HomeMy WebLinkAboutAgenda Statement 1981/09/15 Item 10COUNCIL AGENDA STATEMENT
Item ~ I ~
Meeting Date 9/15/81
ITEM TITLE: Resolution,Q~j Approving an Agreement with the Bank of
America for Rehabilitation Loan Services
SUBMITTED BY: Community Development Director (4/5ths Vote: Yes No X )
The City of Chula Vista and the Bank of America entered into a contract in August 1980
to make low-interest loans to eligible Chula Vista residents and businesses for property
rehabilitation. That contract, which expired August 31, 1981, provided advantageous
financial leveraging to both the City's Community Housing Improvement Program (CHIP) and
the City's Commercial Rehabilitation Program, and provided excellent service from the
bank. A renewal contract has been negotiated which incorporates three changes.
Therefore, it is my
RECOMMENDATION: That the Council
Adopt the resolution approving the contract with the Bank of America for rehabilitation
loan services.
BOARDS/COMMISSION RECOMMENDATION: Not applicable.
DISCUSSION:
The agreement with the Bank of America has provided low-interest loans to eligible
homeowners for property rehabilitation under the City's CHIP program in the Mueller
and Vista Square neighborhoods. Depending upon income levels, borrowers receive
loans at 10% or 5% effective rate. The City adjusts the effective rates down to these
levels from the bank's yield rate through one of two mechanisms: interest subsidy or
collateralization. With interest subsidy, the City uses Block Grant funds to pay an
interest differential which will accomplish the desired effective rate. In the case of
collateralization, the City deposits Block Grant funds in a non-interest bearing
compensating balance account for each loan. The bank can reduce the effective rate on
the loan due to two advantages: the loan is partially guaranteed, and the bank earns
offsetting interest on the compensating balance deposit. The City can choose whichever
approach provides the most leverage, which depends on the loan amount and term of the
loan.
Under the Bank of America agreement, the Commercial Rehabilitation Program has used
the same mechanisms to offer low-interest property rehabilitation loans to eligible
businesses in the Town Centre I redevelopment area. The program has offered an effec-
tive rate to the borrower of 12% fora ten-year term loan.
The most significant change incorporated in the new contract is an increase in Bank
of America's yield rate from 16% to 17.75%. Bank of America requires this increase to
adjust to market changes since the 1980 contract was executed. The increase somewhat
reduces the City's degree of leverage accomplished with Community Development Block
Grant funds, but it is consistent with other currently available bank yield rates.
The other two changes affect the Commercial Rehabilitation Program. They are City
initiated changes to provide flexibility in certain loan situations. First, on loans
over $75,000, the ten-year term limitation may be exceeded to a maximum of 15 years.
This will allow more manageable debt service on larger loans. Second, certain large
loans may be made at an effective rate of 9%. This is an option intended for special
Form A-113 (Rev. 11/79)
Page Two; Item', 10
Meeting Date 9/15/81
circumstances, specifically large loans which yield very important benefit to the
Town Centre I project area, and which require the additional subsidization to realize
a feasible debt service.
Copies of the new contract are available for review at the Community Development Depart-
ment.
FISCAL IMPACT:
For FY 1981-82, $173,000.00 was appropriated in account #630-6300-BG96 for housing
rehabilitation, and $25,000 was` appropriated in account #630-6300-BG102 for commercial
rehabilitations. The proposed agreement commits $146,000.00 of those funds to deposit
with Bank of America.
DKG:AKP:rd
G~
___
~i c~
G~, _ .__ , .~~ .: .:~~;~~a
~~~~ ~~
n ~ te: ~ ~...._..._._---