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HomeMy WebLinkAboutResolution - 2003-R0246 - Application For US Dept Of Housing Loan Program - 06/19/2003Resolution No. 2003-RO246 June 19, 2003 Item No. 28 RESOLUTION BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT the Mayor of the City of Lubbock BE and is hereby authorized and directed to execute for and on behalf of the City of Lubbock, an application for the United States Dept. of Housing and Urban Development Section 108 Loan Program and all related documents. Said application is attached hereto and incorporated in this resolution as if fully set forth herein and shall be included in the minutes of the City Council. Passed by the City Council this 19th day ATTEST: Rebecca Garza, City Secretary APPROVED AS TO CO TENT: Todd Steelman Interim Community Development Director APPROVED AS TO FORM: ty Attorney as*cdocsAppl-US Dept of Housing&Urban Dev.res June 10, 2003 Resolution No. 2003-80246 June 19, 2003 Item No. 28 City of Lubbock, Texas Section 108 Loan Application Section I: Project Overview: The purpose of the Section 108 application is to provide the necessary funding for the City of Lubbock's Community Development Department to offer the Housing Rehabilitation and Program to its citizenry. The program will be offered on a citywide basis with the goal of lessening the number of substandard housing units. This will be accomplished by rehabilitating those houses that are in need of repair and are considered to be salvageable. The alternative of reconstruction will only be undertaken when Housing inspectors determine that the costs associated with the rehabilitation are too great when compared to the value of the home. Community development staff will strive to provide decent, safe, and sanitary housing to individual families. Participation in the program will be limited only to low -to -moderate income households. The main goal of the program is to have a large injection of funds dedicated to the improvement of the housing conditions for families of low -to -moderate income throughout Lubbock. The work to be completed will meet HUD guidelines as defined within the Guide to National Objectives and Eligible Activities. On pages 2-83 and 2-84, the guide states that "reconstruction" became explicitly eligible for CDBG assistance as a result of a legislative change under section 2245 of the Omnibus Consolidated Rescissions and Appropriations Act of 1996. We plan to utilize the program income from the project in a way that will allow Community Development to eventually offer a self-sustaining Rehabilitation and Reconstruction Program. Staff's belief is that we will be able to repay the 108 based on the program income from our current loan portfolio and that of the 108 - generated loans. In order to accomplish our goal of creating a self-sustaining program, the city will set aside $160,000 in CDBG funds to assist with repayment. This will allow for the creation of a pool of money to be used for the program to be created in a shorter timeframe. Staff views the proposal as setting aside a mere $160,000 in CDBG funds annually for the opportunity to inject $1 million into affordable housing over a three year period. The activities that will be undertaken under this project are eligible under the Section 108 Loan Guarantee Program. The Housing Rehabilitation and Reconstruction Program will be carried out for the purposes of providing or improving permanent residential structures, which, upon completion, will be occupied by low -to -moderate income individuals or families. This includes but is not limited to, the rehabilitation of property for an individual homeowner as referenced under 24 CFR 570.703(h). Costs associated with the voluntary relocation of clients are deemed eligible under 24 CFR 570.703(d)(2). The Housing Rehabilitation and Reconstruction Program will also meet a national objective as required by the Section 108 Loan Guarantee Program. The project will be a Low -Mod Housing activity as referenced in 24 CFR 570.208(a)(3). Participation based on income eligibility requirements will limit the accessibility of the services to only low -to - moderate income persons. The need to provide affordable housing options to the low -to -moderate income households of Lubbock has been given a "HIGH" level of priority in the city's Consolidated Plan: FY 2000-2003. Objective number H-2 calls for the use of CDBG and HOME funds to rehabilitate, construct, or reconstruct owner -occupied single-family housing through the time period covered by the Consolidated Plan. This can be found on page 6-6 of the document. The project will require approximately three years to complete. The Community Development Department will be ready to begin the implementation of the program as soon as the 108 funds are made available to the city. Since the department is currently administering similar programs, staff does not anticipate any delays in the process. Section II: Proiect Description: Community Development staff is currently administering several similar programs to those proposed within the Reconstruction and Rehabilitation Program. Thus, the expertise necessary