Reports - Mississippi Renewal

THE GOVERNOR’S COMMISSION REPORT | 65By lowering interest rates, as shownabove, an owner could finance a$100,000 mortgage that will have amonthly payment of less than $400 permonth. However, finding a lender whowill provide a mortgage at between 2.5and 6 percent is unlikely. Establishing afederal mortgage pool that will allowlow- to moderate-income home buyersin the disaster area to obtain financingwith extremely low interest rates as illustratedabove is an option. This wouldhelp deliver a superior product withmonthly payments that are within thelow- to moderate-income criteria. Additionally,this scenario would be muchless of a burden to taxpayers.If the interest rate solution is not feasible,then the cost of the units must becontrolled to such an extent that theend user is still able to finance a homethat yields a monthly note that does notexceed $400. For example, if a builder isable to build a 1,200-square-foot homeat a cost of $62.50 per square feet totaling$75,000 and requires at least a15 percent net profit margin, then thehome must be sold for $86,250. At a6.75 percent interest rate, the end usercould only finance $61,000 of the purchaseprice and still maintain a monthlypayment not exceeding $400, whichleaves a $25,250 gap between the sellingprice of the home and what the enduser can finance. This gap would have tobe subsidized in some manner, whetherit is cash or massive tax incentives to thedeveloper. The $25,250 gap can be recordedas a mortgage on the home witha “due on sale” clause.A combination of these two methodsmay provide a possible solution; lowerinterest rate loans provided to hurricanevictims by a mortgage pool along withtax incentives to developers that will allowhome builders to sell the homes atcost with after-tax incentives that willguarantee them an effective net profitmargin. These builders could be contractedto build numerous homes thuslowering their net profit requirement,which they could mitigate by sheervolume.Multi-Family Affordable HousingMulti-family affordable housing willexperience the same issues with otherlender requirements that must be metto obtain financing. For example, a 300-unit apartment complex with each unittotaling 900 square feet would have atotal of 270,000 rentable square feet.The 300 units would yield $1,440,000in annual rental income at 100 percentoccupancy. If the cost to buildsuch a complex totals $65 per squarefoot, cost of construction would total$17,550,000. The loan amount at 90percent of cost would be $15,795,000,which would carry with it an annualdebt service of $1,441,192 if the loanwas amortized on 20 years at 6.75 percentinterest. In this scenario, before anyexpenses are paid on the property, theproperty would have an operating lossof $1,192 and would not come close tomeeting a 1.20 debt service coveragerequired by a lender.In both the single-family and multifamilyscenarios, it is obvious that alow-interest lending pool for homeowners and developers must be establishedand/or massive tax incentives orgovernment subsidies to developers andhomeowners will be needed to providea quality product and meet the affordablehousing criteria. In summary, it willbe necessary for the governor and thelegislature to work to develop programswhich address home ownership needsthat may not be covered or adequatelyfinanced by federal legislation. Recom-