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DATE: May 4, 2026
TO: Mayor and Members of the City Council
VIA: Stefan Chatwin, City Manager
Marlene Subhashini, Assistant City Manager
FROM: Nori Jabba, Housing and Sustainability Manager
Sofia Mangalam, Community Development Director
DEPARTMENT: Community Development
SUBJECT: AGREEMENT WITH THE HOUSING ENDOWMENT AND
REGIONAL TRUST (HEART) OF SAN MATEO COUNTY FOR
ADMINISTRATION OF THE AFFORDABLE ACCESSORY
DWELLING UNIT (ADU) LOAN PROGRAM FOR
IMPLEMENTATION OF HOUSING ELEMENT PROGRAM
RECOMMENDATION
It is recommended that the City Council adopt the attached Resolution (Attachment 1) authorizing the Mayor to execute an Agreement with HEART of San Mateo County (“HEART”) to administer the Affordable ADU Loan Program in an amount not to exceed $1,160,510 for the implementation of Housing Element program H-D-4-b ADU/JADU Financial Incentive Program; approve an appropriation of $1,160,510 from the Commercial Linkage Fee Fund (Fund 137) to 137-0847-419-42-51, and find the Agreement and Program exempt from review under the California Environmental Quality Act (CEQA) because (i) the Affordable ADU Loan Program was analyzed as part of the Environment Impact Report (EIR) for the 6th Cycle Housing Element (2023-2031) and Safety Element Update (SCH 2022010509); (ii) certain ADU approvals are categorically exempt pursuant to Public Resources Code § 21080(b)(1) and CEQA Guidelines § 15268; and (iii) certain ADUs that are not approved ministerially are exempt from CEQA pursuant to CEQA Guidelines section 15301(Class 1-Existing Facilities).
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EXECUTIVE SUMMARY
The Housing Element is an integral part of the Foster City General Plan, which identifies the City’s housing needs, states the City’s goals, and objectives regarding housing production, rehabilitation, preservation, and conservation to meet those needs, and defines the policies and programs necessary to achieve them. The Housing Element Program relevant to this staff report is H-D-4-b, ADU/JADU Financial Incentive Program (HE-94 of adopted 2023-31 Housing Element):
Provide or partner with another organization to provide a financial incentive program for single-family homeowners to construct an ADU/JADU that is restricted for lower-income households for 10-15 years, with an additional incentive amount for units subject to a preference for identified categories of special needs people who would benefit from coordinated onsite services, including but not limited to people with developmental disabilities.
The program calls for eight (8) income-restricted ADU units to be financed by 2031.
Government Code Section 65400 requires each jurisdiction to prepare an annual progress report (APR) on the jurisdiction’s status and progress in implementing its housing element. Each jurisdiction’s APR must be submitted to HCD and the Governor’s Office of Land Use and Climate Innovation (LCI) (previously known as OPR) by April 1 of each year (covering the previous calendar year). HCD also created the Housing Accountability Unit to enforce Housing Elements and ensure that jurisdictions follow through with their Housing Element commitments by implementing their goals, policies, and programs.
In order to stay on track for the timely implementation of the program mentioned above, staff issued a Request for Proposal (RFP) for vendors and, after reviewing the responses, recommends that the City Council adopt the attached Resolution authorizing the Mayor to execute an agreement with HEART of San Mateo, in an amount not to exceed $1,160,510.
BACKGROUND/ANALYSIS
Chapter 2, Housing Needs Assessment of the Housing Element, discusses various housing need issues, contributing factors, and meaningful actions to be taken by the City, including targets and a timeline for the actions (Table 1). 1 1
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Table 1. Housing Needs Assessment (Excerpt)
Housing Need Issue Contributing Factors Meaningful Actions Targets and Timelines
Housing Need Issue
Contributing Factors
Meaningful Actions
Targets and Timelines
About 32.6% of renters
and 32.9% of owners are
cost burdened or
severely cost burdened.
Growth in rents and sales
prices have outpaced
income growth.
Lack of adequate supply of
housing has increased
demand and prices.
Persons with disabilities
face additional housing
challenges
Difficulties are compounded
with low income, racial
discrimination, need for
supportive services, and/or
other factors.
Persons with disabilities
often need extremely low-
income housing.
H-D-4-b: ADU/JADU
Financial Incentive
Program
Implement program
by December 2024
Provide 8 income-
restricted ADU units
by 2031
The primary goal of the City’s Affordable ADU Loan Program is to create a unique, substantial financial incentive for Foster City Homeowners to build or install ADUs that are rent-restricted for low-income and special needs households for a period of 10 years. The program includes funding for eight (8) loans to Foster City homeowners who agree to rent their ADUs at below market rates to eligible low-income tenants for a period of 10 years and an additional incentive to those who agree to rent their ADUs with a preference for those with special needs. Homeowners who income-qualify can elect to live in the ADU unit and rent out the main home.
