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HomeMy WebLinkAbout09.B- Economic Development Agency .r.rr.rr DOC ID: 1462 A CITY OF SAN BERNARDINO—REQUEST FOR COUNCIL ACTION Report/Information From: Emil A. Marzullo M/CC Meeting Date: 01/09/2012 Prepared by: Lorraine Wyche, (909) 663- 1044 Dept: Economic Development Agency Ward(s): All Subject: Agency Loan Monitoring Quarterly Status Report for the Period Ending September 30, 2011. Financial Impact: Not applicable. This is a receive and file report. Motion: Receive and file the Loan Monitoring Quarterly Status Report for the period ending September 30, 2011 for the Redevelopment Agency of the City of San Bernardino. Synopsis of Previous Council Action: On December 8, 2011, Redevelopment Committee Members Johnson, Marquez and Brinker unanimously approved the recommendation that the Community Development Commission consider this action for approval. Background: On September 20, 2010, the Redevelopment Agency of the City of San Bernardino (the "Agency") entered into a Professional Services Agreement ("Agreement") by and between the Agency and AmeriNational Community Services, Inc. ("AmeriNational") in support of key program and compliance monitoring functions under the Agency's Neighborhood Stabilization Program ("NSP") and other Agency financed housing projects. Such an Agreement would serve as a means to ensure proper administration of the Agency's loan portfolio. The scope of services included within the AmeriNational Agreement includes: 1. Compliance monitoring associated with the funding sources for each of the Agency's existing and future loans, especially as they relate to U.S. Department of Housing and Urban Development ("HUD") and/or state redevelopment Housing Set-aside Fund eligibility requirements. 2. Loan servicing for amortizing loans and deferred loans, including collection and remittance of payments as applicable. 3. Residual receipts loan monitoring including a review of the borrower's financial statements to determine reasonableness, verification of the borrower's calculations, and collection of payment, if necessary. Updated: 1/5/2012 by Mayra Ochiqui A Packet Pg. 598 1462 4. Loss mitigation to include direct interface with the borrower to determine issues that are preventing repayment and implementing a series of steps to address any delinquencies including the preparation of forbearance plans through and including loan foreclosure. 5. Additional portfolio management services to include loan payoff quotations, satisfactions, and reconveyances, loan amortization schedules, year-end account summaries, assistance with portfolio cleanup, borrower and Davis-Bacon and/or state prevailing wage compliance monitoring and bankruptcy administration. 6. Preparation of affidavits that require owners to affirm continued compliance with provisions of the promissory note and applicable covenant agreement. 7. Reporting any findings of non-compliance to the program participants and the Agency. 8. Researching property ownership when ownership changes and determine how this affects Agency programmatic and security interests. 9. Providing detailed recommendations to the Agency to remedy any programmatic and/or monetary events of default incurred by program participants and executing those recommendations. 10. Gathering documents, maintaining project information electronically and transmitting information in the form of a comprehensive report to the Agency on a regular basis. On March 3, 2011, the Community Development Commission of the City of San Bernardino ("Commission") authorized the Agency to transfer the management and oversight of all housing related activities to Affordable Housing Solutions of San Bernardino ("AHS"). This would include the administration of the Agency's portfolio of housing loans. The underlying effect would be the amendment of the AmeriNational Agreement to replace the Agency with AHS which should occur by the first quarter of 2012. Future loans and loan amendments will also reflect a change that replaces the Agency with AHS. Regular reporting and day-to-day administration will remain the same. CURRENT ISSUE: Based on the current configuration of the Agency's loan portfolio, the loans can be generally grouped into four (4) separate categories and include: single-family residential down payment assistance loans, Neighborhood Stabilization Program ("NSP") loans, multi-unit loans and single-family residential rehabilitation loans. For the period ending September 30, 2011, the Agency identified a total of 164 loans which includes 112 first time homebuyer loans, 11 Neighborhood Stabilization Program loans associated with the NSP Mary Erickson Community Housing/Eastpointe Village Project, 12 NSP homebuyer assistance loans, 14 home buyer down payment assistance loans, 7 single-family rehabilitation loans, 5 multi-unit loans and 3 economic development loans. The following chart identifies the loans by category with additional narrative describing the status of each of these components that comprise the loan portfolio. Updated: 1/5/2012 by Mayra Ochiqui A Packet Pg. 599 1462 Inventory of Agency/AHS Loan Portfolio through September 30,2011 Total 1St Time HAP NSP SFR Multi-Unit NSP/MECH Econ. Loans Homebuyer Homebuyer Rehab. Multi-Unit Dev. 164 112 14 12 7 5 11 3 The number of loans retrieved and under active monitoring lags that of the covenants presently overseen by AHS. This is because it was determined that gaining adequate oversight of the covenants took precedence over the loans based on requirements of both the federal and state funding sources used for housing activities. As existing and future loans are transitioned to AmeriNational for administration, the total number of these loans should approximate that of the covenants which presently stands at around 535. Future reports will identify progress made on this goal. FIRST TIME HOMEBUYER LOANS. The 112 loans that make up