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HomeMy WebLinkAboutAGENDA REPORT 2001 0905 CC REG ITEM 10BITEM ! D • l3. CITY OF MOORPARK, CALIFORNIA city Coi;ncfl Meeting ACTION: ,4PPP-DU[: ::'Tt4 F R64014 /W;. --A.t MOORPARK CITY COUNCIL AGENDA REPORT BY To: Honorable City Council From: Nancy Burns, Senior Management Analyst Date: August 20, 2001 (CC Meeting of September 5, 2001) Subject: CONSIDER REVISIONS TO MOBILEHOME REHABILITATION LOAN PROGRAM BACKGROUND Guidelines were adopted October 7, 1998, to establish a Mobilehome Rehabilitation Loan Program with a loan limit of sixty -five hundred dollars ($6,500), using the City's Housing Trust Fund as the funding source for projects at Villa del Arroyo. On April 21, 1999, Council adopted a revision to the guidelines, to increase the maximum loan amount by fifty per cent (500) in situations where the mobilehome owner received a rent increase waiver during the previous three (3) years (1996, 1997, 1998) . Loan terms included zero per cent (0%) interest (deferred) for ten (10) years for Very Low Income households, and three per cent (30) interest, fully amortizing loans for seven (7) years for Low Income households. DISCUSSION The City has received grant approval from the State Department of Housing and Community Development (HCD) for four hundred twenty thousand dollars ($420,000) for mobilehome rehabilitation loans or mobilehome acquisition loans. These funds may not replace existing funding sources, so HCD funds used for mobilehome rehabilitation will be provided as additional loans, along with the City's mobilehome rehabilitation loans. The minimum loan amount for a loan made with HCD funds is two thousand dollars ($2,000), and the maximum loan amount is twenty thousand dollars ($20,000). The average loan amount is not to exceed ten thousand dollars ($10,000) at any point during the Honorable City Council Date 08/29/01 Page 2 two -year period when funds may be expended, under this program. Due to these constraints, the size of loans using City funds will be adjusted, based on the average HCD loan amount which must be maintained. An increase to ten thousand dollars ($10,000) in the maximum loan amount using City Housing Trust funds will enable the average loan amount from HCD funds to be matched with City funds to allow up to a $20,000 total. A maximum loan amount of $20,000, including both funding sources, would be maintained. In this way, it is anticipated that repairs in major systems, such as roofing and plumbing, and other needed repairs could be completed under one project, with one contractor. This suggested maximum loan amount of $20,000 is consistent with the maximum loan amount available on conventional housing through the City and Agency Housing Rehabilitation Loan Programs. A substantial increase in the market value of closed sales of mobilehomes in Villa del Arroyo has been noted in the last two or three years. This increase in value has been reflected in recent appraisals obtained for loan applicants. The City's loan program needs to be consistent with guidelines for the State program, in order to utilize State funds for this purpose. The areas in which the City's guidelines do not currently conform to State guidelines are loan terms and evaluation of credit history. State guidelines specify fifteen (15) year terms and minimum current credit conditions. Other City guidelines are also recommended for revision, in order to take full advantage of the HCD funding available now. Those guidelines include the allowable lien position of the City's loan and maximum loan -to -value for all liens combined. The City's guidelines currently stipulate that the City's lien is to be in no lower position than second (2nd) . When the City loans funds on a mobilehome using two funding sources, i.e., City Housing Trust funds and HCD funds, these two loans can be secured by one lien, providing one escrow is used.- Therefore, both the loans would be in second (2nd) lien position. However, if a loan was made with HCD funds only, or with City funds and funds from HCD, creating a 2nd lien behind an existing mobilehome loan, the City could not loan funds to that resident 00014 Honorable City Council Date 08/29/01 Page 3 in the future, should the need arise, without a revision to the Guidelines to allow the City to take a third (3rd) position, behind an HCD or combined HCD /City funded second (2nd) loan. The maximum after - rehabilitation loan -to -value is ninety per cent (90 %) under the HCD program. A suggested increase in the City's guidelines from 50% maximum loan -to -value to 70% loan -to- value, for all liens, would provide greater assurance that needed repairs can be made at one time, addressing all safety or maintenance deficiencies. While it is recognized that this threshold is more conservative than that provided by HCD, this would not compromise HCD funding. The City's guidelines will apply to the loans using HCD funds, as well. Other components of HCD loan underwriting requirements are currently incorporated in the City's Mobilehome Rehabilitation Loan Program Guidelines, including interest rate charged from zero per cent (0 %) for deferred loans to three per cent (3 %) for amortizing loans. STAFF RECOMMENDATION Modify City's Mobilehome Rehabilitation Loan Program Guidelines as follows: 1. Incorporate credit history and mortgage history standards from HCD Rehabilitation Loan Underwriting requirements; 2. Increase loan term to 15 years, both for 0% deferred loans (for Very Low Income