to carry out this project is already in place. There are currently four Rehab Loan Specialists on staff. Their duties will include soliciting the application, underwriting, and servicing the loan after approval. This will include accepting payments and any collection work that may become necessary. The entire loan process will be handled in house. Community Development also has five Housing Inspectors that will oversee the construction work on the homes. Through staff's joint efforts the project will follow these steps: 1. Advertise citywide for participants 2. Accept applications for program (follow previously adopted underwriting procedures) 3. Determine eligibility of applicants 4. Housing Inspector will complete inspection of home 5. Determination is made whether house should be rehabilitated or if reconstruction is necessary 6. Write-up is completed and bids are solicited 7. Contractor is awarded job 8. Contractor and homeowner execute a contract for the pending work 9. Work begins 10. Upon completion, a final inspection will be performed by staff to ensure the quality of work (Staff will perform inspections at three different points -50% completion, 90% completion and when work is complete) 11. Payback begins once the work is completed The project will only be available to individuals or families that are owner/occupants of their home. The property will not change ownership during the process. The City of Lubbock, through the Urban Renewal Agency, will seek to protect its position by placing a lien on the property equal to the amount of the work completed on the residence. This lien will be released upon satisfactory payback of the loan. Section III: Program Specifics The program will consist of two major components, the Housing Reconstruction Program and the Major/Minor Residential Rehabilitation Loan Program. The Major/Minor Rehabilitation Program will consist of four types of activities including Residential Rehabilitation, Exterior & Energy Efficiency, Barrier Free, and Critical Home Repair. A brief description of each program will be provided below. Housing Reconstruction Program • This program will provide loans to remove substandard housing from the city. Homeowners are under voluntary relocation while the reconstruction of their home is performed. • $90,000 maximum • maximum loan term of 30 years • Interest Rate: minimum of 6.0% • Interest Rate: public offering rate plus 1.0% 0 Units served is expected to be 10 units Categories of the Maior/Minor Residential Rehabilitation Loan Program 1. Residential Rehabilitation • This program will provide loans to bring substandard houses up to Lubbock's minimum housing code. This will be accomplished by making general interior and exterior repairs. • $50,000 maximum • maximum loan term of 30 years • Interest Rate: minimum of 6.0% • Interest Rate: public offering rate plus 1.0% 9 Units served is expected to be 10 units 2. Exterior & Energy Efficiency • This program will provide loans to make exterior repairs to homes of low -to - moderate income families and individuals within the city limits. Program will enable households to make repairs that will result in savings in energy consumption and/or exterior repairs such as roofs, sidewalks, driveways, fences, windows, doors, painting and termite extermination. • $13,500 maximum • maximum loan term of 10 years • Interest Rate: minimum of 8.0% • Interest Rate: public offering rate plus 2.0% 0 Units served is expected to be 40 3. Barrier Free • This program will assist persons with disabilities that have self care and mobility limitations. Repairs would include needed structural changes to dwellings including wheelchair ramps, grab bars, accessible showers, handicap toilets/sinks/faucets, and widening doors. • $10,000 maximum • maximum loan term of 10 years • Interest Rate: minimum of 8.0% • Interest Rate: public offering rate plus 2.0% • Units served is expected to be 10 4. Critical Home Repair • This program is designed to assist homeowners in specific areas of repair determined to be of eminent threat. These areas include water lines, sewer lines/private water disposal, gas lines, water heaters, heaters (seasonal), air conditioners ( seasonal), electrical systems, and other health and s afety i ssues that may arise. • $7,000 maximum • maximum loan term of 10 years • Interest Rate: minimum of 8.0% • Interest Rate: public offering rate plus 2.0% • Units served is expected to be 10 The city does plan to charge different interest rates for the varying projects. City staff looked closely at the interest rates that are being charged in the Lubbock market for loans of different sizes and scopes. The larger projects, which will have a payback of up to 30 years, will have a minimum interest rate of 6.0%. The smaller projects that will, in turn, have a shorter payback will have a minimum interest rate of 8.0%. There are several reasons for the discrepancy. First, the loans for the Reconstruction and the Rehabilitation programs will be secured by a lien for a larger percentage of the value of the property. The thought is that since our risk in the property is lessened through the increased collateral, we