Loading...
HomeMy WebLinkAboutResolutions - 1983.02.24 - 11533February 24, 1983 Miscellaneous Resolution 8303 14 By: Public Services Committee - James E. Lanni, Chairperson In re: ii H-Deve-lopme-rit trr-ov-e-me-M-Prog-raftt —Leyerttgirig Rresgrewn-Gt.tirl-e-iivrm AMENDED to read: Community Development Rehabilitation Proaran To the Oakland County Board of Commissioners Mr. Chairperson, Ladies and Gentlemen: WHEREAS the Community Development Division has operated a Home Improvement Program for housing rehabilitation since 7976 in order to maintain and improve our residential neighborhoods; and WHEREAS the intent of the Community Development Block Grant Program is to assist low and moderate income persons; and WHEREAS the reduction of Federal funds available for housing and commercial rehabilitation has made new sources of funds and effective leveraging of scarce resources critical; and WHEREAS the Community Development Division recommended the adoption of the basic concept of financial leveraging to include: a single family owner occupied housing rehabilitation, rental housing rehabilitation and commercial rehabilitation program; and WHEREAS the Oakland County Board of Commissioners adopted the recommended basic concept of financial leveraging in Miscellaneous Resolution 482283 on September 21, 1982; and WHEREAS the Community Development Division has developed a basic proposal, as outlined in Attachment A; and WHEREAS the basic proposal will facilitate the further development of specific program guidelines and the selection of a cooperating private lender; and WHEREAS the basic proposal was approved by the Community Development Advisory Council and WHEREAS the Oakland County Board of Commissioners will select the private lender and approve all program guidelines. ATTACHMENT A __— COMMUNITY DEVELOPMENT HOME IMPROVEMENT PROGRAM LEVERAGING PROGRAM I. NEED FOR AN EXPANDED REHABILITATION PROGRAM The Community Development Division of Oakland County has operated a Home Improvement Program for housing rehabilitation since 1976. Funded through Federal Community Development Block Grant (CDBG) funds, the program has maintained and improved residential neighborhoods by making loans to rehabilitate single-family owner occupied properties. The Oakland County Board of Commissioners has directed the Division to expand the scope and capacity of the Home Improvement Program by leveraging its available funds with private financing. This action has been initiated partly in response to the following factors based on 1980 Census and Southeast Michigan Council of Government (SEMCOG) data: 1. There are forty-eight (48) participating communities in the Oakland County CDBG Program. Twenty-one (21) percent of the housing stock within these communities is renter occupied. 2. A substantial number (4,977 or 10,4 percent of the total number of renter occupied units) of units are in need of rehabilitation. By providing financing for the improvement of rental housing, the County will act consistently with Federal level priorities, i.e. the recent emphasis on ranabHitation of existing housing units as opposed to new construction. Additionally, local communities within Oakland County have requested assis- tance from the Community Development Division to meet commercial rehabili- tation needs: 1. Twelve participating communities have formally requested assistance. Five have contracted with the County's Planning Division to prepare neighborhood commercial planning studies. 2. Commercial property owners contacted in the course of these studies have commonly indicated a desire to make-recommended improvements; however, many lack borrowing ability at current market rate financing. By providing financing for the improvement of commercial property, the County will improve the visual image of commercial areas within communities and contribute to the general upgrading of these areas. With rehabilitation loans at below market interest rates, incentive for private reinvestment will be provided. By participating cooperatively in local rehabilitation efforts, the public and private sectors not only increase the mount of available rehabilitation funds, but create new investment opportunities for private lenders while making the lenders' expertise available to neighborhood improvement program. TT. BASIC OBJECTIVES A. HOME IMPROVEMENT PROGRAM The Community Development Division has budgeted $1,250,000 for the existing 1982-83 loan program which offers maximum $7,000 loans to owner-occupants of single family properties. These loans are funded directly from this allocation. A servicing agreement for this activity is sought with a private lending institution. B. RENTAL PROPERTY REHABILITATION A program activity will be created to finance the rehabilitation of 1-4 unit tenant-occupied properties. The program will allow up to $10,000 per unit rehabilitation costs for each loan. Rent freezes will not be emplaced after rehabilitation, but eligible projects will be those where existing rents fall within BUD Fair Market Rent levels. Loan funds can also be used for acquisition or refinancing when tenants' household incomes fall within Section 8 income limits. At least 30% of each loan must be used for construction. Loan limits in projects in- volving acquisition or refinancing are increased to $20,000 per unit. Properties located in any CDBG participating community are potentially eligible for this program. Individuals will