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HomeMy WebLinkAboutAgenda Statement 1980/09/16 Item 15, 15a, b Reso. 10260 '. COUNCIL AGENDA STATEMENT Item -15: 15a, b / Meeting Date 9/16/80 15. Resolution/"C:Z60vApproving Contract with Bank of America for Financial Services Relative to Block Grant a. Reso 1 uti on ItJIll,' Approvi ng Agreement wi th Chul a Vi sta Town Centre Development Corporation b. Resol ution 16~(,L Approving Amendments to Two Credit Agreements wit:, Crocker . Bank for Financial Services Relative to CHIP Program and ITEM TITLE: Mobile Home Loan Rehabilitation Program SUBMITTED BY: Community Development Director ~ (4/5ths Vote: Yes No~) In conformance with its existing Housing Rehabilitation contract, the Bank of America notified the City that it wished to amend the contract to provide for a 16% yield rate instead of the current 12%. At the same time, the City initiated negotiations to establish a commercial rehabilitation program utilizing Block Grant funds that have been given to the Local Development Corporation. To maintain standard interest rates City-wide, the City also asked Crocker Bank to amend its contracts for housing rehab- ilitation and mobile living unit rehabilitation. Therefore, it is my RECOMMENDATION: That the Council 1. Adopt the resolution approving a contract with the Bank of America. 2. Adopt the resolution approving an agreement with the Chula Vista Town Centre Development Corporation. 3. Adopt the resolution amending two agreements with Crocker Bank. BOARDS/COMMISSION REC~~MENDATION: The Chula Vista Town Centre Development Corporation in its meeting of September 1980 approved the attached agreement (Exhibit C) and supported the City's proposed contract with the Bank of America. DISCUSSION: See report. FINANCIAL IMPACT: A total of $300,000 has been allocated for housing rehabilitation and $35,000 for commercial rehabilitation in the 1980-81 Block Grant. The 1979-80 Block Grant also contains $25,000 for commercial rehabilitation which is unencumbered. Both grants have been approved by the City Council and by HUD. DG:as IOLbc) by the City Council of Chula Vista, California Dated 9~ / t - FtJ Form A-113 (Rev. 11/79) EXHIBITS Agreement~ Resolut;on X(3) Ord;nance____ Plat____ Not;f;cat;on L;st Other Report ENVIRONMENTAL DOCUMENT: Attached SubmHted on E X H f Sf T''A1 REPORT RESOLUTION (a) - APPROVING CONTRACT WITH BANK OF AMERICA FOR FINANCIAL SERVICES RELATIVE TO BLOCK GRANT Housing Rehabilitation Program (CHIP) The City's contract with the Bank of America for the Community Housing Improvement Program (CHIP) does not expire until July 1981, but it does provide for amendments by mutual agreement or cancellation with 60 days notice. The bank notified the City in May of its desire to increase its yield on loans from the current 12% to 16% in response to changes in the financial market. At this new yield rate, and with the current structure of 3% and 7% loans to the consumer, the interest subsidy amount on the 3% loans (the difference between the 16% yield and the 3% effective rate) could be larger than the principal of the loan, thereby erasing the leverage now utilized by the program to multiply the effects of the Block Grant funds. Therefore, to continue to leverage funds and to better reflect the current market interest rates, the interest rates in the new contract (Exhibit "B") have been raised from 3% and 7% to 5% and 10%. As before, the lower rate is for lower income homeowners, and for apartment owners \'/ho agree to limit rents, and the higher rate is for higher income homeowners. The other leveraging method afforded by the contract, the loan guarantee deposit or "collateralized" loan, \'ill also be enhanced by the change to 5% and 10% in- terest rates. Guarantee deposits of 100% and 70% of loan principal were required on 3% and 7% loans respectively. The new agreement requires an 85% deposit on 5% loans and a 55% deposit on 10% loans, thereby committing fewer CDBG dollars to loans of the same principal amounts as granted before. The Bank of America housing rehabilitation program covers the Mueller School and Vista Square neighborhoods. Commercial Rehabilitation Program The proposed contract, with the Bank of America also includes a CDBG-funded com- mercial rehabilitation program based on the same leveraging techniques utilized in the housing rehabilitation program. The program would provide reduced interest loans of 12% to commercial property owners and lessees in the Town Centre I area, with emphasis on exterior improvements. Interest subsidy and loan collateraliz~- tion would be used to leverage CDBG funds at a 3:1 ratio. This commercial rehab- ilitation program would supplement the existing LOC program now in operation in- volving the Chula Vista Town Centre Development Corporation and the Small Business Administration. The corporation was loaned $25,000 of 1978-79 Block Grant funds to leverage SBA loans and, to date, two loans have been made. In addition to the $25,000 already loaned to the Chula Vista Town Centre Develop- ment Corporation, an additional $60,000 has been authorized and appropriated from Block Grants: $25,000 from 1979-80 and $35,000 from 1980-81. $50,000 of this amount is proposed to be used for the Bank of America program, and $10,000 is to be reserved for allocation to either program at a future date. I 07-100 -2- " As with the existing program, the proposed program through the Bank of America would use the Chula Vista Town Centre Development Corporation Board as the loan committee to review and approve each loan. RESOLUTION (b) - APPROVING AGREEMENT WITH THE CHULA VISTA TOWN CE~TRE DEVELOPMENT CORPORATION The agreement to be executed with the Chula Vista Town Centre Development Coproration to implement t~e Bank of America Commercial Rehabilitation Program is attached as Exhibit "C." It transfers $50,000 of CDBG funds to the corpor- ation on the provision that those funds will be deposited with the Bank under the terms of the proposed contract. Interest earned as a result of that deposit shall be used only to make additional loans, as shall loan repayments. The agreement also provides for repa}~ent to the City of all funds on deposit at the time of dissolution of the corporation. RESOLUTION (c) - APPROVING AMENDMENTS TO TWO CREDIT AGREEMENTS WITH CROCKER BANK FOR FINANCIAL SERVICES RELATIVE TO CHIP PROGRAM AND MOBILE HOME LOAN REHABILITATION PROGRAM The City has initiated negotiation with Crocker Bank to change the interest rates to borrowers under the CHIP program in the Feaster School neighborhood, and the Mobile Home Loan Rehabilitation Program from 3% and 7% to 5% and 10%. This proposed change is in response to the City's desire to keep interest rates the sGme throughout the rehabilitation program and in response to Crocker Bank's desire to raise their yield rates to reflect market conditions. The result of this negotiation is the amending of the Crocker Bank Credit Agree- ment and the Crocker Bank Mobile Living Unit Rehabilitation Credit Agreement, both of which were previously amended on January 2, 1980. The subject agreements are Exhibit "0" and Exhibit "E." There are two significant changes to each agreement. 1. The yield to the bank would "float" up or cO\'Jn based on 1% less than the bank's standard direct property improvement loan rate (PIL). At the present time, this rate is 14.5%. The existing agreement as amended on January 2, 1980 provided the bank a yield rate of 12%. 2. Interest rates to borrowers would be changed from 3% and 7% to 5% and 10%, thereby preserving the program's leverage and maintaining interest rate uniformity throughout the program. f';