimable amount reduced by the net proceeds of the
sale.
Claims for losses must be filed with the Mortgage Insurer within 60 days
after the insured has conveyed title to the Residence pursuant to an approved
sale; the Mortgage Insurer has 30 days from the date of filing to pay the
claim.
An endorsement to the mortgage pool insurance policy provides that monthly
advances on payment of claims will be made to the Trustee in an amount equal
to the monthly principal and interest payments on each Mortgage Loan which has
become one or more payments past due. Advances will be made in an amount
equal to all sums delinquent, and will be paid to the Trustee or the Lending
Institution within 10.days of receiving notification of delinquency.
As a condition to advance claims payment, the Lending Institution must
commence foreclosure action at 90 days delinquency, or obtain title through
deed in lieu of foreclosure or other means. Claim settlements are reduced by
the sum of the advances and the advances must be repaid if the Mortgage Loan
becomes current, delinquent for fewer months than those for which advances
were made or if a claim is not filed under the mortgage pool insurance policy.
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The coverage available under the advance claims procedure equals the
unused limited amount of coverage provided under the mortgage pool insurance
policy. Advances for which the Mortgage Insurer is ultimately reimbursed are
not charged against the limit of coverage under the policy. Consequently,
when coverage under the mortgage pool insurance policy has been exhausted,
whether through losses on advances or foreclosure losses with respect to
Mortgage Loans, coverage under the advance claims procedure will also be
exhausted.
Limited Purpose Bond
The Trustee, on behalf of the Agency, will obtain from a Limited
Purpose Bond for proceedings under the federal bankruptcy laws with respect to
a mortgagor in an initial amount equal to 1% of the initial aggregate
principal balance of the Mortgage Loans. The Limited Purpose Bond will cover
certain losses resulting from a reduction by a bankruptcy court of the
principal balance of a Mortgage Loan and the unpaid accrued interest with
respect to such reduction for the period commencing on the date of
commencement of a bankruptcy proceeding and ending on the date of payment of
the reduction in principal by The Limited Purpose Bond will also
include an endorsement in an amount equal to to of the initial aggregate
principal balance of the Mortgage Loans, covering certain losses resulting
from a reduction, by the bankruptcy court, in the interest rate on a Mortgage
Loan. If the aggregate claims exceed the amount of coverage of the Limited
Purpose Bond, no further payments will be made by and any losses
resulting thereafter will be borne by the Bondholders.
Standard Hazard Insurance and Earthquake Insurance
For a Mortgage Loan to qualify the Residence must be -covered by a Dwelling
Building Special Form all risk policy issued by an insurer qualified to issue
such insurance in California insuring against loss in an amount equal to the
greater of 1000 of the insurable value of the Residence based on replacement
cost or the unpaid principal balance of the Mortgage Loan. In the case of
condominium units the policy covers the entire project and the premiums are to
be paid by the homeowner association established for the condominium project.
In addition, each Residence is required to be insured at the time a
Mortgage Loan is purchased by the Trustee against risk of loss due to
earthquake and such insurance (if commercially available) is required to be
maintained in an amount equal to the greater of the outstanding principal
balance of the Mortgage Loan or 100; of the insurable value of the Residence
based on replacement cost, subject to a 5e deductible per occurrence. The
premiums are to be paid by the mortgagor. If the Residence is located in a
designated flood area, flood insurance is required.
Special Hazard Insurance
The Agency will obtain special hazard insurance to insure against losses
resulting from flood, mudslides, and building collapse (which are not covered
by standard hazard insurance) and losses resulting from the application of a
coinsurance clause in the standard hazard insurance or earthquake policy.
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In the event a mortgagor has defaulted and foreclosure procedures have
commenced, the special hazard policy will cover the uninsured risk in the
event of a loss resulting from such an insured risk occurring before or after
default. The insurer will have the option of paying (1) the cost of repair,
less the net proceeds received from the hazard insurance policy, or (2) the
sum of (i) the unpaid principal balance of the Mortgage Loan at the time the
property is sold, (ii) advances made by a Lender and (iii) accumulated
interest on the total of the unpaid principal balance of the Mortgage Loan and
on advances made, less the net proceeds received from the hazard insurance
policy. A claim under the special hazard policy may be made as soon as
practicable from the date of discovery of such loss, damage or occurrence.
The maximum amount payable under the special hazard policy will be 1; of
the original principal balance of all Mortgage Loans purchased by the Trustee
on behalf of the Agency or twice the original principal amount of the largest
Mortgage Loan purchased by the Trustee on behalf of the Agency, whichever is
greater. The residual coverage under such policy will reduce as claims are
paid and, if aggregate claims exceed the policy limit, no further payments
will be made by the insurer, and any losses resulting thereafter may be borne
by the Bondholders.