the First Time Homebuyer category originated from the Agency's citywide down payment assistance program. Most, if not all of these loans, were created in the mid 1990's. The sum of the original value of these loans is $672,142.10. AHS is in the process of retrieving similar loans that were originated during this period and adding them to the list. AHS will then review these loans to confirm they are being monitored consistent with their funding source. HOMEBUYER ASSISTANCE: The Agency continues to provide down payment assistance for income qualified home buyers under its Housing Assistance Program ("HAP"). First introduced approximately 17 years ago, the HAP provides a soft second, low interest rate loan for income eligible home buyers, some of whom are beneficiaries of the Agency's NSP single-family acquisition program. For the period ending September 30, 2011, the Agency had provided 26 separate HAP loans with a total principal value of $324,070. From this total 12 loan recipients (46.1% of the total) also benefitted from the NSP single-family home acquisition program. The source of funds for this program originated from Redevelopment Agency Low and Moderate Income Housing Funds ("Low-Mod Funds") allocated to AHS for administration, disbursement and oversight of the HAP. REHABILITATION LOAN PROGRAM: This category consists of rehabilitation loans to income-eligible home owners through two separate contracts implemented by Neighborhood Housing Services of the Inland Empire ("NHSIE") and Inland Housing Development Corporation ("IHDC"). Loans are provided to home owners to address certain health and safety concerns and have a maximum value of $25,000. These loans are considered non-inclusionary because the covenant term does not meet the threshold length of time established under California Redevelopment Law ("CRL"). (Please see the covenant monitoring report for September 30, 2011 for more details on inclusionary and non-inclusionary units). However, they represent a valuable tool to certain homeowners by addressing immediate health and safety compliance violations. As of the reporting period the Agency had 7 loans under administration. As new loans are created they will be added to the list. Similarly, Agency staff will conduct a search of prior loans and place them on this list. Through the September 30th reporting period, the total principal value of these loans amounted to Updated: 1/5/2012 by Mayra Ochiqui A KNOWUN 1462 $134,542. Low-Mod funds are used to pay for program activities. On September 1, 2011,the rehabilitation loan program was suspended to new applicants pending the outcome over the future of redevelopment. It is anticipated the program will resume in the first quarter of January 2012 utilizing either Low-Mod Funds or Home Funds under a modified program. MULTI-UNIT LOANS: Another category of loans deals with larger projects and constitutes a major effort to increase the AHS count of affordable units in order to be compliant with state inclusionary housing numbers and to provide an adequate amount of quality affordable housing consistent with the City of San Bernardino's Housing Element goals. Thus far, AHS has funded 2 transactions through the Notice of Funding Availability Process totaling 197 units of affordable housing. It has also funded the acquisition of a dilapidated 10-unit building for the purpose of redeveloping it into a 7-unit property with larger sized units and to relieve existing code violations. This project is in conjunction with a local non-profit housing service provider, Time For Change Foundation. Another project was funded during the reporting period in conjunction with a long established non-profit agency in the City, Mary's Mercy Center. The project consists of the rehabilitation of an existing facility that assists homeless women and their children. The total amount of all loans under this category during the reporting period equals $15,188,528. The loans identified are included in the report for the current period. It is anticipated this category of loans will grow significantly over time as additional properties are added to the list and their respective loans are actively administered within the portfolio. MAR Y ERICKSONINSP MULTI-UNIT LOANS: Mary Erickson Community Housing ("MECH") is a non-profit housing provider selected by the Agency in 2009 to address the NSP 1 requirement of providing housing opportunities to households at or below 50% of the area median income. Their strategy has been to acquire, rehabilitate and rent a series of blighted four-plex properties along East 19th Street and Sunrise Lane in the area commonly referred to as the Arden Guthrie. The efforts of MECH have been successful since the inception of this program. As of September 30th, MECH has been able to acquire 11 separate four-plex properties and convert them into high quality affordable housing for San Bernardino residents. The development has since been renamed to Eastpointe Village. The aggregate principal loan amount for these properties is equal to $5,016,844.48 and comes from a combination of NSP 1 and Low-Mod Funds. At the time of this report, a twelfth property was in escrow and will be added to the list during the next reporting period. ECONOMIC DEVELOPMENT LOANS: In conducting an analysis of the Agency's loan portfolio, there were a small group of loans that were determined to be non-housing related and had been closed for a number of years. These loans had an aggregate loan value of $19,286.50. As a result of these loans being deemed closed, they will no longer be tracked or reported on by AHS. Policy Discussion and Recommendations Regardine Short Sales: Over the last year, AHS has been involved in reviewing several proposed short sales. These reviews have occurred on homes that previously received Agency assistance wherein the Agency recorded a deed of trust and use covenant. Short sales occur when the first trust deed