households) and for 3% amortizing loans (for Low Income households); 3. Lien position to be no lower than 2nd position, in order of recording, unless HCD loan or combined HCD /City loan has - already been made to borrower, in which case City loan position may be in no lower position than 3rd, behind an HCD loan or combined HCD /City loan in 2nd position; 4. Increase maximum loan -to -value for all liens (including anticipated loans of HCD funds and City Housing Trust funds) to 70% of current appraised value; and 5. Increase maximum City loan amount to $10,000, and maximum total loan amount to $20,000, of combined HCD and City funds. Attachment: Rehabilitation Loan Underwriting Requirements (HCD) 5 Rehab} %litaf n Loan Untderr rfi;g Requirements I. Loan Application Usually the first thing the homeowner will do is to complete a loan application. The Uniform Residential Loan Application (sometimes referred to as the 1003) is the industry standard. The application requires sufficient information concerning a borrower's financial position to enable the Recipient to make an informed judgment about the borrower's', ability and willingness to repay the mortgage debt. It is usually the first piece of information obtained and early qualifying is determined by what is provided on it. The application should be compared to the credit report and the various verifications, as they are received, to backup what the borrower has stated on the application. If there are discrepancies between the documents, the Recipient must determine what is factual and have the borrower explain the discrepancies. II. Owner - Occupied Homeowner Elieibility The most important step is to determine if the homeowner is eligible. In the chapter on Income Qualifying, it is explained how and what kinds of incomes to use in calculating income - eligibility. All persons on title /registration must sign all CalHome documents, occupy the property as a principal residence and must meet the Cal -Home income - eligibility requirements. III. Credit History The credit report is the borrower's credit history. A homeowner who has made payments on previous or current obligations in a timely manner represents a reduced risk to the lender, and is more likely to be a successful CalHome borrower. The credit report indicates the borrower's creditworthiness with previous mortgages, shows undisclosed debts, revolving accounts, installment accounts and any judgments, garnishments, liens and/or bankruptcies that are public records. The credit report will show information on the current status of accounts. The status is usually coded such a "'R -1 ", which stands for revolving accounts; "I -1 ", which stands for installment accounts. By reviewing the report, the Recipient may also discover information that the borrower "forgot" to include on the application. There may also be items on the report that do not belong to the borrower and the Recipient will have to work the borrower and the credit reporting agency to have items the removed. The purpose of reviewing an applicant's credit report is to project the likelihood of repayment of the senior position lien(s), in a timely manner. Liens, CalHome Manufactured Housing Operations Handbook 24 June 2001 «"t.. judgments and collection accounts on the credit report indicate serious problems that require explanations. CalHome has the following requirements: A. No credit accounts past due at the time the borrower's deferred payment loan is recorded; B. No outstanding unpaid judgments or involuntary liens at the time the CalHome loan is recorded; and C. No bankruptcies, which have not been dismissed prior to recordation of the CalHome loan. IV. Mortgage History The homeowner's mortgage history will need to be documented with mortgage verifications that have been mailed to each existing lien holder. These should be dated no more than three months prior to the CalHome loan approval and shall indicate: A. That mortgage payments are current at time of verification and in the past have been no more than 60 days delinquent; B. That there are no financing terms such as variable interest rates, balloon payments or negatively amortizing loans. These may jeopardize the CalHome loan security and the prospective borrower's ability to repay the CalHome loan; C. The current outstanding balance of the mortgage or loan to determine the total loan-to- value ratio; and D. The amount of any impound accounts for taxes, assessments, if applicable, and hazard insurance, if any, to make sure they are in place and current. V. Review of Existing Encumbrances on the Property A. The Recipient will need to do a manufactured housing title search through Department of Housing and Community Development. There are three ways to do this: 1. By owner's name and address. Z. By serial numbers (for each section), make and model. 