On July 9, 2024, the HCD issued a Notice of Funding Availability (NOFA) for the 2024 Local Housing Trust Fund (LHTF) Program for $53 million in matching grants to established LHTFs. LHTF Program requirements included that the funds be used to provide construction loans and/or permanent financing loans to pay for the construction or rehabilitation of affordable rental housing projects, emergency shelters, transitional housing, or affordable homebuyer/homeowner projects as well as to construct, convert, rehabilitate, and/or repair Accessory Dwelling Units (ADUs) or Junior ADUs (JADUs).
Subsequently, staff prepared for the application and loan programs outline for the implementation of three (3) Housing Element programs for HCD NOFA, including:
H-A-5-e: NOFAs for Affordable Housing.
H-D-4-b: ADU/JADU Financial Incentive Program.
H-B-2-a: Lower-Income Homeowner Rehabilitation Loans.
On September 3, 2024, the City Council authorized the application for the HCD NOFA and approved the Foster City LHTF specific underwriting guidelines for the three (3) loan 1 1
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programs noted above, including transfer of funds from Commercial Linkage Fee Fund (Fund 137) to LHTF (Fund 145) as matching funds, contingent upon the City being awarded the HCD LHTF funding; and in the event that the grant is not awarded, approve the use of funds from Fund 137 and authorize the City Manager or his designee to make amendments to loan programs as needed, including loan amounts, and others for the implementation of the three (3) Housing Element programs. However, the City was not granted the NOFA.
Similar ADU Affordable ADU loan programs are included in the Housing Elements of several jurisdictions throughout San Mateo County. In response to this, 21 Elements added development of an affordable ADU loan program to their work plan for 2025 and created an ADU Working Group to explore development of the program.
The ADU Working Group spent several months developing the program. In December 2025, 21 Elements determined that the program would require program administration costs (estimated at $180,000) to be split evenly among partnering jurisdictions (three (3) or four (4) jurisdictions), excluding loan administration fees. However, a few features of the 21 Elements program were not in alignment with the City’s requirements as stated in its Housing Element, Program H-D-4-b.
Staff then began researching potential opportunities for third parties to help administer the ADU loan program and issued an RFP to identify potential entities to administer the program that better meets the City’s specific program requirements.
Request for Proposals
On December 23, 2025, staff issued an RFP seeking proposals from qualified firms interested in administering and delivering the City’s Below Market Rate (BMR) Accessory Dwelling Unit (ADU) Loan Program (see link).
To provide flexibility for respondents, and due to interest from ADU builders and manufacturers in potentially partnering with the City for the program, respondents were asked to select one of the following options:
Loan Administration Only: Contractor will provide and manage financing only – homeowners find their own ADU general contractor/provider. Loan Administration and ADU Construction Services: Contractor will serve as both the general contractor for custom-built ADUs and provide and manager of financing of the ADUs for the homeowners. Contractor may partner with general contractor, and/or financing entity to form a team for this RFP. Loan Administration and ADU Sales and Installation: Contractor will serve as the seller for pre-manufactured or pre-fabricated ADUs, manager of installation, and manager of the financing of the ADUs for the homeowners. Contractor may partner with general contractor, and/or financing entity to form a team for this RFP.
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Draft guidelines were provided in the RFP and included all requirements as stated in the Housing Element, including an additional incentive for renting to those with special needs.
To ensure that the program offered significant incentives that would be appealing to homeowners who might not otherwise consider renting their ADU at below market rates, the program guidelines included deferred loan payments during the first 10 years of the loan term, and no interest loans, with the ability to rent the ADU at market rate after the first 10 years.
The RFP was posted on the City’s website, and an email soliciting proposals was sent to multiple recipients, including the Housing Endowment and Regional Trust of San Mateo County (”HEART”), Meriwest Credit Union, Habitat for Humanity Greater San Francisco (HGSF), Housing Leadership Council of San Mateo County, and several Bay Area ADU builders/developers and ADU sales and installation companies.
Responses to RFP
Staff received three (3) responses to the RFP: HEART for loan administration only; Habitat for Humanity Greater San Francisco (”HGSF”), for loan administration and construction services: and the Mortgage Office, for loan administration services only. No responses were received from ADU builders or ADU sales and installation companies. The proposals were evaluated using 11 criteria, including completeness of proposal, fees, experience, ability to meet program objectives, and other factors. The Mortgage Office’s proposal was not complete for several required items included in the RFP.
