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HomeMy WebLinkAboutReso 1983-11199 RESOLUTION 11199 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING A REHABILITATION LOAN AGREEMENT WITH THE BANK OF AMERICA WHEREAS, the City and the Bank of America entered into an agreement on September 15, 1981, for banking services relative to the rehabilitation of residential, commercial and personal (mobile home) property; and WHEREAS, that agreement was amended on April 20, and November 16, 1982, and may be amended at each 180 day interval to change interest rates; and WHEREAS, the City and the Bank wish to change the interest rates for certain loans, and to incorporate all of the amendments into one comprehensive agreement. NOW, THEREFORE, BE IT RESOLVED that the City hereby approves the Property Rehabilitation Loan Agreement which is attached, and authorizes the Mayor to sign. Presented by: Approved as to form by: ~ D ' George D. Lindberg P r Community Devolopment Director City Attorney WPC 0580H ADOPTED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF SHULA VISTA, CALIFORNIA, this 5th doy of April 9 83 , by the following vote, to-wit: DYES: Councilmen Scott, Cox, Halcolm, Hoore, NcCandliss ~IAYES: Councilmen None ~.BSTAIN: Councilmen None ~-BSENT: Councilmen None Moyo~e City of Chula Visto ;TA'I c OF CALIFORNIA ) ;OUNTY OF SAN DIEGO ) ss. ;fly OF CHULA VISTA ) I, JENNIE M. FULASZ, CMC, CITY CLERK of the City of Chulo Visfo, Colifornio, )O HEREBY CERTIFY thor the obove ond foregoing is o full, true ond correct copy of RESOLUTION N0. ]ll99 ,ond fhot the some hos not been omended or repeoled. )ATED (see/) City Clerk :C-660 PROPERTY REHABILITATION LOAN AGREEMENT COMPREHENSIVE FORM THIS AGREEMENT is made by the CITY OF CHULA VISTA, a municipal corporation in the State of California (berein called "Authority"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association (herein called "Bank"). RECITALS A. Authority has authorized a Housing Preservation Program, a Commercial Property Rehabilitation Program and a Personal Property (Mobile Home) Program as part of an adopted Community Development Block Grant Program (as may be amended and modified from time to time) hereinafter collectively called "Program". B. As part of Authority's implementation of Program, Authority has requested Bank to make below-market interest rate property rehabilitation loans ("Loans" or "Program Loans") to certain owners/tenants of single and multi-unit residential and commercial real property and residential personal property (Mobile Homes) within Authority and approved by Authority as recipients of Loans ("Applicants"). The purpose of the Loans would be the rehabilitation of said real and personal property in accordance with Program. In addition, Authority has requested a choice of several types of Loans to Applicants. C. To support these objectives, and based on an initial deposit of Community Development Block Grant funds, Bank is willing to provide Authority and Applicants with Collateralized Loans (Part Three), Personal Property (Mobile Home) Collateralized Loans (Part Four), Deferred Payment Loans (Part Five), and other services at rates and terms not available to the general public or to Authority independent of this Agreement. NOW, THEREFORE, for an in consideration of the foregoing and the mutual agreements made herein, and for other good and valuable consideration, Authority and Bank agree as follows: PART ONE DEPOSIT OF COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS 1. Authority shall deposit up to ~200,000.00 of Community Development Block Grant Rehabilitation funds available to Authority under the Housing and Community Development Acts of 1974 and 1977, as amended, as part of this Agreement. 2- Authority's deposits of Community Development Block Grant funds may be made in any of the following forms: (a) A deposit to the Warehouse Account, the funds in which are unallocated to Loans. (b) A deposit to Collateralized Loan Account(s) which are noninterest-bearing savings accounts which subsidize Loans and are pledged as Loan collateral. (c) The purchase from Bank of time certificate(s) of deposit from which all proceeds are allocated to future Program Loans. Bank will pay, at Authority's election, the highest interest rate permitted by law on all accounts described above. If legal interest rate limitations are removed, Bank will pay its highest rate offered to the public. 3. Authority relinquishes the use of and control over accounts described in paragraph 2(b). This account will be used only for the Loan purposes described in this Agreement. 4. Authority retains full accessibility to all deposits which are unallocated to existing Program Loans. 