Item 13 - Amendment to Affordable Housing Rehab & CDBG
AGE~DA REPORT Snl~l-illY
TO:
INITIATED BY:
Honorable Mayor and Members of the City Council
Honorable Chairman and Members of the Redevelopment Agency
James L, Bowersox, City Manager/Executive Dir~ ~,~
John D, Fitch, Assistant City Manager/Assistant Executive Director
Warren H. Shafer, Director of Redevelopment service~~
David Narevsky, Redevelopment Manager D~
Kris Gridley, Redevelopment Coordinator~
June 4, 1996
FROM:
DATE:
SUBJECf:
Amendment to the Affordable Housing Rehabilitation and Community
Development Block Grant (CDBG) Housing Rehabilitation Program Guidelines
to Establish Criteria for Loan Subordinations
ABSTRACf
This report discusses a proposed amendment to the Affordable Housing Rehabilitation and
the CDBG Housing Rehabilitation Program Guidelines, The proposed amendment would
establish criteria for the approval of loan subordination agreements.
ENVIRONMENTAL REVIEW
This action is not subject to CEQA review.
FISCAL IMPACf
None.
PUBLIC NOTIFICATION AND CORRESPONDENCE
None.
RECOMMENDATION
It is recommended that the City Council/Redevelopment Agency approve the proposed
amendments to the Affordable Housing Rehabilitation Program and CDBG Housing
Rehabilitation Program Guidelines, as presented in Attachments 1 and 2, and approve the
proposed subordination notes, as presented in Attachments 3 and 4.
ACnON
1 of 12
JUN 4 1996 ITEII 13
~ AGENDA REPORT
CITY OF POW A Y
This report!s :ncluded on the Consent Calendar. There will be no separate disCUSSion of the report. prlor'o apprc\'ai bv 'he
City (ouneo! unless members of the Council. staff or public request it to be removed from ~he Conse'lt Calendar dnd
discussed separatel" if you 'w'!sh to have thIS report pulled for diSCUSSion. please fill out a ,;lip Indicating the report _lumDer
dnd give It ~o the 0.... Cerk prior to the beginning of the City CounCIl meeting.
TO:
FROM:
INITIATED BY:
John D. Fitch, Assistant City
Director
Warren H. Shafer, Director of Redevelolm~nt
David Narevsky, Redevelopment Manager ~
Kris Gridley, Redevelopment Coordinator ~
Honorable Mayor and Members of the City Council
Honorable Chairman and Members of the Redevelopment Agency
James L, Bowersox, City Manager/Executive Dire~
-'
Manager/Assistant Executive'
Servi ces'^'~ IDN
DATE:
SUBJECT:
June 4, 1996
Amendment to the Affordable Housing Rehabilitation and
Community Development Block Grant (CDBG) Housing
Rehabilitation Guidelines to Establish Criteria for Loan
Subordinations
BACKGROUND
The existing Program Guidelines for the Agency's Housing Rehabilitation
Programs do not provide any criteria by which to evaluate requests for loan
subordination. They simply state that the Agency/City will not subordinate
their position to a new loan at any time. In view of the recent fluctuations
in interest rates, it is not surprising that the Agency has received numerous
requests to sign loan subordination agreements from homeowners who wish to
refinance. Staff has approved some of these requests for homeowners who were
refinancing their existing first mortgages without incurring any additional
debt, These requests were approved based on the fact that they lowered or
stabilized the homeowner's housing cost and did nothing to jeopardize the
Agency's financial interest in the property. Other requests, however, have
been more difficult to evaluate and have highlighted the need for adoption of
consistent guidelines.
The Redevelopment and Housing Advisory Committee reviewed the proposed
subordination criteria at their meeting on March 11, 1996. Several changes
were recommended by the Committee and the attached guidelines have been
revised to incorporate those changes.
ACTION:
l
))
JUN 4 1996 ITEM 18
2 of 12
.
Agenda Report
June 4, 1996
Page 2
FINDINGS
The Agency's existing Affordable Housing Rehabilitation and CDBG Housing
Rehabilitation Program Guidelines have been reviewed and revised to
incorporate the proposed criteria for approval of Loan Subordination requests,
Thepf9posed revisions are presented in Attachments 1 and 2 in a strilleellt
l',dJjll~ format. It should be noted that there are two sets of draft
guidelines attached to this report. The two sets of guidelines correspond to
the Agency's two Housing Rehabilitation Programs, one of which is funded by
the Redevelopment Agency Low and Moderate Income Housing Fund and the other
which is funded by the Federal Community Development Block Grant (CDBG)
Program.
The proposed criteria can be summarized as follows:
1. The Agency/City will approve loan subordination agreements which do not
place any additional encumbrance in a senior position to the Agency's
lien.