The proposal from HGSF included three (3) substantial changes to the program guidelines, including
an income restriction requiring the homeowners loan applicants to have household incomes of less than 120% of area median income. This provision is a requirement for HGSF‘s loan programs;
decreased loan funding from $1,100,000 to $1,000,000 with all eight (8) loans at $125,000 and removal of loans for $150,000 for homeowners who agree to rent to those with special needs; and,
a requirement for the City to provide gap funding from another source for the homeowner so that 100% of the ADU project is financed.
Staff determined that the proposal from HEART met all program requirements as described in Program H-D-4-b of the 2023-2031 Housing Element and as specified in the RFP.
The complete list of criteria is included in the RFP, and a scoring sheet is included as Attachment 4. Table 2 shows the rankings of each proposal and associated program costs.
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Table 2. RFP Response Summaries
Response
Ranking
Respondent Loan Fees Contractor Fees Total Program
Cost
1 HEART (Note 1) $1,100,000 $60,510 $1,160,510
2 HGSF (Note 2) $1,000,000 $100,000 $1,100,000
3 The Mortgage Office (Note 3) $1,100,000 $106,200 $1,206,200 Notes:
1.HEART: assumes four (4) loans for $125,000 and four (4) loans at $150,000 for special needs households. Proposal includes loan administration, loan servicing, and income and rent compliance for ADU occupants.
2.HGSF: assumes all eight (8) loans are $125,000; no additional funding for special needs households. Proposal requires homeowner to be income-restricted to <120% of AMI and requires the City of Foster City to fund the balance of the ADU cost from other sources.
3.The Mortgage Office: assumes four (4) loans for $125,000 and four (4) loans at $150,000 for special needs households. The proposal stated that the company provides a technology solution to support the ADU Loan Program as a loan management platform to be used by the selected contractor to originate, administer, and service the loans issued to homeowners or as the direct loan management platform to be used by the City of Foster City should the City elect to administer the loan portfolio internally. Costs are $21,240 per year, or $106,200 for 2026-2031.
Selected Vendor
Staff recommends the proposal from HEART due to its competitive fees for program administration and offering the lowest total cost for program implementation, HEART’s experience as a housing loan administrator, expertise in the process of ADU development in San Mateo County through HEART‘s ADU Center, and HEART’s ability to meet all of the City’s program objectives.
HEART is a 501(c)(3) organization founded in 2003 as a Joint Powers Authority and public/private partnership among the cities in San Mateo County, the County, and the business, nonprofit, education, and labor communities to create more affordable housing in San Mateo County. To date, HEART has invested over $27 million to fund 1,632 affordable homes. HEART offers four (4) programs: first-time homebuyer loans, developer loans, an ADU center, and housing consulting services for San Mateo County jurisdictions. The proposed Affordable ADU Loan Program would be administered by HEART through its ADU Center, which offers pre-reviewed ADU designs through its GLADUR program. The City of Foster City has been a contributing member jurisdiction of HEART since its formation and uses the GLADUR designs for the pre-approved ADU program (HE Program H-D-4-c, Preapproved ADU/JADU Designs and expedited permitting).
HEART reviewed the City’s draft program guidelines and provided input with requests for minor revisions. The attached Agreement (see Exhibit 1-A of Attachment 2) includes 1 1
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Program Guidelines in the Scope of Work (See Attachment 2, Exhibit 1- A). Table 3 shows the vendor costs to manage the loan program.
Table 3. Proposed Vendor Fees for Eight (8) Loans
Vendor Fees (HEART) Total for
8 Loans
Loan Fund: includes Loans for low-income ADUs and loans for special needs ADUs and assumes four (4) loans of each type. However, there is flexibility in the number of each type of loan as long as there are eight (8) loans in total and the total amount funded does not exceed $1,100,000. $1,100,000
Vendor Administration $51,070
Loan Servicing Fees ($440 per loan for setup and up to $1,800 for any non-compliant loans)
$2,240
Affordable Monitoring Services ($500 per initial certification x 8 loans and $200 per recertification up to 8 loans per year for the remaining two years of the contract)
$7,200
Total Agreement $1,160,510
Table 4 provides an overview of the vendor agreement and program provisions. 1 1
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Table 4: Summary of the Affordable ADU Loan Program
Program
Provision
Summary
Housing Element
Program
H-D-4-b, ADU/JADU Financial Incentive Program
Housing Element
Goal
Eight (8) income-restricted ADUs financed by 2031
Vendor
Agreement
Name: HEART of San Mateo County
Contract Maximum: $1,160,510
Term of Agreement: July 1, 2026, to December 1, 2031, with a three (3)-year renewal option for continued loan administration and ADU compliance
Scope of work: Develop program documents and marketing materials; conduct program outreach in conjunction with the City of Foster City; perform loan origination, underwriting, and servicing; establish and manage re-use account program funds;
provide compliance services for ADU occupants; provide required reporting to City.