5. Authority agrees all interest earnings will be paid to the Warehouse Account and will become immediately available for the subsidy of -(2)- Loans. Authority is aware that the terms and conditions of the Agreement are subject to the provisions governing lump-sum drawdowns for property rehabilitation, Section 570.513 of the HUD Regulations on Community Development Block Grants, 24 CFR Part 570. Authority will comply with that section when it deposits or expends HUD lump-sum drawdowns. When Authority makes such deposits or expenditures, Bank need not attempt to verify that that section permits the deposit or expenditure. PART TWO APPLICATION PROCEDURES 6. (a) At the request of Authority, Bank, through its Chula Vista Main Office, shall consider making loans to qualified Applicants directed to Bank by Authority. Bank shall notify the respective Applicant(s) in writing of any such request it receives from Authority. The notification shall contain the following statement: "The City of Cbula Vista has requested the Chula Vista Main Office of Bank of America National Trust and Savings A§sociation, 295 E. Street, Chula Vista, California 92010, to consider making a specific extension of credit to you." (b) A qualified Applicant shall be identified by Authority or its agents, using Authority's established standards, which must consider, without limitation: ~' (i) Applicant is "the owner of record" of the property subject to rehabilitation. (ii)Authority has verifiable income(s) which can be used to repay the proposed Loan. (iil)Authority has determined that the proposed Loan, given Program options available, will best serve the rehabilitation needs of Applicant and the Program objectives. (c) In addition, each commercial improvement/rehabilitation -(3)- Loan Applicant, if a lessee, has a lease which, with options, extends at least six (6) months beyond the maturity of the proposed Loan. 7. Authority shall furnish to Bank, with respect to each loan application: (a) an introductory letter stating that Authority desires Bank to consider making a Loan to Applicant; (b) a breakdown of the costs involved in the rehabilitation work to be performed on Applicant's real property; (c) a description of the work; (d) an estimate of the value of the real property offered as security for the Loan; (e) a copy of any contractor bid proposed to or accepted by Applicant; (f) a statement including the name of the contractor who will perform the rehabilitation work, and a statement that Authority has satisfied itself with respect to the competence and reliability of the particular contractor; and (g) for each commercial improvement/rehabilitation Loan, Bank shall reqUire from Applicant: .;.' . (1) 2-year business 1ncome statements supported by IRS 1ncome tax fi lings; (2) a copy of the existing lease, if Applicant 1S a property tenant; (3) Applicant's personal financial statement; (4) A policy of Creditor Life Insurance, in a form acceptable to Bank. The policy must be maintained while the Loan remains outstanding, in an amount at least equal to the amount outstanding under the Loan to Applicant, with Bank assigned as policy owner. Upon Authority's request, said insurance -(4)- 12-/1/1/ shall be prepaid from Loan proceeds and said amount added to the principal amount of the Loan. At Bank's request, each Applicant shall also be required to maintain a standard policy of hazard insurance covering the real property upon which the rehabilitation work is to be performed in effect while any part of the Loan remains outstanding, with Bank named as beneficiary. In tbe case of defaulted Loans, Authority agrees to guarantee unpaid premiums in accordance with the provisions of paragraph 13 below. 8. Bank shall perform its customary credit evaluation with respect to the Applicant, render its judgement with respect to the credit worthiness of the Applicant, and recommend appropriate Loan terms. 9. Upon completion of its credit evaluation, Bank shall furnish to Authority a recommendation to proceed with the Loan or not, including: (a) a recommendation as to use of either a Collateralized, or Deferred Payment Loan, or some combination thereof; and (b) an indication which of the following Loans (for which Bank assumes part of the credit risk, as indicated parenthetically below) Bank is willing to make to Applicant: (1) for residential property improvement Loans: (i) a 5% Collateralized Loan (22% credit risk); (ii) an 8.25% Collateralized L~an (50% credit risk). (2) for commercial property improvement Loans, a 10.00% Collateralized Loan (60% credit risk). 