Item 6 Staff Report Accept Report on Periodic Housing Conservation Program Loan EvalutationsDATE:
TO:
FROM:
SUBJECT:
MEETING DATE: 12/16/96
ITEM NO. /0
COUNCIL AGENDA REPORT
December 12, 1996
MAYOR AND TO
TOWN MANAGER
ACCEPT REPORT ON PERIODIC HOUSING CONSERVATION PROGRAM LOAN
EVALUATIONS
RECOMMENDATION:
Accept report on periodic Housing Conservation Program (HCP) loan evaluations.
BACKGROUND:
This report is submitted in response to Council's request for information regarding the feasibility and impact of
evaluating HCP loans every one to five years.
DISCUSSION:
A. Program Objectives and Services:
The Town's HCP provides no- and low -interest loans, as well as emergency and safety grants, to income eligible
residents to help finance the cost of home rehabilitation. The Program is designed to help Los Gatos homeowners,
mobilehome owners, owners of rental property, and renters meeting income eligibility requirements. To determine
income eligibility, the Town looks at the number of people in the household and the combined income of all members
of the household. Loans and grants are generally issued to households with an annual income at or below 80% of the
County Median Income (CMI) adjusted for household size. Interest rates for rehab loans, amortized or deferred, range
from zero to 6%, depending upon income level. The HCP is funded entirely by federal Community Development Block
Grant (CDBG) dollars.
Housing rehab loans and grant funds are used to correct housing code violations, alleviate overcrowding, minimize
potential fire hazards, and improve health, safety, accessibility, and home security conditions. Those repairs which
increase the convenience and comfort of the disabled and elderly are also eligible under the program. By financing and
coordinating this type of work, the Town preserves its existing housing stock, maintains the safety and attractiveness
of Los Gatos neighborhoods, and generally contributes to the quality of Town housing. The Program also offers an
alternative to low income families and seniors who can neither afford home repairs nor qualify for more conventional
home rehab loans, and who might otherwise be forced to sell their homes and relocate.
A typical project involves a household of one or two seniors living on a fixed income, with little debt on their home, but
lacking sufficient monthly income to qualify for a conventional loan. A Town rehab loan with low or deferred payments
allows the household to upgrade its property in a safe, sound, and sanitary manner and benefit from related technical
services, i.e., a property inspection, written record of deficiencies, and inspection of completed rehab work.
PREPARED BY: R IL: •
Reviewed by: Attorney NAP inance
Falkner, Community Se 'rector
Revised: 12/12/96 2 : 3 1 pm
Reformatted: 10/23/95
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: ACCEPT REPORT REGARDING HOUSING CONSERVATION PROGRAM LOAN
EVALUATIONS
December 12, 1996
B. Analysis of Periodic Loan Evaluation:
Questions arise periodically regarding the right of a housing rehab loan client to maintain a Town loan (deferred or
amortized) once his/her income increases above the median level. Only by requiring periodic review of a client's
financial status would the Town be able to determine change in income status. The Town's current HCP Guidelines do
not require review of a client's financial condition anytime after the initial eligibility determination. The conduct of
periodic loan evaluations is not recommended by Staff in light of the following considerations:
1. The Federal Government funds the Town's Housing Conservation Program and does not require periodic loan
review after initial determination of eligibility. The goal of the HCP is to help income eligible residents with
major and minor home repairs. Once income eligibility has been established and rehab work completed,
program goals are considered met.
2. Providing loans with five or ten year balloon payments would discourage households from applying to the
program, as most low and very low income families or seniors would be unable to pay off a substantial loan
with one lump sum payment. If reasonable, accommodating loan terms are not made available to needy
households, then more homes will fall into disrepair, more families will live in unsafe conditions, and property
values may start to decline.
3. The initial qualifying process is quite rigorous - for clients and Taff alike. Those that are assisted through the
Program have proven their eligibility and demonstrated a legitimate need for rehab services.
4. Households whose incomes have improved over time should not be punished with demand for loan payoff or
renegotiated loan terms. Past practice has shown that improved financial circumstances often lead to the early
payoff of Town loans (usually through refinancing). Frequently, "improved" circumstances mean a household's
income has gone from low to median and the financial condition is still limited.
5. If clients consistently meet their monthly payment obligation, as do the Town's 20 "active" loan clients, there's
no compelling reason to re-examine their financial status after initial loan approval, particularly since the
majority of Town rehab loans are issued to low and very low income seniors whose incomes do not
increase over time.
6. The conduct of periodic fmancial review would place a significant administrative burden on Staff and could
be viewed by clients as an invasion of privacy. It would also add an element of uncertainty to the loan process,
particularly if the review leads to changing loan terms or demand for payoff. This practice would be especially
unsettling to the majority of senior loan clients.
7. The Town maintains a rehab fund balance sufficient to fund new loans and grants, so there is no urgency to
augment the rehab fund pool by forcing clients with improved financial conditions to pay off their loans early
or make accelerated loan payments. Because each HCP loan is secured by a Deed of Trust, the Town's
investment remains secure over the life of the loan, usually twenty years. The Town has always been prudent
in its use of CDBG funds, and active and deferred loans with twenty year terms are common.