Loan Terms $125,000 for the standard loan option or $150,000 for the special needs loan option. Loans are for a term of 20 years with 0% interest, no application fee, and no down payment, and payments deferred for the first 10 years. Payments would then be monthly for ten (10) years.
Qualifying
Repayment
Events
Examples include missed loan payments; sale of the house or ADU, and other provisions as outlined in the Program Guidelines.
Affordability
Restriction
ADUs are rent and income-restricted for lower income households earning <80% of Area Median Income for a period of 10 years. After the 10-year restriction period, the ADU units can be rented at market rates.
Program Outreach The City and HEART will work together to promote the program through both organizations’ websites, an ad in the Islander, on social media platforms, the City’s electronic marquee and newsletter, through listserv updates, and posting of flyers in public locations at City Hall and other locations. In addition, flyers will be provided to HOAs.
Homeowner/
Applicant
Requirements
The homeowner must live in the primary unit or in the ADU (if income-eligible), during the entirety of the loan term. The homeowner must agree to rent the unit only to a qualified lower income household at below market rates during the affordability restriction period.
Homeowners who select the Special Needs Loan option agree to rent the unit with a preference for low-income households with special needs during affordability restriction period. Special needs populations are defined in the program guidelines.
The homeowner must enter into a lease agreement with an ADU tenant for a period of at least 12 months for the initial term, and the lease must include an affordability addendum that explains the income requirements and initial and annual certification requirements.
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Staff recommends that the proposed Agreement with HEART be for three (3) years: July 1, 2026, to June 30, 2029, with a renewal option for an additional three-year period. Prior to the expiration of the Agreement, staff will re-evaluate the need for funding additional loans and vendor fees, performance, and community needs, and propose any necessary adjustments for the potential renewal of the Agreement to ensure that all issued loans are properly managed throughout the terms of the loans and that ADU rents and renters remain in compliance with program requirements for the restricted periods.
Next Steps
If approved by the City Council, the next steps include executing the Agreement, developing loan documents for the Affordable ADU Loan Program, and preparing promotional materials. Applications will be made available to eligible applicants within approximately three (3) months to allow time for HEART and the City to prepare program documents and marketing materials. Outreach will be a joint effort by the City and HEART.
California Environmental Quality Act
The Affordable ADU Loan Program will enable a homeowner to finance their ADU project to build or install a new ADU. This program was analyzed as part of the Environment Impact Report (EIR)) for the 6th Cycle Housing Element (2023-2031) and Safety Element Update, adopted environmental findings, and adopted a Standard Conditions of Approval and Mitigation Monitoring and Reporting Program (SCH 2022010509). No further environmental review for the program is necessary because no substantial changes are proposed and no new information is known that would warrant a subsequent EIR pursuant to CEQA Guidelines section 15162, or an addendum pursuant to CEQA Guidelines section 15164. This program would facilitate the construction of ADUs. Certain ADU approvals would be categorically exempt pursuant to Public Resources Code § 21080(b)(1) and CEQA Guidelines § 15268 because the projects would be approved ministerially. Ministerial projects are exempt from the requirements of CEQA. Additionally, certain ADUs that are not approved ministerially would be exempt from CEQA pursuant to CEQA Guidelines section 15301(Class 1-Existing Facilities) as an addition to an existing structure and 15303 (Class 3-New Construction or Conversion of Small Structures) as construction of new, small facilities or structures.
FISCAL IMPACT
Staff is requesting a total appropriation of $1,160,510 in Fiscal Year 2025-2026 to account number 137-0847-419-42-51 to fully fund the Affordable ADU Loan Program.
Currently, there is $10,174,993.56 million available in the fund balance, which is sufficient to absorb this supplemental appropriation.
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CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Smart Planning, Development, and the Local Economy
ATTACHMENTS:
Attachment 1 – Resolution
Attachment 2 – Exhibit 1-A - Agreement with HEART of San Mateo County Attachment 3 – Proposal from HEART of San Mateo County
Attachment 4 – RFP Response Scoring Sheet
Attachment 5 – Additional RFP Responses