10. After having determined the exact nature and scope of the rehabilitation work to be performed on Applicant's real or personal property, Authority may request Bank to grant Applicant a Loan, which either must be from among those designated by Bank pursuant toparagraph 9(b) above or must be a Loan pursuant to paragraph ll(a) (100% collateralized) or paragraph 19 (Personal Property (Mobile Home) Collateralized Loans), or paragraph 28 (Deferred Payment Loan). -(5)- PART THREE COLLATERALIZED LOANS 11. Each Collateralized Loan shall be supported by a deposit as described below, made by Authority to a Collateralized Loan Account. These accounts that shall at all times be at least equal to: (a) 100% of unpaid principal for each 5.00% Loan for which Bank has not designated the Applicant (Pursuant to paragraph 9(b)(1)) as a party to whom Bank is willing to make a (partially) Collateralized Loan. Bank agrees to pay 1.8% interest annually on 100% collateral required for all 5.00% Loans; (b) 78% of unpaid principal for each 5-00% Rehabilitation Loan; (c) 50% of unpaid principal for each 8.25% Residential Rehabilitation Loan; (d) 40% of unpaid principal for each 10.00% Commercial Rehabilitation Loan; plus, in each case, 100% of accrued unpaid interest. Authority hereby assigns the Collateralized Loan Account to secure the Collateralized Loans. 12. (a) Unless Authority requests one note only, each Collateralized Loan shall be evidenced by two notes, effective in succession, as provided berein. (b) The note first'effective shall be a 'short-term commercial note, the term of which shall coincide approximately with the rehabilitation period (although all references herein to the short-term commercial note are singular, a Loan could include more than one short-term commercial note). The term of any one short-term commercial note may not exceed ninety (90) days, although the note may be extended, renewed, or refinanced. The Loan proceeds thereof shall be disbursed by Bank in a number of draws, each to follow completion of an applicable state of construction, as certified to Bank by Authority. Interest shall accrue only on the disbursed portion of the Loan. -(6)- (c) Prompty after Bank's disbursement of the final draw under the short-term commercial note, that note shall be refinanced by an installment note, as provided for at subparagraph (d) below or, alternatively, as provided in Part Five (Deferred Payment Loans). At the time the short-term commercial note is refinanced by the installment note, Applicant may either pay Bank the accrued interest on the short-term commercial note or may have it added to the principal of the installment note. (d) The term of the installment note shall be determined by the Applicant's debt-to-income ratio for the Loan in question but: (i) may not exceed 15 years for residential rehabilitation; (ii)may not exceed 10 years for commercial rehabilitation unless the proposed Loan is over $75,000 and is to the property owner in which case the term may not exceed 15 years. The installment note shall be amortized in equal monthly installments over its term. (e) Bank reserves the right to require a contractor funding control service or construction progress inspections by the Bank's Appraisal Department on all multi-family properties. In either case, construction inspection expense shall be paid by the Applicant. 13. With respect to Collateralized Loans: (a) On both the short-term commercial no~e and the installment note, interest and other finance charges shall be such as to bear interest at an annual rate of 5.00%, or 8.25%, or 10.00% calculated on a simple interest basis. (b) The loan shall be documented using Bank's standard forms. (c) Both the short-term commercial note and the installment note shall, at Bank's or Authority's option, be secured by a deed of trust covering the real property that is the subject of the rehabilitation for which the proceeds of the Loan are to be used. -(7)- X- 14. Authority shall make a relevant deposit to the Collateralized Loan Account in the percentage of Loan amount provided for in paragraph 11, when the commercial note and deed of trust are signed by Applicant and when interest on a short-term commercial note becomes added to the principal of a subsequent installment note. At the end of each calendar month ending 180 days after Authority's first deposit hereunder, Bank shall remit to Authority the amount by which the Collateralized Loan Account exceeds the paragraph 11 percentages of the unpaid balances of Collateralized Loans. Funds that Bank thus remits to Authority shall be deemed funds that Authority deposited at least 180 days before. 15. If a Collateralized Loan remains in default for a continuous period of ninety (90) days on account of nonpayment of any sum of money due pursuant to the terms thereof or of any instrument or document related thereto, Bank may withdraw from the Collateralized Loan Account, and pay to itself, an amount equal to the then outstanding principal balance of the Loan multiplied by the same percentage as the percentage of the Loan amount that was deposited to the Collateralized Loan Account pursuant to paragraph 11, plus 100% or accrued unpaid interest on the Loan and insurance premiums, if any, through the 90th day of default. Bank shall have no recourse against Authority or the Collateralized Loan Account for any amounts in exces~ of those permitted under this paragraph. During any ninety (90) day default period, Bank shall perform its customary collection procedures with respect to the Loan. 16. After a