8. Each year, a portion of all CDBG funds provided to the Town are designated for "Housing Rehab
Administration." These funds cover costs associated with processing new applications, managing new rehab
projects, and coordinating community outreach and program marketing efforts. While "admin" funds may also
be used to manage the Town's existing loan portfolio, the expectation is that the bulk of funds be used to
process new applications, not to re-examine existing loans.
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: ACCEPT REPORT REGARDING HOUSING CONSERVATION PROGRAM LOAN
EVALUATIONS
December 12, 1996
Despite these arguments against periodic loan review, existing HCP guidelines could be modified to tighten restrictions
on loans issued to non -senior clients whose incomes are more likely to increase and/or to hasten the payback of loan
funds to the Town. This could be accomplished by:
Option
Discussion
1.
Establishing a maximum loan term of ten years for
loans under $20,000. Monthly payments on a
$19,000 loan at 0% interest over ten years amount
to $158.00.
Existing HCP loan clients pay an average of $108 per
month. A $158 monthly payment could discourage the
low and very low income clients the program is intended
to assist.
2.
Issuing 20-year deferred loans to seniors only,
with all other clients eligible only for amortized
loans.
Because the vast majority of loan clients are seniors, this
requirement would not affect much change. Nonetheless,
significant rehab projects often necessitate funding
between $50,000 and $60,000. A $55,000 loan issued to
a non -senior household at 0% interest and amortized over
20 years would call for a $230 monthly payment. The
Town must exercise caution in establishing restrictions
that result in monthly loan payments excessive to low and
very low income households.
3.
Issuing five-year deferred loans to income eligible
clients under the age of 62 and reviewing the
fmancial condition at the end of five years.
a. If the client's financial condition does not
change, the loan is deferred for another five
years (with a maximum total deferment of 20
years).
b. If the client's financial condition increases to
between 80% and 100% of the CMI, then the
loan becomes amortized.
c. If the client's fmancial condition is found to
exceed 100% of the CMI, then the loan
becomes due and payable.
Similar to Item 2 above, this option clearly distinguishes
between seniors and other, younger clients, where one
group is subjected to periodic financial review and the
other is not. While this approach allows the Town to
monitor changes in financial condition where it is most
likely to occur, it also establishes unpredictable loan
terms, forces a somewhat intrusive investigation into a
client's personal finances after rehab work has long since
been completed, and would apply to so few clients as to
almost negate the effort of implementation.
CMI: County Median Income
CONCLUSION:
There has been no evidence of abuse of the program over the years. The initial qualifying process is rigorous to the
point that it discourages some applicants. Nonetheless, those that have been assisted have proven their eligibility and
demonstrated a legitimate need for rehab services. The vast majority of all outstanding HCP loans have been issued to
seniors whose incomes are not increasing; periodic fmancial review will serve no compelling purpose. Town loans are
ordinarily paid off before the official maturity date, simply due to the ever changing circumstances of life - sale or
transfer of property, refinancing, or upon death of the owner. Changes to the HCP Guidelines to require periodic loan
evaluations are not recommended at this time.
ENVIRONMENTAL ASSESSMENTS:
This is not a project defined under CEQA, and no further action is required.
PAGE 4
MAYOR AND TOWN COUNCIL
SUBJECT: ACCEPT REPORT REGARDING HOUSING CONSERVATION PROGRAM LOAN
EVALUATIONS
December 12, 1996
FISCAL IMPACT:
The Town has accumulated $135,960 in CDBG housing rehab "line -of -credit" funds. These funds, coupled with the
6/30/97 projected fund balance of $82,950 (218-36000) will allow the Town to issue HCP loans and grants of about
$218,910 during FY 1996/97. The Community Services Department is currently working on loans and grants amounting
to nearly $100,000 (with expenditures to occur over the next six months) and anticipates more activity prior to the end
of the fiscal year.