The Trustee will pay the annual premiums on the special hazard policy with
moneys in the Operating Fund, except that the first annual premium will be
paid from proceeds of the Bonds.
Errors and Omissions Insurance Policy and Fidelity Bond
If the Lender fails to perform its obligations under the Mortgage Loan
Purchase Agreement or Servicing Agreement due to an error or omission of its
officers or employees, coverage will be provided within the limits of an
errors and omissions insurance policy (the "Errors and Omissions Insurance
Policy") required to be maintained by the Lender. If any officer or employee
of a Lender misappropriates funds from the Lender, coverage therefor will be
provided within the limits of the fidelity bond (the "Fidelity Bond") required
to be maintained by the Lender. The Lender is required to pay the premiums
for its Errors and Omissions Insurance Policy and Fidelity Bond. The Lender
is required to deposit any amounts collected under any such Errors and
Omissions Insurance Policy or Fidelity Bond into its Custodial Account.
Both the Errors and omissions Insurance Policies and Fidelity Bonds must
be in the form and substance required by FHLMC or FNMA. Such Errors and
Omissions Insurance Policies and Fidelity Bonds are subject to certain
limitations as to amounts of coverage, deductible amounts, 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 an Errors and Omissions Insurance Policy or a Fidelity Bond
shall cease to be in effect, or the issuer thereof shall cease to be
acceptable to FHLMC or FNMA, the Lender is required to obtain from another
insurer acceptable to the Trustee a replacement policy therefor.
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Payment of Insurance Claims
The Agency makes no representation as to the ability of any insurer
issuing private mortgage guaranty, pool mortgage, 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 THE INDENTURE
The following statements are a brief summary of certain provisions of the
Indenture (copies of which may be obtained from the Agency and at the
corporate trust department of the Trustee). The summary does not purport to
be complete and reference is made to the Indenture for a full and complete
statement of such provisions. Certain capitalized words or terms used in this
summary and not defined herein are defined in the indenture and have the same
meaning herein as therein defined unless the context requires some other
meaning.
Establishment of Funds and Accounts and Application of Bond Proceeds
The Indenture establishes the funds and accounts described, and provides
for the transfer and disbursement of Pledged Revenues in the manner set forth,
under "Security for the Bonds and Flow of Funds". Bond proceeds are proposed
to be used as described under "Disposition of Bond Proceeds" herein.
Security for Deposits and Investment of Funds
All amounts hold by the Trustee are to be held in trust and applied only
in accordance with the Indenture. The Indenture further provides that all
such amounts held by the Trustee under the Indenture (except amounts in the
Excess Investment Earnings Fund) are not to be subject to any lien or
attachment by any creditor of the Agency other than the lien of the holders of
the Bonds and the Trustee.
All funds and accounts held by the Trustee must be invested in "Permitted
Investments" which means any of the following investments which at the time
are legal investments for the Agency under the laws of the State of
California: (1) direct obligations of the United States of America (including
obligations issued or held in book -entry form on the books of the Department
of the Treasury of the United States of America) or obligations the principal
of and interest on which are guaranteed by the United States of America; (2)
interest-bearing demand or time deposits (including certificates of deposit)
in banks (including the Trustee) and savings and loan associations provided
that such deposits are insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation; (3) obligations of
institutions the unsecured debt obligations of which (or the parent holding
company of which) are rated "A" or better by Standard and Poor's Corporation;
or (4) the Investment Agreements.
The Trustee
The Trustee and any successor must have aggregate capital and surplus of
at least $50,000,000. The Trustee is required to carry out the duties
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assigned in the Ind•ure, subject to indemnification and is entitled to
compensation and expenses as agreed upon. The Trustee may buy, own, hold and
sell any bonds of the Agency (including the Bonds) and engage in other
transactions with the Agency.
The Trustee may resign or be removed, effective upon appointment of a
successor. Appointment may be made by a court upon application by the Trustee
or any Bondholder if no appointment has been made within 45 days after the
Trustee's notice of resignation.
Provision is made for transfer of rights and property to a successor
Trustee; any company into which the Trustee merges, converts or consolidates
becomes the successor.