withdrawal from the Collateralized Loan Account under paragraph 15, in the case of a Loan for which the deposit to the Collateralized Loan Account under paragraph 11 was less than 100% of the Loan amount: (a) Bank need not assign the deed of trust to Authority upon completion of the withdrawal but may, for its own account, exercise rights under the deed of trust to recover the remaining outstanding and unpaid principal of the Loan plus accrued unpaid interest thereon after the 90th day of default. (b) At its election, Bank may assign to Authority such rights as may be necessary for Authority to attempt to recoup any funds withdrawn from the Collateralized Loan Account in connection with any Loan default. Authority agrees to recoup funds, as much as possible, for ~he benefit of Bank as well as itself. Funds recovered shall be credited as follows: (1) to withdrawals from the Collateralized Loan Account; (2) to the costs of recovery; (3) to Bank's Loan charge-off. (c) If Bank subsequently recovers funds with respect to a defaulted Loan (as, for example, but without limitation, if a voluntary sale of the property takes place), Bank shall, after deducting the previously unreimbursed percentage of Loan loss to which Bank is entitled, plus Bank's cost of recovery, return and pay over to Autborlty all amounts in excess thereof. 17. After a withdrawal from the Collateralized Loan Account under paragraph 15 above, in the case of a Loan for which the deposit to the Collateralized Loan Account under paragraph 11 was 100% of the Loan amount, Bank shall assign the Loan to Authority, the assignment to be accomplished by: (a) the due endorsement by Bank to Authority of the promissory note evidencing the loan, without recourse or warranty; and (b) the delivery of the promissory note and the assignment and delivery of the deed of trust. 18. Collateralized Loans, as described in paragraphs 11 through 15, must have an average original Loan amount of ~10,000. Authority's Collateralized Loans will be analyzed every 180 days from contract approval. If average ~I0,000 Loan amounts are not maintained, Bank may: (a) increase borrower interest rates for new Loans; (b) increase collateral requ~r~me.t~ For new Loans; or (c) assess an origination fee for new Loans. These options are negotiated and mutually accepted by Bank and Authority. PART FOUR PERSONAL PROPERTY (MOBILE HOME) COLLATERALIZED LOANS 19. Each Loan shall be a Collateralized Loan and shall be supported by a noninterest-bearing deposit made by Authority to a Collateralized Loan Account. The account shall, at all times, be equal to at least: A. 100% of unpaid principal for each 5.00% Loan for which Bank has not designated the Applicant as a party to whom Bank is willing to make a (partially) Collateralized Loan; B. 55% of unpaid principal for each 10.00% Loan. Authority hereby assigns the Collateralized Loan Accounts to secure the Collateralized Loans. 20. The term of the installment note shall be determined by Bank for the Loan in question, but may not exceed fifteen (15) years, and the installment note shall be amortized in equal monthly installments over its term. Interest will be calculated on a simple interest basis for each installment note. If Bank is unable to establish a market value, Bank, at its election, may charge an appraisal fee. 21. With respect to personal proper~y Collat~ralized Loans: (a) The installment note, interest and other finance charges shall be such as to bear interest at an annual rate of 5.00% or 10.00% which shall be calculated on a simple interest basis. (b) The Loan shall be documented using Bank's standard forms. (c) The installment note may, at Bank's option, be secured by an interest covering the personal property (mobile home) that is the subject of the rehabilitation for which the proceeds of the Loan are to be used. (1) Bank must receive a "State of California, Department of Housing and Community Development Certificate of Title, Mobile Home" for all 10.00% Loans; the Certificate must show the Bank as the first lien holder of record. (2) Bank must receive a "State of California, Department of Housing and Community Development Certificate of Title, Mobile Home" or a California Department of Motor Vehicle ownership certificate (pink slip) for all 5.00% Loans. At Authority's request, 5.00% Loans may be made without security. (d) Personal Property Collateralized Loans shall not exceed ~10,000 (Ten Thousand and no/100 Dollars). 22. Authority shall make a relevant deposit to the Collateralized Loan Accounts in the percentage of Loan amount provided for at paragraph 19 when the installment note and security instrument are signed by Applicant. At the end of each calendar month ending 180 days after Authority's first deposit hereunder, Bank shall pay to the Warehouse Account the amount by which the Collateralized Loan Account exceeds the paragraph 19 percentage of the unpaid balances of Collateralized Loans. 