2. The Agency/City will approve subordination agreements for homeowners who
are refinancing existing debt, plus financing costs, in order to lower
or stabilize their overall housing cost. Allowable refinancing costs
may include points, fees and impound charges, however the total of
additional charges to which the Agency/City subordinates may not exceed
four percent of the new loan amount,
3. The Agency/City may approve subordination agreements which place
additional debt in a senior position to the Agency's lien if the
homeowner can demonstrate that the subordination is necessary due to an
emergency situation, which may include the following:
a. Refinancing in order to pay uninsured and unpredictable medical
costs for an immediate family member or dependent.
b. Refi nanci ng in order to pay funeral costs for an immedi ate fami 1 y
member or dependent.
c. Refinancing which is necessary to avoid foreclosure action against
the property, provided that the subordination agreement is deemed
to be a part of a long term solution which will enable the
homeowners to remain in housing that is affordable to them.
The Agency/City may approve requests for subordination in the foregoing
emergency situations, and in any other situation deemed to be an
emergency by the Executive Director or his/her designee, provided that
there is sufficient equity to protect the Agency/City investment.
Sufficient equity is defined as a maximum loan to value ratio of 90%,
based on a current appraisal.
3 of 12
JUN 4 1996 ITEM 18
Agenda Report
June 4, 1996
Page 3
4. For the Affordable Housing Rehabilitation Program there is one
additional requirement. The Agency will not approve any subordination
agreement which allows the homeowner's total housing cost to increase
such that it exceeds the maximum affordable housing cost as defined by
California Redevelopment Law.
In order to ensure that homeowners are aware of the subordination policy when
they sign their loan documents, they will be asked to review and sign a
subordination note at the loan closing. Draft subordination notes are
provided in Attachments 3 and 4. Existing loan recipients will receive a
letter to notify them of the new subordination policy, if approved by the City
Council/Redevelopment Agency
ENVIRONMENTAL REVIEW
This action is not subject to CEQA review.
FISCAL IMPACT
None.
PUBLIC NOTIFICATION AND CORRESPONDENCE
None.
RECOMMENDATION
It is recommended that the City Council/Redevelopment Agency approve the
proposed amendments to the Affordable Housing Rehabilitation Program and CDBG
Housing Rehabilitation Program Guidelines, as presented in Attachments 1 and
2, and approve the proposed subordination notes, as presented in Attachments 3
and 4.
Attachments:
1. Proposed Amendment to the Affordable Housing Rehabilitation Program
Guidelines
2. Proposed Amendment to the CDBG Housing Rehabilitation Guidelines
3. Proposed Affordable Housing Rehabilitation Program Subordination Note
4. Proposed CDBG Housing Rehabilitation Program Subordination Note
JUN 4 1996 ITEM 18
4 of 12
Attachment 1
(excerpt. Affordable Housing Rehabilitation Program)
years the loan will be forgiven, on a pro-rata basis, at a rate of 10% for each year of
residency, A Deed of Trust (or lien agreement for a mobile home) securing payment
shall be recorded on the housing unit.
D. Loan Repayment - Loan repayment is to be made to the poway
Redevelopment Agency at such time as the property is leased, sold or
transferred to a new owner (unless the new owner meets the low- to
moderate-income household requirement and assumes the balance of
the loan obligation) or the unit or the mobile home unit is moved outside
the City limits, The ReaeveloJ'lA'leRt AgeAey will Rot suboretiRate itG
iRterest at aAr time. Only one loan will be permitted per each property,
E. Excess Loan Program - Under certain warranted circumstances, as
directed by the Executive Director of the Redevelopment Agency, or
his/her designee, the $10,000 loan limit per participant could be
exceeded, At no time, however, shall the loan amount exceed 25% of
the property's value,
For very low and low income residents, the additional amount approved
above the $10,000 basic program limit will be offered in the form of a
deferred loan with a total balance due upon sale or transfer of the
property, None of the "excess" loan balance would be forgiven, In no
event would a "substantial" rehabilitation be undertaken through this
program without the recordation of affordability covenants (deed
restrictions) against the property, pursuant to State Law,
, For median and moderate income residents, the "excess" loan would be
offered a simple interest rate of three percent (3%), fully amortized over a
period not to exceed 15 years,
F~~~~~!;I@QflPJril~TIqN
-=
1
5 of 12
JUN 4 1996 ITEM 1 8
emergency situations. The foOowing circumstances and situations may
provide the basis to approve a loan subordination agreement which will
further encumber the property:
1. Refinancing of existing debt in order to lower or stabilize overall
housing cost In this circumstance certain refinancing costs
Qncludlng points, fees and impound charges) may be added to
existing debt, provided they do not exceed fOUt' percent of the new
loan amount.
