HomeMy WebLinkAboutResolutions - 1982.09.21 - 13960MISCELLANEOUS RESOLHTION
BY PUBLIC SERVTCES COHNITTEE
RE: CONUNITY DEVELY?',7.XT HOME IMPROVETT PROGRAM - LEVERACINC PEDGRAM OPTIONS
TO THE OLAND COUNTI LoARD OF CONIIISSIC7UPS
Mr. Chairperson, Ladies and Gentlemen
WHEREAS, the Community Development: Division has operated a Home Imp coo::
Program for 'housing rehalilitation since 1976 in order to maintain and improve our
residential neighbor.00ds; and
WUEREAS, the intent of the Community Development Block Grant Program is to
assist mow and moderatE income parsons; and
RI-ifREAS , an analysis of housing needs in Oak] and County indicate that 1.9 per--
cent of the total number of owner occupied housing units are occupied by low and
moderate income persons and in need of home improvement repairs; and
WHEREAS, an analysis of housing needs in Oakland County indleatas Lhat L0.4
percent of the toLal number of renLa1 occupied housing units are occupied by low
and moderate income persons and in need of home improvement repairs; and
WHEREAS, local communities within Oakland County have requested assistance
from the Commi.mil:y Bevelopment Division to meet commercial rehabilitation needs and
WHEREAS, the County lins available $3,042,300 in Home improvement. Program loads
to utilize !=or a leveraging program: and
WHEREAS, the federal government has encoura.A.z.d participats in the Conan: it.
Development Block Grant Program to develop financial leveraging arrangements witJt
the private sector; and
WHEREAS, the Oakland County Board of Commissioners will approve all guidelines
for the leveraging program; and
WHEREAS, the Oakland Count ,/ Community Development Advisory Council unanimously
approved the altached recommendations for approval to ti1 .2 Board of Commissioners.
NOW THEREFORE BE IT RESOLVED that tho Count7 adopt the basic concept of financial
leveraging as recommended by the CorrmAmity Development Advisory Council and as outlined
in the p,tta..chmnt. And that the Community Development Division. be directed to develop
a specific program and guidelines La be reviewed and approved. by the Oakland County
Board of Commissioners.
The Public Services Commit Lee by James P. Lanni, Cllairman, moves Lhe adoption
of the foregoing resolution.
PIMLIC SERVICES COMITTF.L
Oakland County Home Improvement Program
Leveraging
The following questions have been asked in order to obtain a clear understanding
of this funding mechanism:
1, Q. WHAT DOES THE TERM "LEVERAGING" MEAN?
A. In this case, leveraging is the use of Community Development Block Grant
funds to generate additional funds from a private lender. The CDBG funds
are used as a "lever" to reduce the interest rate on rehabilitation loans
while allowing the lender a margin of profit. In this way, the lender
will make loans that normally it would not coilmdt to.
2. Q. WHAT IS A "LUMP-SUM DRAWDOWN"?
A. The County can receive a major part of its CDBG grant at one time by "drawing
down" all funds allocated for rehabilitation. After negotiating an agreement
with a private lending institution, these funds are placed on deposit and
withdrawn as needed for rehabilitation projects. For its deposit, the
County will seek a commitment from the bank for its leveraging program
and possibly the provision of loan servicing at no or low cost.
3. Q. WHY DOES THE FEDERAL GOVERNMENT ALLOW THESE DRAWDOWNS? THEY WOULD SEEM TO
BE AN UNNECESSARY EXPENSE ADDING TO THE FEDERAL DEFICIT.
A. It is true that communities' access to millions of dollars at one time will
cause the Treasury to borrow more money. However, regulations for lump-
sum drawdowns were issued to encourage communities to develop financial
leveraging arrangements with the private sector. In this way public assis-
tance programs can be operated at a much lower cost than if they relied
totally on direct Federal funding. This mechanism is felt to be consistent
with the "New Federalism" approach by the Reagan Administration.
4. Q. HOW ARE LUMP-SUM DRAWDOWNS CONTROLLED?
A. The Department of Housing and Urban. Development will monitor the County's
performance in implementing such a program. HUD allows considerable flex-
ibility to permit the creation of a creative leveraging agreement.
5. Q. HOW WILL THE COUNTY DECIDE UPON WHICH BANK TO WORK WITH?
A. The format for a drawdown-based deposit and leveraging program will be
offered openly to area lenders, with the one bank that offers greatest
benefits in a leveraging program receiving a contract. The bank can be
any savings and loan association, commercial bank, or credit union in
which deposits are federally insured. In addition, if a FNMA-based
leveraging concept is utilized, the lender must be FNMA approved.