23. If a Collateralized Loan remains in default for a continuous period of ninety (90) days on account of nonpayment of any sum of money due pursuant to the terms thereof or of any instrument or document related thereto, Bank may withdraw from the Collateralized Loan Account and pay to itself, an amount equal to the then outstanding principal balance of the Loan, multiplied by the same percentage as the percentage of the loan amount that was deposited to the Collateralized Loan Account pursuant to paragraph 19 plus: (a) 100% of accrued unpaid interest on the Loan through the 90th day of default; and (b) 100% of any costs paid by Bank, at its election, in an effort to protect the value of personal property securing a Program Loan; Bank shall have no recourse against Authority or the Collateralized Loan Account for any amounts in excess of those permitted under this paragraph. During any ninety (90) day default period, Bank shall perform its customary collection procedures with respect to the Loan. 24. After a withdrawal from the Collateralized Loan Account under paragraph 23 above, in the case of a Loan for which the deposit to the Collateralized Loan Account was less than 100% of the Loan amount: (a) Bank need not assign the Certificate of Title, Mobile Home to Authority upon completion of the withdrawal but may, for its own account, exercise rights under the Certificate of Title, Mobile Home to recover the outstanding and unpaid principal of the Loan plus accrued unpaid interest and expenses thereon after the 90th day of default. (b) At its election, Bank may assign to Authority such rights as may be necessary for Authority to attempt to recoup any funds withdrawn from the Collateralized Loan Account in connection with any Loan default. Authority agrees to recoup funds, as much as possible, for the benefit of Bank as well as itself. Funds recovered shall be credit as follows: (1) to withdrawals from the Collateralized Loan Account; (2) to the costs of recovery; (3) to Bank's Loan charge-off. (c) If Bank subsequently recovers funds with respect to a defaulted Loan (as, for example, but without limitation, if a voluntary sale of the property takes place), Bank shall, after deducting the previously unreimbursed percentage of Loan loss to which Bank is entitled, plus Bank's cost of recovery, pay to the Warehouse Account all amounts in excess thereof. 25. After a withdrawal from the Collateralized Loan Account under paragraph 23 above, when a Loan for the deposit to the Collateralized Loan Account was 100% of the Loan amount, Bank shall assign the Loan, if possible, to Authority, the assignment to be accomplished by: (1) the due endorsement by Bank to Autbority of the promissory note evidencing the loan, without recourse or warranty; and -(12)- (2) the delivery of the promissory note and the assignment and delivery of the ownership certificate or Certificate of Title, Mobile Home. 26. Bank and Authority recognize the major changes affecting residential personal property caused by recent changes to the health and safety code, and by recent promulgation of mobile home regulations by the State of Califonia. Bank therefore makes no warranties, expressed or implied, about the effectiveness or value of security agreements or documents covering residential personal property. 27. Collateralized Loans, as described in Part Four are to be included in the average Loan size requirements described in paragraph 18. PART FIVE DEFERRED PAYMENT LOANS 28. In the event Authority requests Bank to make a Loan, the terms of which are other than as provided in Parts Three and Four above, Bank shall comply withAuthority's request. In that case, after Bank has obtained Applicant's note on terms Authority has requested for the Loan, Bank shall, promptly after completion of the respective rehabilitation work, assign the Loan to Authority according to the same procedures, and for the same price, as would be applicable under paragraphs 15 through 17 (Part Three) and paragraphs 22 tbrough 25 (Part Four) in the case of the asslgnm~nt following default of a Collateralized Loan for which the deposit to the Collateralized Loan Account under paragraphs 11 and 19 was 100%. Promptly after the assignment, unless previously paid by Authority, Applicant shall pay to Bank a fee to cover its internal administrative and out-of-pocket expenses, as specified by Bank, but in no event less than THIRTY-SEVEN AND 50/100 DOLLARS ($37.50) nor more than SEVENTY-FIVE DOLLARS ($75.00) for each Loan so made. Such fee shall be at Applicant's sole expense if not recovered from Authority. 29. Prior to the making of the first Deferred Payment Loan, Authority shall furnish Bank an opinion of its legal counsel: -(13)- (a) stating that Authority has established rates and terms for its Deferred Payment Loan Program note; (b) designating whether any Deferred Payment Loan fee is a "charge to be financed" or a "prepaid finance charge" under Regulation Z; and (c) that Authority has delivered this information and note to Bank's Chula Vista Main Office. PART SIX GENERAL PROVISIONS 30. On Authority's request, Bank shall, for its customary fees therefore, accept for collection purposes, pursuant to Bank's then current installment collection procedures, a Program Loan that has been transferred to Authority. 