2. Aefinaocing which homeowners can demonstrate is necessary due
to an emergency or crisis situation Includirlg but not ftmited to the
following:
a. Refinancing in order to pay uninsured and unpredictable
medical costs for an immediate family member or
de . dent
pen
b: . Refinancing in order to pay funeral costs for an immediate
family member or dependent.
C,. .' Refinancing which is necessary to avoid foreclosure action
agalnst the property, provided that the subordination
agreement is deemed to be a part ofe long term solution
whlehwill' enable the homeowners to remain in housing that
is affordable tQ them. .
"""""'''''''''''''''''''''''''''''''''''''','''-''',''',''',-' ,-, '-,',",' , " '" .,-,.,_.,-,-,',......,_.,_._.,-,'-'...","'".,._'......',"-"'-"'-"""'-- "'-'--'-'-
The.A~'mayapprove requests for suborcllnatlon in the
foregomg ernergency situations, and in any athersltuation deemed
to be<aneroergencYby the Executive Director Of his/her
BilE.~~-il
Qn'fl;cUri'$!'I1.mark8t value appraisal.
3: ............~t=~;e=~~ho~:%~r~o~~=::~=~~~:a~nt
ex~atl'l8 maxiinum affordable hOiJ(f . costas defined b the
$.~9f~nraH$~lth and Safety c6:e: .. y
4; ............:i~~=:~=~~a~o;~e~~::e~:=~~i:~ :
the. Ag$t\Cy'sAffordabl& Housing RehabilitatiOn LQans;
2
JUN 4 1996 ITEM 18
6 of 12
..
Attachment 2
(excerpt - COBG Housing Rehabilitation Program)
C. Loan - Deed of Trust - If the owner-occupant remains in the housing unit for a
period of 10 years, the loan will be forgiven ten percent (10%) for each year of
residency. If the owner-occupant remains in the home for less than 10 years
the loan will be forgiven, on a pro-rata basis, at a rate of 10% for each year of
residency. A Deed of Trust (or lien agreement for a mobile home) securing
payment shall be recorded on the housing unit.
D. Loan Repayment - Loan repayment is to be made to the City of Poway at such
time as the property is leased, sold or transferred to a new owner (unless the
new owner meets the low-income household requirement and assumes the
balance of the loan obligation) or the unit or the mobile home unit is moved
outside the City limits, The City will Rot sl;lserelinate its iAterest at aAY tiFRe.
Only one loan will be permitted per each property.
f:~. .... .. ..... -';OA,. SUBORDiNAtiON
It ilt the general P<:ll((:y olthe City of paway that r~$t$ for subordination of
COBG Housing ReliabmtatiOnLoans may be appn~~; provided that
subOrdination ag~ement$ do not place any ac:lditional encumbranCe in a senior
~~i~:'~':t~~~~::~~~~~~o:b~~~.~~::~lC
sitUations may .pr()Videthe baSis to approve a loan' subordination agreement
WI:lich ~R~eJ'!(li.Imper the property: .
1, ..... ~~~~~~~=~~==:~~~~~~:jng
fi andlm~~l" . . . dedto.XlSti deb vided
t=d(j.~~,*~bJ(pe~=::~f;"~lJ~..t.pro .
2~>.......... =~C~~==~ii~~aZB~:n~an
.ii~.~=~~f.:%i~n=~t:d~~~=~le medical
b;==::er::P8yftJ.netal~!rtsfOran mlT\Eldiate fainily
o.A~~WhiChi$neci)$$aryto avoid f~sUl'eadion against
theproPe\1Y; provided th~tfieSubOrdination agreement is
1
JUN 4 1996 ITEM 18
7 of 12
deemed to be a part of a long term solution which will enable the
homeowners to remain in housing that is affordable to them.
The City may approve requests for subordination in the foregoing
emergency situations, and in any other situation deemed to be an
emergency by the City Manager or his/her designee, provided that there
is sufficient equity to protect the City's investment For the purposes of
this section "sufficient equity" is defined as a maximum loan to value ratio
of 90%, based on a cutrent market value appraisal.
3. The City Manager or his/her designee, shaD evaluate all requests for
sUbordination of COBG Housing Rehabilitation loai1s~
IV. ELIGIBLE APPLICANT
Assistance shall be available only to persons who:
1 , Are the legal age and have capacity to competently enter into financial and
contractual agreements.