Attachments:
1. Housing Conservation Program: Loan Inventory Status
2. Current Income Guidelines (Federal Department of Housing and Urban Development)
3. Housing Conservation Program Brochure
Distribution:
Charles Chew, Program Manager, County of Santa Clara, Housing and Community Development Program
1735 North First Street, Suite 365, San Jose, CA 95113
CSD29:a:\hcp\hcpstat.rpt
Attachment 1
HOUSING CONSERVATION PROGRAM: LOAN INVENTORY STATUS
Active
Loans
—I
Deferred Loans
TOTALS
Number of Loans (Total)
20
18
Note 1
38
Number of Loans by Origination Date
1970's:
3
1
4
1980's:
12
10
22
1990's:
5
7
12
Total
20
18
38
Amount of Inventory
Total Disbursed
$ 526,842.28
$ 378,695.97
$ 905,538.25
Loan Balances as of 11/1/96
$ 350,670.52
$ 378,695.97
$ 729,366.49
Total Monthly Loan Payments
$ 2,851.52
N/A
Total Annual Loan Payments
$ 34,218.24
N/A
Distribution by Interest Rate
Income Status
Income Status
0%
9
Very Low
13
Very Low
22
3%
9
Low
4
Low
13
6%
2
Median
1
Median
3
Total
20
18
38
Distribution by Loan Amount•
< $10,000
4
$ 27,165.00
4
$ 22,160.16
$ 49,325.16
8
$10,000 - $19,999.99
4
$ 56,939.50
5
$ 71,635.44
$ 128,574.94
9
$20,000 - $29,999.99
5
$ 124,763.00
2
$ 47,227.44
$ 171,990.44
7
$30,000 - $59,999.99
5
$ 163,974.78
5
$ 174,765.88
$ 338,740.66
10
$60,000 +
2
$ 154,000.00
1
$ 62,907.05
$ 216,907.05
3
Total
20
$ 526,842.28
17
$ 378,695.97
$ 905,538.25
37
Distribution by Household Size
HH-1
5
8
13,
HH-2
6
4
10
HH-3
2
2
4
HH-4
2
0
2
HH-5
2
1
3
HH-6
2
0
2
Loans to Individuals
19
15
34
Loans to Non -Profit Agencies
1
3
4
Note 1: Count of 18 deferred loans includes a recent loan for which funds ($70,000 max) have not yet been disbursed.
11/8/96 Page 1 CSD26:xfile:\a\loaninvt.bcb
D
Attachment 2
CURRENT INCOME GUIDELINES
DETERMINED BY
FEDERAL DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
FOR SANTA CLARA COUNTY
EFFECTIVE 12/14/95
% OF MEDIAN
50
80
100
120
Persons in Household
Very Low Income
Lower Income
Median Income
Moderate Income
1
23,600
29,100
47,200
56,650
2
26,950
33,300
53,900
64,700
3
30,350
37,450
60,650
72,800
4
33,700
41,600
67,400
80,900
5
36,400
44,950
72,800
87,350
6
39,100
48,250
78,200
93,850
7 41,800
51,600
83,600
100,300
8
44,500
54,900
88,950
106,800
CSD18:A:1BMPUNCMGUID.EXL
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December 16, 1996
Los Gatos, California
ARTS COMMISSION/COMMENDATION/DALE CHAMBERS (YYY.20)
Vice Mayor Lubeck presented a Commendation from the Town to Dale Chambers for his time
and service to the Town while serving on the Arts Commission. Mr. Chambers was present to
receive his commendation and thanked the Town for the opportunity to have served. He
presented a poster of last years performances autographed by the performers to Ms Lubeck.
SCHEDULE OF PUBLIC HEARINGS (01.01)
Informational report regarding currently scheduled public hearings was received and filed.
PAYROLL RATIFICATION/NOVEMBER 1996 (02.V)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council ratify the check register for the
payroll of November 17 through November 30, 1996, paid on December 6, 1996, in the amount
of $357,850.15. Carried by a vote of 4 ayes. Mrs. Benjamin absent.
ACCOUNTS PAYABLE/RATIFICATION/DECEMBER 1996 (03.V)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council ratify the accompanying check
registers for accounts payable invoices paid on December 6, 1996 in the amount of $332,579.20.
Carried by a vote of 4 ayes. Mrs. Benjamin absent.
MINUTES OF DECEMBER 2, 1996 (04A.V)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council approve the Minutes of
December 2, 1996 as submitted. Carried by a vote of 4 ayes. Mrs. Benjamin absent.
MINUTES OF DECEMBER 9, 1996 (04B.V)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council approve the Minutes of
December 9, 1996 as submitted. Carried by a vote of 4 ayes. Mrs. Benjamin absent.
RENT MEDIATION PROGRAM (05.19)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council accept Rent Mediation Program
Fiscal Year 1995-96 Report and adjust 1996-97 program budget to cover costs of increased
mediations and arbitrations. Carried by a vote of 4 ayes. Mrs. Benjamin absent.
HOUSING CONSERVATION PROGRAM/LOAN EVALUATIONS (06.19)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council accept report on periodic
Housing Conservation Program (HCP) loan evaluations. Carried by a vote of 4 ayes. Mrs.
Benjamin absent.
ARTS COMMISSION/MASTER PLAN/RESOLUTION 1996-156 (07.20)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council adopt Resolution 1996-156
entitled, RESOLUTION OF THE TOWN OF LOS GATOS ADOPTING THE ARTS
COMMISSION MASTER PLAN. Carried by a vote of 4 ayes. Mrs. Benjamin absent.
MUSIC IN THE PLAZA/GUIDELINES/DONATIONS/RESOLUTION 1996-157 (08.20)
Motion by Mr. Attaway, seconded by Mr. Blanton, that Council adopt Resolution 1996-157
entitled, RESOLUTION OF THE TOWN OF LOS GATOS ADOPTING MUSIC IN THE PLAZA
GUIDELINES. Carried by a vote of 4 ayes. Mrs. Benjamin absent.
TC:D8:MM121696
2