31. On Authority's request, Bank shall, for its customary fees therefore, provide foreclosure services with respect to a defaulted Program Loan that has been transferred to Authority, in which case Bank shall be substituted for Continental Auxiliary Company/Authority as trustee under the applicable deed of trust 32. (a) The term of this Agreement shall mature on April 15, 1984. This Agreement may be terminated or amended by either of the parties hereto at six (6) month intervals from April 15, 1983, provide~ written notice of intent is given to the other party at least fifteen (15) days prior to the termination date. (b) Any termination of this Agreement shall not affect Program Loans outstanding at the time of termination. (c) At termination, Bank shall retain the Collateralized Loan Account and shall remit monthly to Authority the amount by which the Collateralized Loan Account exceeds the paragraphs 11 and 19 percentages of the unpaid balances of Collateralized Loans. 33. Bank covenants and agrees tbat nothing in this Agreement or any agreement made pursuant hereto shall be deemed or construed by Bank to make Authority a surety or guarantor of any Loan, and that Bank's rights with respect to a Collateralized Loan shall be limited to those set forth at paragrapbs 14 through 17 and 22 through 25 hereof. 34. Authority and Bank shall comply with all applicable statutes and regulations, including without limitation, where applicable, the Federal Truth in Lending Act and Regulation Z thereto, the Consumer Credit Reporting Act, and the Equal Credit Opportunity Act and Regulation B thereto. 35. Except as specifically required by this Agreement, Authority waives any right it may have to require Bank to: (a) proceed against any Applicant or other person; (b) proceed against or exhaust any collateral for the relevant Loan; or (c) pursue any other remedy in Bank's power; and waives any defense arising by reason of any disability or other defense of Applicant or any other person, or by reason of the cessation from any cause whatsoever, other than full payment, of the liabiity of an Applicant or any other person. 36- Bank and Authority acknowledge the "SpeCial Purpose" nature of the Program and Program Loans. To serve this "Special Purpose," a Loan shall be considered in default after the date of a transfer of the deed of trust property which, according to the provisions of the note, make the entire principal and interest of the note due and payable, regardless of Bank's ability or inability to enforce those provisions of the note. 37. Any communications between the parties hereto may be given by mailing the same, postage prepaid, to Bank at its Chula Vista Main Office, 295 E. Main Street, Cbula Vista, California 92010, and to Authority at its Office of Community Development, City of Chula Vista, City Hall, 276 Fourth Avenue, ~l~ Chula Vista, California 92010, or to such other addresses as either party may in writing hereafter indicate. 38. This Agreement and any agreement, document, or instrument attached hereto or referred to herein integrate all terms and conditions mentioned herein or incidental hereto, and supersede all oral negotiations and prior writings in respect to the subject matter thereof. In the event of any conflict between the terms, conditions, and provisions of this Agreement and any such agreement, document, or instrument, the terms, conditions, and provisions of this Agreement shall prevail. 39. Authority shall indemnify and hold harmless Bank against all claims and damages, alleged or otherwise, of whatsoever nature arising out of or in any way connected with the acts or omissions of any contractor performing rehabilitation work in connection with this Agreement; provided, however, that Authority's obligations under this paragraph shall not extend to negligent or willful acts or omissions by Bank. All contractors shall operate as independent contractors and nothing herein is intended to affect such independent contractor status. 40. Bank may, at its option, decline to make additional Loans from and after the date when the principal balance of all Loans outstanding has exceeded ONE MILLION FIVE HUNDRED THOUSAND DOLLARS (~1,500,006.00). 41. This Agreement may be executed in as many counterparts as may be deemed convenient, each of which, when executed, shall be deemed an original. 42. The operating aspects of this Agreement, including but not limited to target area boundaries, may be altered from time to time through a letter of understanding, accepted mutually by Authority's Director of Community Development and Bank's Community Development Department, 555 South Flower, Los Angeles, CA 90071. 