be limited to one loan in a yearly period at the discretion -of the Community Development Division. The programwill be structured via the secondary mortgage market., speci- fically a Federal National Mortgage Association (FNMA) Municipal Tr- Party Participation. The proposed mortgage pool may be comprised _ FNMA (60%) $420,000 County CDBG Funds (30%) 210,000 Private Lender (10%) 70,000 Total available for Program $700,000 In order to reduce the market rate, the County will relinquish all of the interest payments on its participation, thus allowing mortgages to be originated at below market rates. The private lender and the FNMA will receive market yields. This "buy down" of the interest rate is illustrated below: Y = FNMA yield (Example: 15%) F = FNMA Participation (60%) S = Lender's Participation (10%) C = County's Participation (30%) SF= Servicing Fee (.00375) N = Rate to Borrowers (F + S) x Y + (C x SF) =N (.6 + .1) x .15 + (.3 x .00375) = N (.7 x .15) + (.3 x .00375) = N .105 + .001125 = .106125 Interest Rate to Borrower = 10.6% -2-- The effect of this calculation (30% County 10% Lender 60% FNMA) is shown below. FNMA - Private Lender Yield Rate to Borrower 13% 9.1% 14% 9.9% 15% 10.6% 16% 11.3% 17% 12.0% Operational details of the program will be finalized in negotiations by the parties and presented to the Oakland County Board of Commissioners for approval. The following assumptions will be made: 1. The mortgage pools will be delivered to FNMA under a convertible standby commitment or substitution option 2. The minimum size of a loan pool is $100,000. 3. FNMA underwriting procedures for 2-4 unit properties will be used. 4. Loan terms will be fixed-rate, level payment with a maximum of 15 years. 5. Second mortgages eligible; 70% Loan to Value ratio. 6. First mortgages; 80% Loan to Value ratio. 7. Lender will service mortgage accounts. While the private lender will make the underwriting decision for each loan, the Community Development Division will determine initial program eligibility, assemble all allowable application documents and perform all inspections initially and for construction payments. This participation program can benefit a private lender by providing access to a new customer base, increasing origination and servicing fee income and providing an investment return equal to market rates. It is consistent with the objectives of the Community Reinvestment Act. C. COMMERCIAL PROPERTY REHABILITATION A program activity will be created to provide below-market rate financing for rehabilitating commercial properties in selected Oakland County com- munities. Communities will apply to the Community Development Division for participation in the program. In these communities, individual loan applications will be submitted and evaluated for compliance with community revitalization plans and rehabilitation needs. The Program will emphasize exterior design improvements and interior health/safety needs. A co- ordinating design architect will customarily be utilized. Underwriting decisions will be made by the private lender, with the Community Development Division responsible for assembling allowable application documents. -3- Participation loans will be made according to the following proposed design: Private lender (60%) $600,000 County CDBG funds (40%) 400,000 Total available for program $1,000,000 Example: Private lender yield - 15% County CDBG repayment at - 0% Interest rate to borrowers - 9% Subject to final negotiations and approval, the following assumptions will be made: 1. Float of current program yield to lender 2. Second mortgages eligible 3. 75% loan to value ratio 4. Fixed rate loans to borrowers with seven-year terms 5. Maximum loan amounts - $50,000 Borrowers will be limited to one loan in a yearly period. The Community Development Division will undertake all initial inspections and those necessary for construction payments. III. DEPOSIT OF CDBG FUNDS The Department of Housing and Urban Development has through its rules and regulations established a procedure whereby CDBG funds may be drawn in one sum for the establishment of a rehabilitation fund in a private lending institution. The three activities outlined in Section II will be funded through a draw- down from the Community Development Block Grant Letter of Credit and funds on hand. This deposit will be approximately $2 million dollars. The funds which will be drawn upon will receive another deposit after the HUD approval of the 1983-84 Community Development Block Grant Application. While HUD has replaced prior review of drawdown agreements with monitmring of the activity, the Lump-Sum Deposit Regulations enclosed can be referenced. Generally, this deposit will be used in addition to direct funding of the rehabilitation activities as: I. A source of interest income from the deposit and, 2. A direct exchange for a commitment of funds from a leader at certain special telms. -4- OAKLAND COUNTY COMMtNITY DEVELOPMENT DIVISION COMMERCIAL REHABILITATION PROGRAM CRITERIA FOR ACTIVITY AREA SELECTION All participating communities in the Oakland County Community Development Block Grant Program will be notified of the availability of financing and invited to submit requests for funding. Based on the number of communities applying and the extent of proposed projects, initial allocations will be made to as many communities as possible, while allowing each allocation 'enough funds to achieve a community's