Covenants of the Agency
The Agency warrants and covenants, among other things:
1. To pay all Pledged Revenues received by it to the Trustee for
payment of the Bonds;
2. Not to extend or consent to extension of time for payment or
maturity of Bonds;
3. To provide further assurances of rights under the Indenture, as
required;
4. To keep proper books for all the Program transactions described
in the Indenture and to file a copy of its annual report pertaining to
such transactions (certified by an independent accountant) with the
Trustee and provide such report to each Bondholder who has filed his name
and address for such purpose;
5. To cause the Trustee to pay promptly the annual premiums on
special hazard insurance with moneys from the Operating Fund;
6. To employ or retain competent personnel, to establish and
enforce reasonable rules and regulations to administer the Program;
7. To the extent permitted by law, not to clair the advantage of
any laws which may adversely affect the covenants and agreements of the
Indenture;
8. To do nothing which will cause the Bonds to become arbitrage
bonds within the meaning of the Code, and the regulations promulgated
thereunder or cause the Bonds to be mortgage subsidy bonds within the
meaning of Section 103A(a); and
9. To supply semiannually or annually, as required, certain
specifications, financial statements and other documents requested by the
rating agency.
Supplemental Indentures
Supplemental indentures may be adopted at any time to:
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1. Add covenants and agreements to further secure the Bonds;
2. Prescribe further limitations and restrictions upon the
incurring of indebtedness by the Agency;
3. Surrender any right or privilege of the Agency reserved or
conferred under the Indenture;
4. Confirm as further assurance any pledges and liens created by
the Indenture;
5. Modifv the Indenture subject to consent of Bondholders as
described below;
6. Conform the Indenture with the provisions of Section 103A of the
Code to insure the tax exempt status of the interest on the Bonds is not
impaired; and
7. With the Trustee's consent, cure ambiguities and defects or
inconsistent provisions of and add clarifying provisions to the Indenture.
Supplemental indentures must be filed with the Trustee and be accompanied
by a counsel's opinion certifying their proper adoption and validity. No
change in the rights and obligations of the Trustee may be made without its
written consent.
Amendment of the Indenture
With the exception of amendments outlined above which may be made without
the consent of the Bondholders, amendments to the Indenture may be
accomplished by supplemental indenture with the consent of the holders of at
least two-thirds of the principal amount of Bonds outstanding, such consent to
be obtained in writing, and to be accompanied by a counsel's opinion that the.
consent proceedings are valid and binding. No such amendment may extend the
stated maturity of any Bond or reduce the amount of principal thereof or the
redemption price or rate of interest payable thereon, or extend the time of
payment of interest thereon, without the consent of the registered owner
thereof, or reduce the percentage of Bonds the consent of the registered
owners of which is required to effect any such modification or amendment, or
permit the creation of any lien on the Pledged Revenues and other assets
pledged as security for the Bonds prior to or on a parity with the lien
created by the Indenture, or deprive the registered owners of the Bonds of the
lien created by the Indenture upon such Pledged Revenues and other assets
(except as expressly provided in the Indenture), without the consent of the
registered owners of all Bonds then outstanding, or modify any of the rights
or obligations of the Trustee, without the written consent thereof. Any
amendment may be made with unanimous Bondholder consent.
Default and Remedies
Events of default are defined as:
1. Failure to pay principal or the redemption price of any Bond or
to make sinking fund installments when due;
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2. Failure for 30 days after the due date to pay interest;
3. Agency failure or refusal to comply with the Act or default in
the observance of any other covenants and agreements in the Indenture or
in an applicable supplemental indenture continuing for 90 days; or
4. Agency filing a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other applicable law
of the United States of America, or if a court of competent jurisdiction
shall approve a petition, filed with or without the consent of the Agency,
seeking reorganization under the federal bankruptcy laws or any other
applicable law, or if, under the provisions of any other law for the
relief or aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Agency or of the whole or any substantial part
of its property.
Upon the happening and continuance of an event of default, the Trustee
may, and shall upon written request of the holders of at least 25 percent in
principal amount of outstanding Bonds, proceed to enforce one or more of the
following remedies:
1. Bring an action to enforce the Bondholders' rights, including
requiring collection of payments on Mortgage Loans and performance by the
Agency of its duties under the Act;
2. Bring suit upon the Bonds;
3. Bring an. action to require the agency to account as if it were
trustee of an express trust for the Bondholders;
4. Bring an action to enjoin any unlawful acts or acts violative of
Bondholders' rights, or compel the Agency or any Lender to perform its
duties; or
5. Declare all Bonds due and payable and proceed to sell, liquidate
or otherwise realize the value of the assets pledged under the Indenture.
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 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.
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The timing of such payments on default is in the discretion of the
Trustee. The method of conducting remedial proceedings by the Trustee may be
directed in writing by Bondholders holding a majority in principal amount of
the Bonds: provided, however, the Trustee may decline to follow any such
direction which, in the opinion of the Trustee, would be unjustly prejudicial
to other Bondholders.