6. Q. WHAT IS FNMA?
A. The Federal National Mortgage Association ("Fannie Mae") is a federally
chartered, shareholder-owned corporation. It supplies mortgage funds
by purchasing loans from local lenders, thereby replenishing the supply
of mortgage money. Various FNMA programs offer the opportunity for
local communities and banks to form a partnership with FNMA in making
loans. A rehabilitation program can be designed with this in mind.
7. Q. WILL BANKS BE WILLING TO ENTER INTO SUCH AN AGREEMENT WITH THE FNMA?
A. Yes, this "secondary mortgage market" provides additional liquidity
to banks especially in an economic climate like this one where savings
are inadequately supplying funds for new loans.
8. Q. WILL THE FNMA BE WILLING TO ENTER INTO AN AGREEMENT WITH OUR PROGRAM AT
THIS TIME? ARE FUNDS AVAILABLE?
A. Yes, the County has been one of the first jurisdictions in this area to
approach the FNMA, FNMA's Director of Community Development has in-
dicated the ready availability of funds and the considerable interest
in designing a program for Oakland County.
9, Q. THE FANNIE MAE TRI-PARTY AGREEMENT IS A MEANS BY WHICH A RENTAL REHABILI-
TATION PROGRAM CAN BE IMPLEMENTED THROUGH LEVERAGING, BUT HOW WILL A
COMMERCIAL REHABILITATION PROGRAM BE DESIGNED?
A. There is a very wide flexibility in designing a program directly with a
bank for commercial rehabilitation. We have utilized a "participation
loan" approach here which combines a low or no interest loan from the
County with a market interest rate loan from the bank. The net interest
to the borrower is an average of the two loans.
WG/kjf
8/23/82
OAKLAND COUNTY HOME IMPROVEMENT PROGRAM
LEVERAGING
NEED ASSESSMENT
The initial step in identifying the program options for consideration
included a need assessment. Staff followed the following methodology in
conducting the need assessment:
1, Analyze 1980 census data for the 48 participating communities and review:
total number owner occupied housing units, total number of renter occupied
housing units.
2. Analyze the approved Oakland County Housing Assistance Plan and approved
SEMCOG Housing Opportunity Plan to determine the: total number of low
and moderate income owner occupied units in need of assistance and total
number of low and moderate income rental units in need of assistance.
3. Review the acreage within the County devoted to commercial use
4. Analyze community needs for commercial rehabilitation.
5. Contact County Planning Division and Advance Programs Division for further
information on commercial needs.
Upon completion of the above methodology, staff identified the following
findings:
FINDINGS
1. Based on 1980 Census Data there exists 177,037 owner occupied units in the
48 participating communities and 47,703 renter occupied units in the 48
participating communities.
2. Therefore, approximately 79 percent of the housing stock within the 48
participating communities are owner occupied housing units. Approximately
21 percent of the housing stock within the 48 participating communities are
renter occupied housing units.
Based on an analysis of the Oakland County Rousing Assistance Plan and the
SEMCOG Housing Opportunity Plan, approximately 3,467 low and moderate income
owner occupied housing units are in need of assistance, and 4,977 low and
moderate income renter occupied units are in need of assistance.
4. Therefore, approximately 1.9 percent of the total number of owner occupied
housing units are occupied by low and moderate income persons and in need
of assistance. Approximately, 10.4 percent of the total number of rent
occupied housing units are occupied by low and moderate income persons and
in need of assistance.
5. 1980 Census Date indicates that within the 48 participating communities
there are 185,557 1-unit structures, 23,074 2-9 unit structures and
16,108 structures with over 10 units,
6. Approximately 2 percent of the total acreage in the County is devoted to
commercial land use.
7. Of the 48 participating communities, 12 communities have requested assistance
from the Community Development Division in meeting commercial needs,
8. To date 5 of the County's participating communities have contracted with the
County's Planning Division for assistance in preparing neighborhood planning
studies.
9. Sample data indicates, of the 16 commercial uses located in the most recently
completed County Planning Division neighborhood study area, 4 commercial
owners have obtained assistance from private lenders for commercial improve-
ments (at 15 percent interest rate). The other 12 owners indicate a desire
to make recommended improvements; however, the owners lack borrowing ability
at the very high rates.