43. Bank and Authority recognize the structural heterogeneity of the Authority's residential target areas. On a case basis, the Bank will consider making ions on multi-unit residential properties (5 units or more) at interest rates and with collateral deposits described in this Agreement. All other terms are subject to negotiation. 44. Bank recognizes authorities redevelopment activities beyond the scope of this Agreement. On a case by case basis bank will, at authorities request, review and consider Loan applications that do not otherwise conform to this agreement. All rates and terms will be established by the Bank. The Bank's credit judgment on these special considerations will be final. IN WITNESS WHEREOF, this Agreement is executed by Authority acting by and through its City Council pursuant to Resolution No. authorizing such execution, and by Bank.. Dated this 5th day of April 1983. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION of ~he 9riginal Resolution: Agency C~I ~ City Clerk -(17)- Item #16 4/5/83 REPORT PROPOSED CHANGES TO THE COMMUNITY HOUSING IMPROVEMENT PROGRAM AND THE COMMERCIAL REHABILITATION PROGRAM Submitted by: David Gustafson, Housing Coordinator Allen Pritzlaff, Administrative Analyst I. INTRODUCTION Several changes are proposed to the Community Housing Improvement Program (CHIP) and the Commercial Rehabilitation Program. The proposed changes should make both programs more effective, both in terms of accomplishment of program goals and in optimum use of available funds. Funds for the housing program are provided to the City by the Department of Housing and Urban Development (HUD) through the Community Development Block Grant Program. HUD and redevelopment monies are used in the commercial program. II. REHABILITATION LOAN AGREEMENT The agreement between the City and the Bank of America for housing and commercial rehabilitation loan services is subject to renegotiation of collateral requirements every six months. Reduction of lending industry interest rates has resulted in a favorable renegotiation for the City on the contract renewal for the period ending in August 1983. Below-market-interest-rate loans to clients of both programs are accomplished through collateralization by the City of a portion of the total loan amount. Funds are deposited with the bank in a non-interest bearing guarantee account for each loan. The combination of partial loan guarantee and interest-free money to the bank allows a reduced borrowing rate to the City-selected customer. Obviously, the lower the effective loan rate to the customer, the higher the collateral deposit required of the City. The City does ultimately recapture all the collateral deposit, being paid back by the bank proportionally as the loan is repaid to the bank by the customer, With the lowering of the yield rate required by the bank's underwriting standards for such a program, the City has the option of maintaining the same effective loan rates to the customer, while reducing the collateral payment to the bank, or reducing the effective loan rates to the customer, while maintaining the same collateral payments. The chart below shows the current loan rates and collateral deposits and the options available for each loan category. LOWERED LOWERED CURRENT LOAN RATE COLLATERAL DEPOSIT Lower Income Residential Loan Loan Rate 5% 4.25% 5% Collateral Deposit 85% 85% 78% Higher Income Residential Loan Loan Rate 10.25% 8.25% 10.25% Collateral Deposit 50% 50% 35% Commercial Loans Loan Rate 11.75% 10% 11.75% Collateral Deposit 40% 40% 25% A. Low Income Residential Loan Recommendation It is recommended that the loan rate be kept at 5% while reducing the collateral deposit required from 85% to 78%. The low income residential loans at 5% interest are already perceived by the public as being very low interest. The lowering of this rate to 4.25% would not make these loans significantly more desirable or affordable. Those who cannot afford this rate can usually qualify for a deferred loan (very low income family or low income senior citizens). Therefore, it would be better for the program in this case to obtain greater leverage by lowering the collateral required to 78%. This rate also applies to rental properties. 