-No holder of any Bond has any right to institute any suit, action or other
proceedings under the Indenture or for the protection or enforcement of any
right therein granted or any right granted under the law, unless such holder
has given to the Trustee written notice of the event of default or breach of
duty on account of which suit, action or proceeding is to be taken, and unless
the holders of not less than 25 percent in principal amount of the Bonds then
outstanding, have made written request of the Trustee after the right to
exercise such powers or right of action, as the case may be, shall have
accrued, and shall have afforded the Trustee a reasonable opportunity either
to proceed to exercise the powers granted in the Indenture or granted under
law or to institute such action, suit or proceeding in its name and unless,
also, there shall have been offered to the Trustee reasonable security and
indemnity against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee shall have refused or neglected to comply with
such request within a reasonable time; and such notification, request, and
offer of indemnity are declared in every such case, at the option of the
Trustee, to be conditions precedent to the execution of the powers under the
Indenture or for any other remedy under law. The Indenture prohibits actions
which may adversely affect rights and interests of Bondholders.
The Trustee may bring all actions authorized without possession of the
Bonds. Express remedies are not exclusive, and no delay or omission
constitutes a waiver of rights. The Trustee must give Bondholders notice of
any default within 90 days of knowledge thereof, unless cured before notice or
unless the Trustee's board of directors, executive or trust committee in good
faith determines that withholding notice is in the interest of the Bondholders.
Defeasance
Full payment of principal, interest and redemption price of all
outstanding Bonds terminates all rights and obligations under the Indenture.
The lien of the Indenture and the pledge of the Pledged Revenues are also
fully discharged if (i) the Agency gives the Trustee irrevocable instructions
to redeem all callable Bonds outstanding, (ii) there shall have been deposited
with the Trustee and set aside in a special trust fund either moneys or
Federal Securities, the principal and interest on which when due, 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, and (iii)
if the Bonds are not callable within 60 days, the Agency shall have
irrevocably instructed the Trustee to give notice to the Bondholders of the
deposit described in (ii) above. "Federal Securities" means direct and
general obligations of the United States of America.
Miscellaneous
All documents held by the Trustee may be inspected by the Agency, the
Trustee, and by Bondholders (upon written request of the holders of 5 percent
y of the principal amount of Bonds outstanding).
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All covenants and agreements in the Indenture are enforceable against the
Agency and not against any member, officer, or employee of the Agency in his
or her individual capacity, and no recourse for payment of principal, sinking
fund installments, interest, or redemption price of the Bonds is available
against such persons in such capacities.
HOUSING DEMAND STUDY
A housing demand study with respect to the housing markets in the City has
been prepared by an independent consulting firm specializing, among other
things, in housing and mortgage market studies and related matters. A summary
of the housing demand study is included herein as Appendix C and should be
read in its entirety. Copies of the entire study is on file in the office of
the Agency and reference is made to such study for a full and complete
statement of its text.
NO LITIGATION
There is no legal controversy or litigation of any nature now pending to
restrain or enjoin the issuance. sale, execution or delivery of the Bonds or
the purchase of Mortgage Loans with proceeds of the Bonds, or in any way
contesting or affecting the validity of the Bonds, the proceedings of the
Agency taken :with respect to the issuance or sale thereof, the pledge or
application of any moneys or securities provided for the payment of the Bonds,
the existence or powers of the Agency or the title of any officers of the
Agency to their respective positions.
LEGALITY AND TAX EXEMPTION
All legal matters in connection with the issuance of the Bonds are subject
to the approval of Jones Hall Hill & White, A Professional Law Corporation,
San Francisco, California, Bond Counsel. Certain legal matters will be passed
upon by Haynes & Miller, Washington, D.C., Special Tax Counsel and Counsel to
the Underwriter. Fees payable to Bond,Counsel, Special Tax Counsel and
Counsel to the Underwriter are contingent upon the sale and delivery of the
Bonds.
Section 103A of the Code, provides that interest on bonds, such as the
Bonds, is exempt from federal income taxation under certain conditions. In
the opinion of Bond Counsel all such conditions which are based on currently
ascertainable matters have been satisfied. The following conditions imposed
by Section 103A relate to future events: (1) all Mortgage Loans are required
be made with respect to Residences which can reasonably be expected by the
Agency to become the principal residence of the mortgagor within a reasonable
time and which are located within the Cities and the County; (2) as of any
date, at least 900 of the aggregate principal amount of Mortgage Loans be for
Residences for mortgagors who have not had a present ownership interest (as
defined in Section 103A) in a principal residence at any time during the
3 -year period prior to execution of the Mortgage Loan; (3) the Acquisition
Cost of Residences financed with Mortgage Loans may not exceed 1100 of the
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Average Area Purchase Price; (4) none, of the Bond prfeeds may be used to
acquire or replace an existing mortgage (other than construction loans or
other temporary financing); and (5) any person permitted to assume a Mortgage
Loan is required to meet the conditions set forth above in (1), (2) and (3).
