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Item 1.F.
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| City Council Regular | |
| Date: | 04/26/2021 |
| Title: | Housing Rehabilitation Loan Program - Applicant Denial and Grievance |
| Presented by: | Brenda Beckett |
| Department: | Planning & Community Services |
| Presentation: | No |
RECOMMENDATION
City staff and the Community Development Board recommend the City Council uphold current underwriting standards for the Housing Rehabilitation Loan program and support staff’s decision to deny an applicant.
BACKGROUND (Consistency with Adopted Plans and Policies, if applicable)
The Community Development Division manages the Housing Rehabilitation Loan program to provide affordable financing for low-income homeowners to make needed repairs to their homes. The program offers zero-interest and no payments on a loan up to $25,000. The loan is repaid to the City, in full, when the property is sold by the homeowner. The City must also comply with federal requirements to carry out underwriting activities for the use of federal funds.
The program’s underwriting standards are more lenient than those of traditional lenders; credit scores, debt to income ratios, and bankruptcies are not considered for loan approval. However, the program’s underwriting standards are designed to reduce lending risk: applicants cannot have any late payments for 12 months immediately preceding the application date; and more than one mortgage on the property, outside a First Time Home Buyer loan, is also reason for denial. For more information on this program, please visit BillingsMT.gov/HomeRepair.
The Division received an application for the Housing Rehabilitation Loan program in November 2020. The applicant was denied for the program as their credit report illustrated late house payments over the past 12 months. As per the Division’s Grievance Procedure, the applicant wrote a letter to the Community Development Board. On February 2, 2021, the Board reviewed the grievance and supported staff’s decision to deny the applicant based on late mortgage payments. The applicant appealed to the U.S. Department of Housing and Urban Development (HUD) soon after; HUD also supported staff’s decision to deny the application. The applicant requested staff re-check their credit report at the beginning of March and to escalate the grievance for review at the City Council level for a final determination. Late mortgage payments are still evident on the updated credit report. A Board member also researched public property records and discovered that there are four mortgages on the home. Staff ordered a title commitment that verified the public property records; this discovery is an additional reason the applicant would be disqualified from the program.
The program’s underwriting standards are more lenient than those of traditional lenders; credit scores, debt to income ratios, and bankruptcies are not considered for loan approval. However, the program’s underwriting standards are designed to reduce lending risk: applicants cannot have any late payments for 12 months immediately preceding the application date; and more than one mortgage on the property, outside a First Time Home Buyer loan, is also reason for denial. For more information on this program, please visit BillingsMT.gov/HomeRepair.
The Division received an application for the Housing Rehabilitation Loan program in November 2020. The applicant was denied for the program as their credit report illustrated late house payments over the past 12 months. As per the Division’s Grievance Procedure, the applicant wrote a letter to the Community Development Board. On February 2, 2021, the Board reviewed the grievance and supported staff’s decision to deny the applicant based on late mortgage payments. The applicant appealed to the U.S. Department of Housing and Urban Development (HUD) soon after; HUD also supported staff’s decision to deny the application. The applicant requested staff re-check their credit report at the beginning of March and to escalate the grievance for review at the City Council level for a final determination. Late mortgage payments are still evident on the updated credit report. A Board member also researched public property records and discovered that there are four mortgages on the home. Staff ordered a title commitment that verified the public property records; this discovery is an additional reason the applicant would be disqualified from the program.
STAKEHOLDERS
Stakeholders include the current applicant, future applicants, and others that might be assisted with CDBG funding in the future. Taxpayers are also considered stakeholders as the City acts as a public steward for federal funding allocated to local jurisdictions. Given that this situation has confidential aspects to it, aside from the applicant, staff has received no other comment on this issue.
ALTERNATIVES
City Council may:
· Approve staff's and the CD Board's decision to deny the applicant based on current underwriting standards; or
· Not approve staff's and the CD Board's decision to deny the applicant. Not approving the decision would raise questions for staff and the CD Board as to direction from Council on future loan applicant criteria.
· Approve staff's and the CD Board's decision to deny the applicant based on current underwriting standards; or
· Not approve staff's and the CD Board's decision to deny the applicant. Not approving the decision would raise questions for staff and the CD Board as to direction from Council on future loan applicant criteria.
FISCAL EFFECTS
Over the City’s last five-year Consolidated Plan reporting period, the City assisted 26 households in the Housing Rehabilitation Loan program; a $650,000 investment. Supporting the current underwriting process allows the City to continue assisting low-income homeowners to make needed repairs to their homes while protecting the City’s financial interests.
The decision to remove basic underwriting standards would put the City’s significant financial interests in jeopardy and increases the City's risk of noncompliance with federal regulations. Without basic underwriting standards, the City would be assisting households at-risk of losing their homes to foreclosure and / or overburdening their properties with liens exceeding the home’s value. If the City loses funding invested in properties due to foreclosure or loan overburdening, the City would not be able to recoup funding to assist other households.
The decision to remove basic underwriting standards would put the City’s significant financial interests in jeopardy and increases the City's risk of noncompliance with federal regulations. Without basic underwriting standards, the City would be assisting households at-risk of losing their homes to foreclosure and / or overburdening their properties with liens exceeding the home’s value. If the City loses funding invested in properties due to foreclosure or loan overburdening, the City would not be able to recoup funding to assist other households.
SUMMARY
City staff and the Community Development Board requests the City Council uphold the decision to deny a Housing Rehabilitation Loan program applicant based on the underwriting standards in place. This action would maintain the fiscal integrity of the Housing Rehabilitation Loan program and protect the City’s financial interests.
Attachments
- A - Application & Eligibility Review Materials
- B - Email Communications
- C - Response Letter to Applicant
- D - Applicant’s Grievance
- E - Community Development Board Review & Recommendation