The City of Billings Community Development Division received a request from M & T Bank to subordinate a First Time Home Buyer (FTHB) Program loan to their new loan on a property in the Southwest Corridor neighborhood. The new loan is the result of a hardship modification for the property owner. The City of Billings does not currently have a subordination policy for the First Time Home Buyer Program and the Community Development Division and Community Development Board are bringing this request to the City Council for consideration.

Triggers for repayment of FTHB loans are: refinancing; sale of the property; or using the property as a rental. The assisted homeowner is not refinancing, as it is a hardship modification. The assisted homeowner is a single parent of two young children who fell behind in mortgage payments due to job loss. There is a small amount of equity in the property, but federal regulations tied to hardship modifications do not allow for the homeowner to use any equity in the property for cash-out purposes or to repay subordinate liens. The original mortgage note was $123,219 on June 23, 2014. The homeowner’s current and modified mortgage terms are as follows:

Existing Mortgage Terms                              Modified Loan Terms

Principal Balance	$120,928.94	Principal Balance	$103,482.92
Interest Rate (%)	3.779	Interest Rate (%)	3.779
Term (Months)	360	Term (Months)	360
P & I Amount	$572.68	P & I Amount	$480.95
Escrow Amount	$282.96	Escrow Amount	$312.45
Total Monthly Payment	$855.63	Total Monthly Payment	$793.40

City Council may: 1) Approve the subordination agreement. The City of Billings will remain in second position until the owner sells, refinances, or uses the property as a rental; 2) Not approve the subordination agreement. The property could go to foreclosure in which case the City of Billings will not recoup its $15,000 loan as the lender will receive all net proceeds first and will likely also lose some of their investment in the property.

 

Should the Subordination Agreement be approved, the City will remain in second lien position and there will be no impact. If the Subordination Agreement is not approved, M & T Bank will not be able to provide a modified loan to the owner. The owner can afford the monthly payment at the current amount, but she cannot afford to come up with the past due amount. The City may lose its $15,000 investment in the property as the Lender would receive any net proceeds first if the property went into foreclosure. 

Staff has prepared the following time line and summary of events for the status of this property and the loan subordination request: 

• March 6, 2014: Household was preliminarily approved for the FTHB program. The household’s income was below the 60% AMI and therefore qualified for the $15,000 HOME funds loan.
• April 26, 2014: The approved household entered into a Buy/Sell Agreement for property in the Southwest Corridor neighborhood. Accepted purchase price $136,500. Property appraised for $136,500.
• June 23, 2014: Applicant closed on the property. Loan for $123,219 with an $855.63 monthly Principle, Interest, Taxes, and Interest (PITI) making the applicant’s housing ratio 37%. FTHB program guidelines allow up to a 42% housing ratio.
• May 8, 2015:  Homeowner became involuntarily unemployed. The homeowner was receiving $258 a week in unemployment benefits while searching for a new job. The homeowner immediately made arrangements with M & T Bank to make $25 a month payments while unemployed and actively seeking employment to avoid losing the property.
• April 4, 2016: The Homeowner applied for a modification of her existing loan with M & T Bank. The Homeowner was employed and making the regular mortgage payments, however, she had become in arrears while seeking employment. The modification is needed to bring the loan out of arrears and bring the loan current.
• April 21, 2017:  Staff received subordination request from M & T Bank on behalf of the homeowner.
• June 6, 2017:  During the regular Community Development Board meeting, the Board recommended approval of the subordination request to City Council.

While there is no public hearing or notification process in this situation, the stakeholders in this situation include the City of Billings and the Community Development Division, the lender M & T Bank, the low income household homeowner, and indirectly the surrounding property owners who could have a foreclosure property in the neighborhood if the homeowner is not able to continue to pay off the mortgage on the home.

If the Subordination Agreement is not approved, the homeowner stands to lose the property in foreclosure. The homeowner fell behind in mortgage payments after involuntary employment loss. The homeowner is currently employed and has been making the regular full mortgage payment amount for over a year, but does not have a way to pay off the amount in arrears and bring the loan current. The homeowner has made every effort to continually communicate and work with the lender to avoid losing the property in foreclosure. The City of Billings, and the Lender, M&T Bank, stand to lose their investments in the property with a foreclosure. Staff has verified with the Lender that this is a modification of an existing loan and The City of Billings would still be in second lien position under the modified loan.