HomeMy WebLinkAbout3289RESOLUTION NO. 3289
A RESOLUTION of the City Council of the City of
Bremerton, Washington, adopting the Home Rehabilitation/Down
Payment Assistance Loan Program Portfolio Management Guide.
WHEREAS, the City of Bremerton ("City") recognizes that improvement of the
quality and integrity of its housing stock is important to the long term livability and development
of the City; and
WHEREAS, the City recognizes that rehabilitation of its low income owner
occupied units and down payment assistance to help low income first time homebuyers is a good
public investment in community development and revitalization; and
WHEREAS, the City's Housing Rehabilitation Loan Program and Down Payment
Assistance Program has been active since 1989, with the most recent loan issued in 2015, and the
City recognizes the need to establish management procedures to actively monitor the loans; and
WHEREAS, the City wishes to establish policies and procedures to assist
homeowners who fall into default while ensuring that loans do not fall into unrecoverable status,
and will seek write-off/forgiveness for loans that are no longer recoverable for more accurate
financial reporting; and
WHEREAS, the City wishes to ensure continuing program integrity by annually
revisiting and updating as needed the program's description and administrative guidelines; NOW
THEREFORE,
THE CITY COUNCIL OF THE CITY OF BREMERTON, WASHINGTON,
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. The recitals and findings of fact set forth in this Resolution are
hereby incorporated as if fully set forth herein.
SECTION 2. The Home Rehabilitation Loan Program/Down Payment
Assistance Loan Program Loan Portfolio Management Guide set forth in Exhibit A, attached
hereto and incorporated herein by this reference, is hereby adopted.
SECTION 3. Severability. If any one or more sections, subsections, or sentences
of this Resolution are held to be unconstitutional or invalid, such decision shall not affect the
validity of the remaining portion of this Resolution and the same shall remain in full force and
effect.
SECTION 4. Effective Date. This Resolution shall take effect and be in force
immediately upon its passage.
, Home Rehabilitation/Down Payment Assistance Loan Portfolio. Management Guide
PASSED by the City Council of the -City of Bremerton, Washington this 'v' -11 -
day of 2017.
APPROVED AS TO FORM:
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ROGER A. LUBOVICH, City Attorne
ERIC YO GER, Council President
ATTEST
SHANNON CORIN, City Clerk
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Home Rehabilitation/Down Payment Assistance Loan Portfolio Management Guide
Exhibit A
CITY OF BREMERTON
HOME REHABILITATION PROGRAM
DOWN PAYMENT ASSISTANCE LOAN PROGRAM
LOAN PORTFOLIO MANAGEMENT GUIDE
I. INTRODUCTION..........................................................................................................3
II. HISTORY..........................................................:..............................3
III. LOAN PORTFOLIO MANAGEMENT...........................................................4
IV. DEFAULT PROCESS ................................................. .....................5
V. SUBORDINATION.................................................... ........................7
VI. LOAN MODIFICATION......................................................................8
VII. CDBG BORROWER VERIFICATION FLOW CHART................................8
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I. INTRODUCTION
The preservation of existing affordable housing is critical to the provision of reasonable cost
housing for very low income households. It is also an important element in any plan to revitalize
older deteriorated neighborhoods. Housing is not a static asset which can be built and then
ignored: Ongoing maintenance, repairs, and'occasional'refurbishing of the basic systems (roof,
electrical, plumbing, foundation, etc.) must be combined with adapting or remodeling of the
house to fit changing conditions and energy efficiency needs (rising energy costs, higher
electrical use, etc.).
Housing rehabilitation is both simple and complex. Implementation of a public neighborhood
rehabilitation program includes the responsibility for responsible use of public funds, detailed
housing inspections and conditions analysis, development of individual rehabilitation plans,
reviewing and verifying financial applications, verifying ownership and title documents,
reviewing construction bids, conducting loan closings, monitoring construction work, servicing
loans, mediating disputes, advising and educating homeowners in the loan and construction
process, advising small contractors, and communicating the program to potential applicants. -
To effectively implement a neighborhood rehabilitation program, clear program goals, objectives
and policies must be adopted, clear management responsibility and authority must be established.
II. HISTORY
The City's Block Grant Program has run two loan programs over many years: Down Payment
.Assistance (also known as: DPA -for first-time, low-income homebuyers), and Home Repair
Loan Program (also known as: HRLP-for low income, homeowner occupied homes). DPA loans
have been made primarily with HUD HOME funds, some with HUD CDBG funds, and very
rarely with non -HUD discretionary funds for the occasional household that slightly exceeds the
HUD low-income threshold.
Very old loans (oldest is 1981, through about 1997) were managed\in-house, and their terms tend
to be 0% interest and deferred for either 20 years, or no end term. These loans were transferred to
the City many years ago by Bremerton Housing Authority when they discontinued their loan
program. Some of these very old loans may, have a lien recorded instead of a deed.
Middle-aged loans made by the City between approximately 2000-2007 are serviced by
Weststar, a loan servicing company. These Down Payment Assistance or Home Repair Loan
Program loans were funded with CDBG, HOME or discretionary funds. A deed should be
recorded for all of these loans. They are interest only, with a loan term of 15 years. In 2007 the
City discontinued use of Weststar for any new loans.
Beginning in 2007 the City resumed servicing Down Payment Assistance and Repair Loan
Program servicing for new loans with 15 -year deferred principal and interest. A deed should be
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recorded for all of these loans. In 2008 the City entered into an agreement with the Washington
State Housing,Finance Commission (WSHFC), to handle all aspects of the City's Down Payment
Assistance Program. The first WSHFC "House Key Bremerton" Down Payment Assistance
loans closed in 2009.
