HomeMy WebLinkAboutNeighborImpact-DC Fin Asst concept paper
TO: Deschutes County Commission
FROM: NeighborImpact
RE: Draft proposal whereby Deschutes County will provide additional funding
to provide Septic Upgrade Deferred Loans to low income households in
South County; and to establish a County backed loan guarantee for
households that do not qualify for existing Housing Rehabilitation Loan
Program
BACKGROUND
NeighborImpact’s Housing Center has administered a homeowner Housing Rehabilitation
Program since 1994. The program is designed to help low income homeowners who cannot
qualify for a conventional loan address health and safety issues so that they may remain living
in their home. Qualified households receive a low interest deferred loan to fix problems in their
home such as dry rot, failed plumbing, roof leaks, septic failure, etc. This program serves the
dual purposes of preserving affordable housing stock in Deschutes, Crook and Jefferson
counties as well as helping low income households live in a healthy and safe environment.
In 2008, Deschutes County began requiring residents in the southern part of the County with
failing systems to upgrade to nitrogen reducing systems in order to protect the drinking water
in the region from high nitrate levels. NeighborImpact has been working with Deschutes
County to try to provide financing through our Housing Rehabilitation Program to low income
families who cannot afford to undertake this upgrade. Deschutes County refers families to our
program when a household contacts the county to find out about financing options. It is our
respective intent to formalize this relationship whereby the County will provide initial and
ongoing funding so that more households can be helped than currently can be served through
the existing NeighborImpact program.
ELIGIBILITY ISSUES
In the past year the number of program inquiries from South Deschutes County regarding
septic upgrades has increased. One loan has already been made and another is in process.
However, NeighborImpact has received feedback from Deschutes County that some families
that have recently applied were denied the Rehabilitation Loan.
Although this program has been created for families who tend to struggle financially,
nonetheless NeighborImpact adheres to loan eligibility policies to ensure these loans will be
paid back to us so that we can recycle the funds for future applicants through our revolving
loan fund. Two such policies include the following:
1. Homeowners must be current on their mortgage payments and taxes;
2. Homeowners need to have enough equity in their house to cover the rehabilitation
loan amount as well as any other liens if the house is sold or goes into foreclosure
We have determined that these two requirements were the cause of some of the recent denials
of South County applicants. A review of our records revealed that since January 2009 we have
denied five applicants from South County who needed septic system upgrades – two applicants
exceeded income limits for the program; two applicants did not have enough equity in their
home and/or were behind on mortgage/taxes; and one applicant’s house burned down therefore
other policies excluded them from eligibility. Also in the past year NeighborImpact has sent
out approximately seven applications to families who claimed to have septic system problems
but who never followed up with us. It is possible that the two policies stated above discouraged
them from applying for the program.
NeighborImpact has been asked by Deschutes County staff to help find a solution for
households that need a septic upgrade but are disqualified from our loan program because they
are late on their mortgage or taxes and/or do not have enough equity in their home to qualify
for the loan.
PROPOSAL:
NeighborImpact will establish a separate loan pool for South Deschutes County residents who
have been disqualified for our existing loan program due to mortgage delinquency and/or
inadequate equity. Funds for these loans will be drawn from NeighborImpact’s Revolving
Loan Fund and provided only for septic upgrades. A loan limit range of $8,000-$18,000 will be
established for these loans. Existing program rules will apply, except for the policies regarding
mortgage payment status and equity. Deschutes County will make $60,000 available during FY
2009-10 and FY 2010-11 to NeighborImpact to serve as a Loan Loss Reserve Fund. Deschutes
County will sign documents to guarantee the full repayment of each loan to NeighborImpact in
the event that the homeowner defaults on the loan using the Loan Loss Reserve Fund. It is
estimated that NeighborImpact will be able to provide approximately 6-8 loans from this fund
over the next two years. NeighborImpact will charge a service delivery fee of 15% of the loan
amount, to be billed to Deschutes County.
Discussion Items
1) Limit Deschutes County Funds to “bad loans”?
a. Scope could be expanded as more Deschutes County funds are available
2) Risk acceptability of “bad loans”
a. Behind on Payments
b. Poor Loan to Value Ratio
c. Historic default rates
3) If Deschutes County funds are used for existing program qualifying loans, what is the
mix of NeighborImpact/Deschutes County Funds?
a. Only use Deschutes County funds for septic repair/upgrade projects?
b. 50/50 match?
4) NeighborImpact Administrative Fee
5) NeighborImpact Loan/Qualification Process – Acceptable?
a. Fairness Safeguards
b. Contractor Selection
c. County Permitting
d. Loan Tracking/Accounting