would pass this on to the homeowner in the form of a lower interest rate. Next, loans of a shorter payback tend to have a larger interest rate on the open market. This will also be the case in terms of our portfolio that results from the 108. We have learned that the homeowners that participate in the Reconstruction and Rehabilitation programs will pay a comparable rate at other institutions. If we are not comparable or even slightly lower than others in town, the property owners will have no incentive to utilize our programs. On the other hand, the property owners would pay a much higher rate of interest for the smaller projects if they went to a local bank or did business with a local contractor or vendor. For example, a signature loan at our employee credit union is currently being offered at 14.0%. A family or individual could expect to pay approximately 12.0 to 15.0% f or the replacement o f a h eating and air c onditioning unit. We feel that our 8.0% minimum rate is fair and will result in the utilization of the program funds. The minimum interest rates will be charged for loans that are made during the time that the "Interim Rate" applies to our payback to HUD. Once the public offering is made, the city plans to charge a r ate that is 1% above the 108 -interest rate for the Reconstruction and Rehabilitation programs. The interest rate for the smaller projects will be 2% above the public offering rate. For example if the public offering yields an interest rate of 5.5%, the city will assess a 6.5% rate for the larger projects and an 8.0% rate for the smaller projects. The rates charged for the programs will never fall below the 6.0% and 8.0% minimums that are listed above. Section IV: Sources and Uses Statement Sources: Dollar Amount Eligible Activity Reference Section 108 Loan $1,000,000 Total: $1,000,000 Uses: Construction/Rehabilitation/Demolition $83,000 Housing Rehab (570.703(h)) Relocation $100,000 Relocation Costs (570.703(d)(2)) Remediation of lead paint $50,000 Housing Rehab (570.703(h)) Marketing of Program (to be done in conjunction w/other CDBG/HOME Programs) $0 N/A Soft Costs (Title Search & Filing Fees) $12,000 Housing Rehab (570.703(h)) Total: $1,000,000 Community Development staff took a proactive stance prior to the issuance of the final rule regarding lead paint. The above amount listed for the remediation of lead paint was derived by examining prior cases that involved lead paint that have been completed or bid out by our staff and/or sub -recipients. This analysis shows that lead paint has increased the cost of a large-scale rehabilitation by a range from $7,500 to $10,000. We used the lower figure of $7,500 and multiplied by 10, the number of units expected under the program, and arrived at $75,000. We estimated that the smaller cases would also require approximately $25,000 for interim controls that will be implemented during the construction. Staff expects to absorb the costs of administering and delivering the program through its current delivery costs. The proposed program will basically be an extension of projects that are currently being offered through the department. The source of these funds will be through our annual CDBG allocation. V: Repayment Information and Collateral: Community Development is seeking to set up an 8 -year payback of the Section 108 loan. The expedited payback will allow us to quickly meet our obligations for the loan and allow us to then start accumulating program income to be used to extend the Housing Rehabilitation and Reconstruction Program. The repayment source for the loan will consist of the program income that is currently being generated from an existing revolving loan portfolio and the program income that will be generated by the 108 activities. The current loan portfolio has consistently collected between $38,000 and $40,000 per month. This trend has held true for the Fiscal Years ending in 1999, 2000 and 2001. The $39,000 average reflects payments on just our Housing programs. These figures exclude payments received monthly from our Non- profits and our Micro -Loan Program. The city will also set aside a portion of the annual CDBG allocation to meet payback requirements. That figure will be $160,000 for each year during the payback. YEAR PRINCIPAL YEAR PRINCIPAL 1 $125,000 11 $ 2 $125,000 12 $ 3 $125,000 13 $ 4 $125,000 14 $ 5 $125,000 15 $ 6 $125,000 16 $ 7 $125,000 17 $ 8 $125,000 18 $ 9 $ 19 $ 10 $ 20 $ Beyond the CDBG Entitlement, the Section 108 Loan will be collateralized through a first or second lien on the homes that participate in the program. The city would be willing to set aside up to $125,000 in revolving loan fund program income in an escrow account to cover any shortfall. Section VI: General Information Chief elected official: Staff contact: Name: Marc McDougal Name: Bill Howerton, Jr. Title: Mayor of Lubbock Title: Senior CD Program Specialist Org. City of Lubbock Org.: City of Lubbock Address: P.O. Box 2000 Address: P.O. Box 2000 Lubbock, TX 79457 Lubbock, TX 79457 Phone: (806) 775-3000 Phone: (806) 775-3081 Fax: (806) 7753281 Fax: (806) 775-3281 City of Lubbock falls within Congressional District 19.