goals and objectives. Allocations may be made to communities meeting the following. criteria: I. A commitment of additional funds (Ex: Local CDBG funds or participation by a local lender) from other sources directly to the loan projects. OR Demonstration that the proposed rehabilitation activities support ongoing or proposed community development projects (i.e.: CDEG, Section 312 projects, UDAG, etc.) II. Existence of a comprehensive or revitalization plan for the proposed activity area. OR Evidence of survey work within the area to assist in the documentation of a defined and workable program. III. Demonstration of local administrative capability to assist in the implemen- tation of the program. IV. Local Public Body (City or Village council, etc.) resolution recognizing and supporting the proposal and designated area. The amount of a- community's allocation will be based on the extent of need for rehabilitation. Communities should evidence the existence of physical blight in a proposed activity area. ..... Oakland County Community Development Division Leveraging Program Definitions: Secondary Mortgage Market - Consists of buyers and sellers engaging in the sale of existing mortgage loans. Provides liquidity to primary lenders, particularly when savings inflows are inadequate to meet the demand for new loans. Majority of transactions occurs between banks, savings and loans, and life insurance companies. A central marketplace for this activity is created by the Federal National Mortgage Association (FNMA). FNMA ("Fannie Mae") - A'federally chartered, stockholder-owned corporation under the direction of HUD. Its operations are financed from the monthly payments, payoffs of mortgages it purchases and by issuing long and short- term debt instruments (bonds). It purchases government insured and conven- tional mortgages from private lenders. "Buy-Down" - (Principal Reduction) - The amount of money needed for rehabil- itation is reduced to a level that the owner can afford to repay at market rates. (Interest subsidy) Instead of reducing the principal, a loan's interest rate is reduced. A lender is paid the difference between the market interest rate and the reduced rate - often monthly. Market Yield - Present market return to lenders from loans made at current market interest rates. FNMA Auction (Commitment System) - Lenders call in to FiTMA. and obtain a funding commitment indicating a time period and yield. !Convertible Standby' - Commitment for a specific amount of funds at the time the commitment is exercised (at the yield rate when exercised - initially a rate is not determined). Substitution Option - Substitution of mortgages where eligible loans from a lender's portfolio are sold to FNMA and eventually substituted by loans made from the community development-based activity. WG/kjf NOW THEREFORE BE IT RESOLVED that the Oakland County Board of Commissioners approve the proposal for owner occupied rehabilitation, rental rehabilitation and commercial rehabilitation as described in Attachment A and that the Community Development Division be directed to solicit lenders for implementation of the financial leveraging proposal with final approval to be made by the Public Services Committee of the Oakland County Board of Commissioners, contingent upon the submission of final guidelines for both the proposed rental rehabilitation program and the commercial rehabilitation program. BE IT FURTHER RESOLVED that upon the final adoption of this aforementioned program, the Public Services Committee will receive regular quarterly reports. MR. CHAIRPERSON, on behalf of the Public Services Committee, I move the adoption of the foregoing resolution, PUBLIC SERVICES COMMITTEE #83034 February 24, 1983 Moved by Lanni supported by Jackson the resolution be adopted. Moved by Doyon supported by Moore the resolution be amended on page 2, 5th line after 'Public Services Committee' change the word "of" to "and". Also amend the BE IT FURTHER RESOLVED paragraph to read "BE IT FURTHER RESOLVED that upon the final adoption of this aforementioned program, the Public Services Committee and the Board of Commissioners will receive regular quarterly reports." A sufficient majority having voted therefor, the amendment carried. Discussion followed. Moved by Calandro supported by Pernick the title of the resolution be amended to read "Community Development Rehabilitation Program". A sufficient majority having voted therefor, the amendment carried. Vote on resolution as amended: AYES: Caddell, Calandro, Doyon, Foley, Gosling, Hobart, Jackson, R. Kuhn, S. Kuhn, Lanni, Law, McConnell, McDonald, McPherson, Moffitt, Moore, Nelson, Page, Perinoff, Pernick, Price, Rewold, Wilcox, Aaron. (24) NAYS: Fortino, Olsen. (2) A sufficient majority having voted therefor, the resolution, as amended, was adopted. STATE OF MICHIGAN) COUNTY OF OAKLAND) I, Lynn D. Allen, Clerk of the County of Oakland and having a seal, do hereby certify that I have compared the annexed copy of Miscellaneous Resolution #83034 adopted by the Oakland County Board of Commissioners at their meeting held on February 24, 1983 —.- with the original record thereof now remaining in my office, and that it is a true and correct transcript therefrom, and of the whole thereof. In Testimony Whereof, I have hereunto set my hand and affixed the seal of said County at Pontiac, Michigan 24th. day of February LYNN,/D. ALLEN, County Clerk/Register of De this 1983.