3. By insignia numbers (for each section). This can be done on an HCD 491.1, "Information — Title Search Request ". Title searches may also be done online at the Department's website (www.hcd.ca.gov) under Registration and Titling. Many public forms for registration and titling may be downloaded from this site as well. CalHome Manufactured Housing Operations Handbook 25 Junk , g" B. The Recipient will first want to review the term and interest rate on any existing encumbrances on the Property to make sure that CalHome requirements have been met. This means ensuring there are no financing terms such as variable interest rates, balloon payments, negative amortizing loans, shared appreciation terms or resale restrictions, which may jeopardize the CalHome loan security and the prospective borrower's ability to repay the CalHome loan. If any existing encumbrances contain shared appreciation or resale restriction requirements, they will need to be subordinated to the CalHome loan. VI. Eligible Costs for the Rehabilitation A. Cost of rehabilitation of the property in accordance with the following definition: "Rehabilitation" means repairs and improvements to a manufactured home necessary to correct any condition causing the home to be substandard pursuant to Section 1704 of Title 25, California Code of Regulations . B. Cost of improvements necessary to ensure accessibility of the property to physically handicapped homeowners or dependents occupying the property, when other rehabilitation work is being performed. C. General property improvements, if the manufactured home is located on borrower -owned land and such improvements are necessary or integral to the rehabilitation work. D. Cost of building or other required permits and other related government fees. E. Cost of architectural, engineering, and other consultant services which are directly related to the rehabilitation of the property. VII. Prohibited Uses of Funds A. Refinancing of existing loans with CalHome funds. B. Costs associated with the rehabilitation of buildings or structures accessory to a manufactured home, except when required by the mobile home park rules or necessary or integral to the rehabilitation work. V111. Deferred Payment Loan Amount and Term Requirements A. Amount of loans to individual homeowners must comply with the following: 1. The maximum loan, to individual homeowners shall not exceed twenty thousand dollars ($20,000); 2. The minimum loan, to individual homeowner shall not be less than two thousand dollars ($2,000); 0100 CalHome Manufactured Housing Operations Handbook 26 June 2001 3. The average amount of all homeowners loans funded under the Standard Agreement shall not exceed ten thousand ($10;000) at any point during the Standard Agreement period. It is the Recipient's responsibility to ensure that the average is not exceeded; and 4. The CalHome loan amount cannot exceed the amount required to fund eligible rehabilitation costs in accordance with program requirements. B. An owner - occupied rehabilitation loan for a manufactured home located on borrower -owned land shall be secured by the real property and improvements. A rehabilitation loan on a manufactured home in a mobilehome park or leased land that is not on a permanent foundation will be secured by submitting an HCD 480.7 Statement of Lien to have the Recipient added to the registration as a second junior lien holder. If Recipient's CalHome loan is the first position lien holder, then the Recipient must also be put on title. The CalHome loan maybe subordinate only to existing debts that have been reviewed and approved by the Recipient. C. The CalHome deferred payment loans shall have the following terms and conditions: 1. Principal and interest payments shall be deferred for the term of the loan. As part of its program design, the Recipient may make an owner- occupied rehabilitation loan with 0% interest or bearing simple interest up to 3% per annum (Recipient option), and may allow forgiveness of all or a portion of the interest as part of its program design." Loan principal shall not be forgiven. 2. Loans shall be repayable upon sale or transfer of the property, when the property ceases to be owner - occupied, upon the loan maturity date or upon early repayment or refinancing of the first mortgage. 3. By statute, loans are not assumable. 4. The following transfers of interest shall not require the repayment of the loan: a. Transfer to a surviving joint tenant by devise, descent, or operation of law on the death of a joint tenant; b. A transfer, in which the transferee is a person who occupies or will occupy the property, which is: i. A transfer where the spouse becomes an owner of the property; ii. A transfer resulting from a decree of dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement by which the spouse becomes an owner of the property; or 1 11110, . CalHome Manufactured Housing Operations Handbook 27 June 2001 iii. A transfer into an inter vivos trust in which the borrower is and remains the beneficiary and occupant of the property. 5. The term for owner- occupied rehabilitation loans shall be 15 years or not less than the longest term of existing senior lien position financing, whichever is longer. 6. A borrower may pay a portion of, or the entire deferred payment loan amount at any time without penalty. IX. Other CalHome Requirements. A. The loan-to -value ratio for an owner- occupied rehabilitation loan, when combined with all other indebtedness secured by the property, shall not exceed 90% of the estimated after - rehabilitation - value. B. No financing, junior or senior (in the case of an existing lien) to the CalHome loan, may have a balloon payment due before the maturity date of the CalHome loan. C. Any cash out of escrow to the homeowner is prohibited. D. Prior to commencement of rehabilitation work, a loan -to -value ratio shall be determined for all existing and proposed encumbrances including the proposed CalHome loan. The after - rehabilitation -value cannot be over the CalHome Program Sales PriceNalue Limits. The appraisal must use the sales of comparable properties approach to determine value. The appraisal shall take into consideration the