Steamboat Springs A proposal tonight will test how far the City Council is willing to go to support affordable housing.
The council will discuss if it wants to keep affordable housing in the West End Village Project permanently deed restricted, and if it is willing to back the mortgages to those homes.
The major concern is that deed restrictions that would keep housing affordable could be lost if a lender forecloses on a house.
However, if the city or a housing authority backed those loans, the deed restrictions are secured.
The West End Village lies in the West of Steamboat Springs Area Plan, which requires one-third of all units be affordable with deed or mortgage restrictions.
Even though West End Village is providing 44-units of affordable housing, which is 50 percent of its development, the city's planning department questions if it meets affordable housing requirements.
The plan requires units be controlled through deed or mortgage restrictions when they involve significant public effort or expense.
The Regional Affordable Living Foundation has allowed the affordable homes in West End Village to be purchased by people who make 120 percent or less of the area median income, live and work in Routt County and have assets of $200,000 or less.
Under RALF's guidelines, when the homeowners sell the house, only someone who meets the same qualifications can purchase it.
Rob Dick, executive director of RALF, said the deed restrictions mean second market lenders, such as Fannie Mae, will not approve loans.
The lenders will not assume the risk of having restrictions on a house they might be forced to sell if a homeowner defaults on a loan.
Even though an affordable housing deed restriction is put in place through RALF, if the lender forecloses on a house, the restrictions cease.
Dick said he knows of one instance where an affordable housing project has been able to secure a second market lender and keep the deed restrictions.
But he also said it is a rare case and none of the current lenders are willing to take the risk.
Deed restrictions, however, could be kept in place if a housing authority or the city decided to back the loan.
In that case, if the lender foreclosed on a house, the authority or the city would pay off the loan and resell the house.
"It really is the only way a project is done," Dick said.
One of the state's most successful housing organizations, the Aspen and Pitkin County Housing Authority, backs the loans for its homeowners.
Cindy Christensen, operating manager of the housing authority, said local lenders and the authority do not see it as a risk. They know if a house forecloses, a long list is waiting and the home can easily be sold, she said.
But City Planning Director Wendie Schulenburg said backing the loans could be a risk that could cost the city $2 million if 10 homes costing $200,000 foreclosed.
"The city just financially can't do it," Schulenburg said.
Dick agrees that if the price of housing drops drastically, the city or whoever backs the loan would have difficulty selling the house to cover the mortgage.
Right now, Dick points to the list of names waiting to get into RALF's affordable housing units.
More than 200 households signed up this summer for the 44 available units.