The Home Repair Loan Program has been put on hold temporarily pending the establishment of
defined procedures for loan portfolios including (but not limited to) loans in default that are
unrecoverable. When adopted, the loan management procedures will aid in reconciling existing
older loans, help prevent future loans from entering into "unrecoverable" status, and allow the
City to resume the Home Repair Loan Program when funds are available. Due to the number of
lower income homeowners in the City, the overall age of the homes in the City limits, and the
lack of available programs, it is beneficial to our community to resume the Home Repair Loan
Program again.
III. LOAN PORTFOLIO MANAGEMENT
Responsible: CDBG Administrator
I. Annual Loan Portfolio Review
A. Follow "CDBG Borrower Verification Process" flowchart in Part 4, including:
a. Review of loan terms and conditions
b. Review of Assessor's parcel search website
c. Review of Auditor's Public Records
d. Verification of taxpayer mailing address
e. Review of utilities records for site address
f. Annual review of death records
B. Determine outcomes of Annual Loan Portfolio review
a. Loan is Valid
i. Continue deferment
C. Borrower Default
a. Initiate contact with borrower to determine reasons for default
b. Evaluate loan default on case by case basis and consider the following options
for action:
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i. Foreclosure
ii. Write-off
iii. Forgiveness
iv. Payment Plan
D. Property Transfer or Change in Use — Loan due in full
a. Send Letter notification that loan is due in full
b. Borrower pays off loan via 1) Lump Sum or 2) Payment Plan
c. Consider foreclosure proceedings or collection agency if no response or cannot
repay
IV. LOAN MODIFICATION POLICY AND PROCEDURES FOR DEFAULTED LOANS
A. The City of Bremerton will consider loan modification to extend deferment period for
loans or to establish a payment plan for borrowers who 1) reside full-time in the
home for which the loan was provided, and 2) qualify at 80% of area median income
or less (based on HUD guidelines) at the time modification is requested.
B. The City of Bremerton will consider loan modification to establish a payment plan for
loans for borrowers who 1) reside full-time in the home for which the loan was provided,
and 2) earn in excess of 80% of area median income (based on HUD guidelines) at the
time modification is requested.
C. Steps for Loan Modification
a. Continued Deferment:
i. Staff revises Promissory Note and Deed of Trust as necessary to reflect
additional years of deferment
ii. Additional deferment years are determined on a case by case basis
iii. Borrower must agree to the changes and sign revised documents
iv. Borrower must agree to pay the cost of recording and reconveyance fees for
the revision, either as cash or as an addition to the loan amount owed
v. Staff records revised Deed of Trust
vi. Staff requests reconveyance on old Deed of Trust
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b. Payment Plan:
i. Staff works with borrower to set up a payment plan acceptable to both parties
ii. Staff revises Promissory Note and Deed of Trust as necessary to reflect years
of deferment equal to the length of the payment plan
iii. Promissory Note to include terms of Payment Plan
iv. Borrower must agree to the changes and sign revised documents
v. Borrower must agree to pay the cost of recording and reconveyance fees for the
revision, either as cash or as an addition to the loan amount owed
vi. Staff records revised Deed of Trust
vii. Staff requests reconveyance on old Deed of Trust
viii. City of Bremerton issues an annual statement to borrower of amount owed
after payments are applied
ix. If Borrower does not adhere to payment plan, loan defaults and City of
Bremerton may begin foreclosure proceedings
D. Policy and procedures for loan forgiveness and write-off
a. Loan Forgiveness
i. Applicable to loans that are 20 years or more and are within recoverable period
(statute of limitations)
ii. Must be approved by City Council
iii. When applicable, staff will present loans for forgiveness annually for Council
action to forgive the loan(s), if any.
iv. Adjust Portfolio assets for fmancial reporting
v. Staff initiates reconveyance of title or Quit Claim_ Deed, collect reconveyance
fee from Borrower when possible
b.' Loan Write-off
i. Applicable to defaulted loans
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ii. Promissory Notes that are no longer enforceable (because it is outside of statute
of limitations) convert to grants and write off loans
iii. Staff will provide summary of defaulted loans (if any) to Department of
Financial Services in end of year reporting
iv. Adjust Portfolio assets for financial reporting
v. Must be approved by City Council
C. Year-end report of accurate loan portfolio assets to Department of Financial
Services which shall include:
i. Listing of loans outstanding
ii. Detail of payoffs, defaults, and forgiveness
iii. Summary of activity and balances at year end
V. SUBORDINATION OF LOANS
Responsible: CDBG Administrator and DCD Director Approval
I. In the event the homeowner refinances a prior debt the Home Repair Loan Program may allow
for subordination under the following terms:
A. This loan is a rate reduction, no cash back to Borrower; City of Bremerton will allow
reasonable closing costs as provided in HUD -1
B. Review Good Faith Estimate and HUD -1 Settlement Statement prior to closing and a
copy of the final HUD I Settlement Statement provided to this office upon closing
C. Lender to prepare subordination agreement
D. Copy of recorded subordination agreement
E. Copies of pay stubs, current tax return, and award letters of all household members
F. City,of Bremerton listed as second mortgagee with Homeowners Insurance
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VI. LOAN MODIFICATION
Responsible: CDBG Administrator with DCD Director Approval
I. The Home Rehabilitation Program may modify loans terms and conditions to facilitate transfer
of ownership to family member if the recipient meets the loan and very low income eligibility
requirements.
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VII. CDBG BORROWER VERIFICATION FLOW CHART
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Block Grant Borrower Verification