estimated value of the rehabilitation work to be completed on the property and shall state the after - rehabilitated- value. X. Rehabilitation Construction Requirements A. The Recipient shall determine the rehabilitation work to be performed on the manufactured unit by conducting an initial property inspection. Upon completion of such inspection, the Recipient shall: 1 prepare a work write -up that accurately describes the existing conditions and the necessary repairs and improvements consistent with the need to correct substandard conditions as defined in Title 25, Division 1 at Section 1704. The work write -up shall indicate which items are code violations, incipient code violations, handicapped accessibility improvements, and general property improvements, if applicable; and 2. prepare a cost estimate for the rehabilitation work, building or other permits, government fees and the cost of architectural and engineering services directly related to the rehabilitation work. CalHome Manufactured Housing Operations Handbook 28 June 2001 B. The Recipient shall ensure that the rehabilitation work funded pursuant to these guidelines shall be performed in a competent, professional manner at the lowest reasonable cost consistent with market conditions. The local public agency or nonprofit corporation shall solicit, at a minimum, three written bids based on a bid package distributed to potential contractors, unless the Recipient is acting as the general contractor. Such bid package includes: 1. The work write -up that details the rehabilitation performance specifications; 2. Bid instructions that describe the local program requirements for rehabilitation construction work; 3. A bid proposal form that incorporates the work write -up; and 4. A sample construction contract. C. The Recipient shall evaluate a submitted bid in relation to its cost estimate. If three written bids are not received, or the bids received are higher than the Recipient's costs estimates, the Recipient shall include an explanation in the deferred payment loan file documenting the process employed to determine the reasonableness of costs. The Recipient shall review all bids with the borrower, and the borrower shall select a bid which would result in the work being performed in a competent, professional manner, at the lowest reasonable cost, consistent with current market conditions and the Recipient's cost estimate. D. The Recipient may include a contingency amount, not to exceed 15% of the selected bid amount, to be used for unforeseen costs incurred in order to complete the rehabilitation as defined in the CalHome Guidelines. E. The Recipient shall ensure that all general contractors and subcontractors selected by the borrower are licensed by the California State Contractor's Licensing Board and that they maintain Worker's Compensation,and Employer Liability insurance to the extent required by State Law. The contractor selected shall complete the work in accordance with a construction contract executed between the contractor and the borrower and approved by the Recipient. The construction contract, shall, at a minimum contain provisions which: 1. Require that the contractor complete the work in accordance with the contractor's bid, work plans, specifications, and applicable local, State and Federal laws, regulations, and building codes; 2. Require the contractor to proceed with and complete the work in accordance with the approved work schedule; 3. Specify a total contract price consistent with the approved contractor's bid; 4. Require the contractor to carry risk insurance, Worker Compensation, and be bonded; U00021 CalHome Manufactured Housing Operations Handbook 29 June 2001 5. Provide for a method of payment to the contractor consistent with program requirements that may include progress payments and payment retentions; 6. Provide conditions and procedures for review and approval of change order request; 7. Provide for contractor contingency amount, if any, and permit the Recipient and the Department and their designated agents and employees the right to inspect the property and all books, records and documents maintained by the contractor in connection with the work; 8. Obligate the contractor to warrant the work for aperiod of not less than one yea, 9. Require that the contractor provide a lien release and pay all amounts when due for labor, materials, supplies and equipment provided for completing the work; and 10. Provide for liquidated damages for delays in project completion. F. The Recipient shall monitor construction for compliance with the construction contract and program requirements, and establish practices to ensure that payments to the contractor are properly disbursed by, or on behalf of, the borrower. Such practices shall include: 1. Conducting on -site inspections of the rehabilitation work; and 2. Preparing progress inspection reports, including the final inspection, which authorize the disbursement of funds to borrowers and contractors. XI. Escrow Loan Closing Procedures Loan closing procedures and the documents /forms that must be completed can vary depending on the type of installation (permanent foundation or not permanent) the unit has and where the manufactured home is located. The Department recommends that Recipients doing rehabilitation manufactured housing work with or seek information from an escrow company that has significant experience in closing loans on manufactured housing. X52 CalHome Manufactured Housing Operations Handbook 30 June 2001