In 1992 the Cape Cod Commission was successful in establishing the Barnstable County Soft Second Loan Program (SSLP), an innovative homeownership program for first-time low and moderate buyers. The program expands the buying power of the purchaser by approximately 25%. It accomplishes this by reducing loan costs, a reduced interest rate and through use of public funds to subsidize the interest payment on the "soft second" mortgage for the first ten years of ownership.

The SSLP has succeeded in leveraging over $53 million in mortgage funds from local lenders. The state has also awarded over $2.6 million to the County's SSLP. To date the program has assisted 431 low- and moderate-income first-time homebuyers from throughout Cape Cod. Overall administration is provided by the Commission's affordable housing specialist. Day-to-day program administration has been contracted to the regional non-profit Housing Assistance Corporation.

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How Does This Program Work?

Applicants must be income eligible and the purchased home must be their principal place of residence. The program places a preference on the purchase of existing units. Under the program buyers will get two mortgage loans that go together: a first mortgage that is 77% of the purchase price, and a "soft second" that is 20% of the price. The remaining 3% represents the buyers downpayment (1.5% borrower's funds, 1.5% gift). The principal on the second mortgage is deferred for 10 years and public funds are used to pay for most of its interest during the first five years. Debt-to-income ratios are based on the principal and interest payments of the first mortgage and just the buyer's interest payment on the "soft second" mortgage loan.

Local banks agree to discount the interest rate, charge no points, and reduce closing costs on 30-year fixed rate mortgages. Additionally the SSLP eliminates payment of private mortgage insurance. Banks can sell the first mortgage to the secondary market or retain ownership. The second mortgage remains in the bank's portfolio (bank owned). A portion of the public funds are used to provide a 10% loan loss reserve for each second mortgage held by the bank. The loan lost reserve is paid to the bank at the time of the closing.

The structure and cost savings features of the SSLP significantly increases the buying power of low-income first-time homebuyers. It expands housing opportunities and is bringing homebuyers into the market that would otherwise be left out.

The Commission has contracted the day-to-day administration of this program to the regional non-profit Housing Assistance Corporation (HAC). HAC pre-certifies the eligibility of potential buyers, tracks the progress of applicants, and conducts the homebuyers workshops, which all participants are required to attend. The Commission is responsible for the overall administration of the Soft Second Loan Program. The soft second mortgage interest subsidy is provided by the state's Department of Housing and Community Development.

Participating banks are asked to sign a Memorandum of Understanding with the Commission and indicate how much mortgage money they will commit to the program. The banks are responsible for intakes, qualifying borrowers, loan origination, and loan closing. Eligible applicants select which bank to apply for a mortgage loan.

The program has succeeded in leveraging over $51 million in mortgage funds from local lenders. Additionally, the state has awarded Barnstable County over $2.6 million to subsidize the interest payments on the second mortgage. Together these funds have significantly expanded homeownership opportunities for low- and moderate-income homebuyers.

For more information on the Soft Second Loan Program call Nancy Crockan of HAC, at 771-5400.