IV, ELIGIBLE APPLICANT
Assistance from the CDBG Housing Rehabilitation Program shall be available oniy
to persons who:
1, Are the legal age and have capacity to competently enter into financial and
contractual agreements,
2, Reside in and own the property and possess proof of ownership such as
a State of California, HCD Certificate of Title (mobilehomes) or a grant deed
(real property) located in the City of Poway,
3, Have income that does not exceed 80% of the area median income,
adjusted by family size, as determined the U,S, Department of HUD,
4. Agree to comply with any and all applicable permit, code and other
regulations of the City,
2
8 of 12
JUN 4 1996 ITEM 1 8
,;
Attachment 3
SUBORDINATION NOTE
,199_
l(We), the undersigned participant(s) of the poway Redevelopment Agency's
Affordable Housing Rehabilitation Program, have reviewed and understand the
following Subordination Policy:
The Poway Redevelopment Agency has elected to provide rehabilitation financing to
eligible households that meet income and affordability requirements.
The subsidy is available as a deferred forgiving loan to enable the eligible household
to correct code and health and safety items while assuring that no additional debt
service is incurred, This form of subsidy effectively creates long term affordability,
11 IS the polley of the poway Redevelopment Agency that, should an eligible
household wish to further encumber their rehabilitated property, subordination
of the Agency debt will not be allowed.
Exceptions may by made under specific circumstances and in emergency situations.
The following circumstances may provide the basis to approve a loan subordination
agreement where an additional encumbrance is added to the existing debt against the
property:
1, Refinancing of existing debt in order to lower or stabilize overall housing cost.
In this circumstance certain refinancing costs (including points, fees and
impound charges) may be added to existing debt, provided they do not exceed
four percent of the new loan amount.
2, Refinancing which homeowners can demonstrate is necessary due to an
emergency or crisis situation including but not limited to the following:
a, Refinancing in order to pay uninsured and unpredictable medical costs
for an immediate family member or dependent.
b, Refinancing in order to pay funeral costs for an immediate family
member or dependent.
c. Refinancing which is necessary to avoid foreclosure action against the
property, provided that the subordination agreement is deemed to be a
1
JUN 4 1996 ITEM 1 8
9 of 12
part of a long term solution which will enable the homeowners to remain
in housing that is affordable to them,
At no time shall the Agency approve a subordination agreement which increases a
homeowner's total housing cost such that it exceeds the maximum affordable housing
cost as defined by the State of California Health and Safety Code.
The Agency shall not approve any subordination agreement which causes the total
indebtedness on the housing unit to exceed 90% of the market value of the unit, as
verified by a current appraisal.
The foregoing policy is a general guideline and should not be construed as a
guarantee that any specific request for loan subordination will be approved, The
Agency reserves the right to deny any loan subordination request which would appear
to jeopardize the Agency's financial interest in the subject property,
Program Participant
Date
Program Participant
Date
2
JUN 4 1996 ITEM 1 8
10 of 12
I
Attachment 4
SUBORDINATION NOTE
,199_
l(We), the undersigned participant(s) of the City of Poway's CDBG Housing
Rehabilitation Program, have reviewed and understand the following Subordination
Policy:
The City of poway has elected to provide rehabilitation financing to eligible low-income
households,
The subsidy is available as a deferred forgiving loan to enable the eligible household
to correct code and health and safety items while assuring that no additional debt
service is incurred. This form of subsidy effectively maintains long term affordability.
It Is the polley of the City of poway that, should an eligible household wish to
further encumber their rehabilitated property, subordination of the City of poway
debt will not be allowed.
Exceptions may by made under specific circumstances and in emergency situations.
The following circumstances may provide the basis to approve a loan subordination
agreement where an additional encumbrance is added to the existing debt against the
property:
1, Refinancing of existing debt in order to lower or stabilize overall housing cost.
In this circumstance certain refinancing costs (including points, fees and
impound charges) may be added to existing debt, provided they do not exceed
four percent of the new loan amount.
2, Refinancing which homeowners can demonstrate is necessary due to an
emergency or crisis situation including but not limited to the following:
a, Refinancing in order to pay uninsured and unpredictable medical costs
for an immediate family member or dependent.
b, Refinancing in order to pay funeral costs for an immediate family
member or dependent.
1
11 of 12
JUN 4 1996 ITEM 1 8
c, Refinancing which is necessary to avoid foreclosure action against the
property, provided that the subordination agreement is deemed to be a
part of a long term solution which will enable the homeowners to remain
in housing that is affordable to them,
The City shall not approve any subordination agreement which causes the total
indebtedness on the housing unit to exceed 90% of the market value of the unit, as
verified by a current appraisal.
The foregoing policy is a general guideline and should not be construed as a
guarantee that any specific request for loan subordination will be approved, The City
reserves the right to deny any loan subordination request which would appear to
jeopardize the City's financial interest in the subject property,
Program Participant
Date
Program Participant
Date
2
12 of 12
JUN 4 1996 ITEM 1 8
,