TO: Mayor and Members of City Council
THRU: Kelly Olivera, Assistant City Manager
FROM: Christopher Cauley, MPA, Director of Economic and Community Development
Jeffery Morin, Housing Program Manager
DATE: September 5, 2024
RE:
Title
Homeownership Program Loan Forgiveness
end
COUNCIL DISTRICT(S):
Council District(s)
All
b
Relationship To Strategic Plan:
Goal 2: Responsive city government supporting a diverse & viable economy
Goal 3: City investment in today & tomorrow
Goal 4: Desirable place to live, work, & recreate
Goal 5: Financially sound city providing exemplary city services
Executive Summary:
The Economic and Community Development Department (ECD) currently offers grants and forgivable loans to help rehabilitate properties for seniors and assist first time homebuyers with downpayment assistance. In the past, both programs operated as loans with lengthy repayment periods. The status of all loans within this portfolio has been reviewed by ECD staff. Staff has determined that the costs of managing the loan portfolio outweighs the benefits to the City’s financials and ECD, Finance, and Legal are recommending a broad loan forgiveness program.
Background:
The ECD currently offers grants for the emergency repair of the primary residence for low-income homeowners. Typically, these program beneficiaries are seniors on fixed income and the program is offered through Fayetteville Urban Ministry and Fayetteville Area Habitat for Humanity. The ECD also operates a Homebuying HERO program that structures up to $30k in down payment assistance as a forgivable loan for a maximum of 15 years.
ECD previously offered three (3) different housing loan programs (Mortgage Assistance, Down Payment Assistance, and Rehabilitation Loans) that are no longer in use. Some of these programs carried a maximum term of 30 years and reconciliation of these programs and the loans found discrepancies of various types (variance between loan documents and invoices; unresolved foreclosures, bankruptcies, and deaths; delinquent accounts).
Issues/Analysis:
Several years ago, Finance and ECD contracted with a 3rd party loan servicer for loans that required repayment. Some loans were kept inhouse at ECD. A review of all loans has required extensive staff time from multiple departments and will continue to require substantial staff time monthly and annually to keep them up to audit standards.
If forgiveness is granted, staff (ECD, Legal, Finance) will closeout all remaining loans, dozens of low- to moderate-income residents of Fayetteville will have a financial burden removed and now be more financially secure homeowners, and City resources will be freed up from the task of managing and overseeing the no-longer-used programs and loans.
Budget Impact:
Loan servicing costs the General Fund $15K to $20K per year. Payments received from loans produce an average of $50K per year in Grant Funds. Forgiving the loans will result in a small General Fund savings and a slight decrease to Grant Funds.
Pursuit of delinquent accounts, past foreclosures, and disputed estates will cost a substantial amount in staff time and legal fees at the expense of taxpayers and low-income homeowners.
Options:
• Instruct ECD, Finance, and Legal to forgive the remaining balance and close out the loans.
• Instruct ECD, Finance, and Legal to work with AmeriNat to collect active payments and attempt to collect on delinquent debts through foreclosure, debt setoff, or credit collection.
• Instruct ECD, Finance, and Legal to develop an application and policy detailing for a hardship program.
• Instruct ECD, Finance, and Legal to take no increased action resulting in remaining delinquent debt, continued staff time to monitor and manage the loans.
• Direct Staff to some other action.
Recommended Action:
Staff recommends that City Council give consensus direction to begin forgiving the remaining balance and closing out loans.
Attachments:
Homeownership Program Loan Forgiveness Presentation