10. Community Development Block Grant funds have been utilized to fund neighborhood
commercial planning studies in 19 local communities. To date, no funds have
been allocated for implementation of these plans.
OAKLAND COUNTY HOME IMPROVEMENT PROGRAM
LEVERAGING
GOALS
Following the need assessment and review of findings, staff identified
goals to be utilized in the development of program options. The following
seven (7) goals will be utilized in the development of the program options:
1. To expand the scope and capacity of the Oakland County Community Develop-
ment Home Improvement Program by combining private financing with Community
Development Block Grant funds.
2. To expand the inventory of standard housing for low and moderate income
families and individuals by upgrading the existing housing stock. The
County hopes to substantially reduce the number of substandard housing
units.
3. To assist the County in meeting rental rehabilitation goals identified in
the approved County Housing Assistance Plan.
4. To provide consistency between the County and Federal level priorities;
i.e. the recent emphasis on rehabilitation of existing housing units as
opposed to new construction.
5. To provide funding in areas of rehabilitation where funding is presently
unavailable.
6. To improve the visual image of commercial areas within communities. To
improve the visual relationship between commercial areas and other
abutting uses within neighborhoods.
7. To provide funding for a pilot program in designated areas where funding
for rehabilitation is presently unavailable.
Rehabilitation Allocation
1982 Rehabilitation Allocation
AMOUNT
$1,020,000
1,700,000
1980 and 1981
OAKLAND COUNTY HOME IMPROVEMENT PROGRAM
LEVERAGING
FINANCIAL STATUS !
The third step in the development of program options involved a thorough
analysis of the financial status of the Home Improvement Program. As of
June 30, 1982, the financial status for Home Improvement remains as follows:
Estimated Program Income
(Based on loan paybacks, contingency
reductions and loan payoffs)
Other Funds (prior investments and
paybacks)
92,300
230,000
Total Funds available for leveraging $3,042,300
OAKLAND COUNTY HOME IMPROVEMENT PROGRAM
LEVERAGING
PROGRAM OPTIONS
The final step involves the identification of program options. Staff
reviewed and evaluated the financial status and related available funds to
program goals. The following programs are recommended for consideration.
Rental Property Rehabilitation
Goal is to make $700,000 available for Rental Rehabilitation,
FNMA 60% $420,000
County 30% 210,000
Lending Institution 10% . 70,000
$700,000
FNMA Yield 15.5%
County Yield 0.0%
Lending Institution Yield 15.5%
At a FNMA and local lending institution yield of 15.5% with the County
receiving no yield, the interest rate to the borrower would be approximately
10.88% including servicing charge which is estimated at 318 of 1%.
This would leverage $3.33 for each dollar of County funds invested. The County
would receive principal payments without interest. These funds could be used
to generate additional loans.
This proposal could also be used for the rehabilitation of owner occupied single
family units.
Commercial Property Rehabilitation
Goal is to make $1,000,000 available for commercial loans.
Local lending institution 60% $ 600,000
County 40% 400,000
$1,000,000
Lending institution yield was 16.5%
County yield was 0.0%
At a lending institution yield of 16.5% and the Countyreceiving no yield, the
interest rate to the borrower would be approximately 10%.
This would leverage $2.50 for each dollar of County funds invested and the County
would receive principal payments without interest as loans are paid off and these
funds could be used to generate additional loans.
Quarter % of Total Amount
CONTINUATION OF EXISTING HOME IMPROVEMENT PROGRAM
Quarterly Housing Rehabilitation Allocation
July, August, September 15% $ 187,500
October, November, December 35% 437,500
January, February, March 35% 437,500
April, May, June 15% 187,500
Total Allocation $1,250,000
at their meet held on Sebtember 2 1982
21s this emb„ez_ 19 82 day of
EN
County Clerk/Register of Deeds
# 82283 September 21, 1982
Moved by Lanni supported by Whitlock the resolution be adopted.
AYES 1 Lanni, Moffitt, Montante, Moore, Olsen, Page, Patterson, Perinoff,
Peterson, Price, Whitlock, Wilcox, Aaron, Caddell, Cagney, CaIandro, Deyon,
Fortino, Gabler, Geary, Gosling, Hobart, Jackson. (23)
NAYS: None. (0)
A sufficient majority having voted therefor, the resolution 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 # 82283 adopted by the Oakland County Board of Commissioners
with the orginial 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