In connection with the execution or assumption of Mortgage Loans, the
temporary regulations authorize the Agency to rely on affidavits of mortgagors
as to (1) intention to use a Residence as a principal residence; and (2) no
present ownership interest within the 3 prior years (accompanied by federal
income tax returns); and affidavits of the mortgagor and the seller that the
Acquisition Cost does not exceed 110% of the Average Area Purchase Price.
Mortgage Loans will not replace existing mortgages, except for construction
loans or other temporary financing. 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 Mortgage Loans are executed with
respect to 95% of the Bond proceeds available for making Mortgage Loans and
corrective measures are taken with respect to those Mortgage Loans which did
not meet those conditions, interest on the Bonds will remain exempt from
federal income taxation.
In the opinion of Bond Counsel, under existing laws, regulations, rulings
and judicial decisions, interest on the Bonds is exempt from income taxation
by the United States of America and from personal income taxation imposed by
the State of California and by municipalities and other political subdivisions
of said State. Such opinion will state that the exemption from taxation by
the United States of America may become inapplicable upon failure to meet the.
95% test or the correction requirement of Section 103A of the Code, but will
further state that, in the opinion of Bond Counsel, the Agency has established
and covenanted to observe procedures which, upon compliance, meet those
requirements.
UNDERWRITING
The Underwriter has agreed, subject to certain conditions, to purchase the
Bonds from the Agency at an aggregate discount of $ from the initial
public offering prices set forth on the cover page hereof. The obligation of
the Underwriter is subject to certain conditions precedent, and the
Underwriter will be obligated to purchase all the Bonds, if any such Bonds are
purchased. The Bonds may be offered and sold to certain dealers, banks and
others at prices lower than the initial public offering prices stated on the
cover of this Official Statement, and such initial offering prices may be
changed, from time to time.
BOND RATING
Standard & Poor's Corporation has rated the Bonds (++). The double
dagger (++) indicates that such rating is subject to receipt of closing
documentation by the rating agency confirming investments, cash flows, and
other required certifications. Such rating reflects only the view of such
organization and an explanation of the significance of such rating may be
obtained from the rating agency. There is no assurance that such rating will
continue for any given period of time or that it will not be revised downward
or withdrawn entirely by such rating agency, if in the judgment of such rating
agency circumstances so warrant. Any such downward revision or withdrawal of
such rating may have an adverse effect on the market price of the Bonds.
i
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• 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 Agency and the purchasers, holders or owners
of any of the Bonds.
Copies in reasonable quantity of the Indenture and other documents
referred to herein may be obtained at the office of the Agency.
The execution and delivery of this Official Statement have been duly
authorized by the Agency.
REDEVELOPMENT AGENCY OF THE CITY OF AZUSA
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APPENDIX A 0
THE LENDER
California is an "antideficiency" state which means that, in general,
lenders on single family residences must look solely to the property for
repayment in the event of default. Mortgage Loans to be originated by the
Lender are to be underwritten generally in accordance with the standards
established by the Lender, FHLMC, FNMA and the Mortgage Insurer in order to
assess the prospective mortgagor's ability to repay the Mortgage Loan. The
Lender will sell Mortgage Loans to the Trustee on a nonrecourse basis except
as to the representations made at the time of sale.
The following is a summary of the Lender's experience in originating and
servicing single family mortgage loans. The information regarding the Lender
was provided by the Lender, and neither the Agency nor the Underwriter have
independently verified the accuracy of such information. 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 Mortgage
Loans securing the Bonds will be as favorable as the loss experience shown for
the Lender described below. In particular, if the California residential real
estate market should e-perience an overall decline in property values, the
actual rates of delinquencies, foreclosures and losses could be significantly
higher than those previously experienced by the Lender.
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APPENDIX B
THE DEVELOPERS AND THE DEVELOPMENTS
The following discussion describes the Developers and the Developments.
The Developers provided the following information and are solely responsible
for the accuracy and completeness of such information. Neither the Agency nor
the Underwriter have independently verified the accuracy of the following
information.
AP
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APPENDIX C
SUMMARY OF HOUSING DEMAND STUDY
Prepared for
REDEVELOPMENT AGENCY OF THE CITY OF AZUSA
by
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