lender Updated: 1/5/2012 by Mayra Ochiqui A .,; --- 1462 agrees to take a principal loss on its loan in order to facilitate a sale to a new buyer. In circumstances such as these, the Agency/AHS typically looses most, if not all, of the principal value of its down payment assistance loan as this type of loan is always in second position behind the first trust deed lender. In negotiations with the borrower and the first trust deed lender, staff typically agrees to the short sale after confirming the new buyer of the home meets the income and program requirements of the AHS HAP loan. Upon confirming the eligibility of the buyer as a "Qualified Successor-in- Interest," the transaction can proceed. Under this scenario (the optimal case for AHS), the affordability covenants are retained and a Qualified Successor-In-Interest acquires the property thus maintaining the policy goals of assisting low and moderate income households obtain home ownership. The downside of this is the AHS loan almost always gets written down to zero due to a lack of equity at the time of sale. This is the best case scenario for AHS in short sale transactions. Short sales can also bring less beneficial outcomes. The first of these occurs when a short sale is proposed and the end buyer is an investor that will either rent out the property to a market rate tenant or conduct modest repairs and re-sell the home without regard to the AHS loan or the provisions of the affordability covenants. In this scenario, AHS jeopardizes losing the principal value of the loan and its oversight of the use restrictions and income eligibility provisions of the covenants. Under the worst case scenario, the short sale does not proceed and both the AHS second deed of trust loan and the affordability covenants get wiped out with thousands of dollars in losses and a reduction in the AHS count of affordable housing covenants. Since examining this issue, staff has been able to track 7 properties that went into foreclosure with an aggregate loss of$327,276 in loan funds. Longer term, AHS also has to reduce its count of affordability covenants by 7 which will need to be made up with other projects. The loans in question were originated between FY2002 and FY2008. AHS staff actively initiated tracking of these properties in October of 2010. As a result of these issues, Agency staff is acting on the following policy directives pertaining to short sales: 1. Continue to work with sellers to identify and approved Qualified Successors-In-Interest. Though the AHS loan will be removed, the affordability covenants will remain which is the main policy goal of the program. 2. Do not approve short sales to investors. Instead, seek to acquire the property utilizing the "first right of refusal to purchase"provisions found in most of the AHS loan documents. 3. If the short sale is unsuccessful, seek to acquire the property at the trustee's sale or attempt to negotiate with the bank that holds the property once it is added to their inventory as a REO. 4. Seek to limit or eliminate the availability of HAP loans when the market for single-family Updated: 1/5/2012 by Mayra Ochiqui A Packet Pg. 602 1462 homes greatly exceed income levels of those buyers and where AHS has to provide more than a 20% down payment to make the transaction feasible. Research shows that many of the Agency/AHS distressed housing sales have occurred with properties purchased at or near the height of the most recent housing bubble. 5. Conduct a review of policy goals as it relates to down payment assistance loans and the provision of home ownership. In cases 2 and 3 above, the intent would be to acquire the property with the goal of rehabilitating it and re-renting it to an income eligible tenant in order to recoup a portion of the Agency/AHS lost investment. This would be followed by a resale of the property at a point in the future to an income eligible buyer once the market is more favorable to single-family home ownership. Any potential acquisition would first be analyzed to confirm which properties would require the least capital investment and the fastest repayment of costs incurred through any potential rental income. This would require that AHS seek qualified outside property management and maintenance services or create those skill sets internally. Please note this situation is not unique to the Agency/AHS. Several redevelopment and housing agencies throughout the country are dealing with this issue in the aftermath of the real estate downturn and recession that followed. Furthermore, the recommendations identified above are contingent upon the availability of Low-Mod Funds which may be scarce due to anticipated budget constraints. Over the course of the next reporting period, AHS will work on the following monitoring activities: • Cross check the loans identified in this report with the covenants that are being monitored separately to confirm the loans are active and in compliance with its funding source. • Track and identify the funding source for each loan and apply them to AmeriNational's funding report. • Track any monthly program income created through loan repayments. • Retrieve and forward active loans to AmeriNational for reporting and management purposes. • Identify and document those loans that are no longer in effect and determine their impact on the overall portfolio. • Initiate verification of borrower compliance with AHS loan provisions through mailings, spot site visits, and other monitoring activities. Implement any of the above referenced policy recommendations that are approved. Updated: 1/5/2012 by Mayra Ochiqui A Packet Pg. 603 1462 ENVIRONMENTAL IMPACT: This item does not meet the definition of a "project" under Section 15378 of the California Environmental Quality Act ("CEQA"), which states that a "Project' means the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. Supporting Documents: Updated: 1/5/2012 by Mayra Ochiqui A