8. Higher Income Residential Loans It is recommended that the loan rate be reduced to 8.25%, thus keeping the required collateral deposit at 50%. The higher income loans have been more difficult to market, partly due to the "double digit" interest rate. Lowering this rate to 8.25% will encourage the rehabilitation of owner-occupied, higher income properties in the block grant areas. Although a full 50% collateralization is required, rather than 35%, the potential for neighborhood improvement as a result of increased loan activity makes that a worthwhile expenditure. It should be kept in mind that households in this category are in income elegible neighborhoods and their homes are in need of repair. Higher income means elderly and handicapped individuals with incomes above 80% of median income ($13,440) and families with incomes above 50% of median income (13,500 for a family of four). Pockets of higher income neighborhoods in low-income census tracts have generally been excluded from program boundaries as described elsewhere in this report. C. Commercial Loans It is recommended that the commercial loan rate be lowered from 11.75% to 10%. Changes in the commercial loan market have made the 11.75% rate insufficiently below market to be strongly marketable. A rate reduction to 10%, although requiring 40% collateralization rather than the 25% if at the old rate, would be a valuable incentive for commercial rehabilitation of the Third Avenue commercial area. The City will again have the opportunity to renegotiate the Bank of America agreement in August, based on lending rate conditions at that time. Opportunities for possibly more favorable arrangements with other lending institutions will also be explored prior to that August date. III. CHIP PROGRAM BOUNDARY ADJUSTMENTS The CHIP Program operates in specific neighborhoods which are the census tracts which were identified by the 1970 Census and the 1975 Special Census as being principally low and moderate income. Those target neighborhoods were selected in response to Community Development Block Grant regulations addressing income restrictions on housing rehabilitation activity and in response to the City Council's perception of those neighborhoods' need for and responsiveness to a housing rehabilitation program. The 1980 Census data and census tract reconfiguration, which opened new neighborhoods to Community Development Block Grant income eligibility, makes it possible to consider changes to the program boundaries. The attached map shows the existing program target area boundaries, the proposed additions to the target areas, and the total possible area created by the new data. Included in the proposed additions are areas which have been eligible under 1970/75 census data and in which the program has previously operated. Those areas were considered completed when closed, but new ownerships have created new opportunities for neighborhood improvement. Some of the newly-eli9ible areas are not recommended for the following three reasons: 1. They are higher income pockets of low income census tracts. 2. Windshield surveys have not discovered substantial need for housing rehabilitation. 3. Housing rehabilitation has greater neighborhood impact when concentrated on a smaller area. Therefore, only the most needy, cT/~? responsive neighborhoods should be addressed. -3- IV. CHIP LOAN ELIGIBILITY CHANGE It iS recommended that CHIP deferred loans, which make interest-free loans to homeowners which are collectible by lien when title transfers, be granted to individuals outside the low income categories when, in the opinion of the Loan Committee, major ongoing medical expenses attributable to disability or chronic illness prevent the feasible underwriting of an installment loan. Currently, the deferred loan category is available only to elderly and handicapped persons with incomes at or below 80% of median income and families with incomes at or below 50% of median income. Families are required to be income-recertified every two years, and if their incomes exceed 50% of median income, they begin loan repayment. With the City Council approval, the Loan Committee will add to the CHIP Program Manual the option of granting deferred loans to individuals or families whose incomes are depleted by medical expenses to the point that they cannot make pa3nnents on installment loans. V. MARKETING OF EXISTING INSTALLMENT LOANS The Council has recently asked about the possibility of selling the existing rehabilitation installment loans on the secondary market. Bank of America has informed us that they are looking into this possibility, but there would be two problems. First, the loans are not guaranteed, as with the VA or FHA. Second, the proceeds of such a sale would flow to the bank, not to the City. The City's compensating balance (the funds on deposit at no interest which collateralize and act to reduce the interest rate) would have to remain on deposit. It is unclear if any advantage could accrue to the City from such a sale, but the matter is being pursued further with the bank. VI. CONCLUSION The intent of both the City's rehabilitation programs is to encourage property improvement and thereby effect neighborhood improvement or commercial district improvement. The key to effective public rehabilitation efforts is the maximizing of loan activity with the revenue available. The proposed changes will increase loan activity, thereby accelerating impact, while applying program funds both appropriately and judiciously. WPC 0578H  TING AREA HOUSING REHABILITATION AREA ] [ EXISTING PROPOSED ELIGIBLE EXHIBIT } ~