04-23-1998 - Laserfiche WebLink

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To: Economic Development Commission Members From: Steve Dorgan, Housing Inspector MEMORANDUM Subject: Proposed Loan Program Date: April 16, 1998 BACKGROUND At the EDC meeting on March 26,the commission directed staff to submit a proposal for a home improvement loan program. Based upon the meeting, it has been determined that the amount of tax increment financing funds(TIF)available is insufficient for a program which would be sponsered entirely by the city. Staff has been evaluating programs which would attract the most reinvestment activity per dollar avaialble. Staff and lenders have concluded that an interest rate subsidy approach would be the most effective use of TIF funds. This program would involve the city subsidizing a portion of the loan interest by offering interest subsidies with tax increment funds to a rate of 4-6%as an incentive to stimulate home improvement within the city. HOME IMPROVEMENT LOAN PROGRAM Staff has been working with the Minnesota Housing Finance Agency(MHFA), Western Bank and the Center for the Energy and the Environment(CEE)to develop a proposal for an interest subsidy loan program for Mounds View homeowners. Because of insufficient TIF funds available,the city will need to rely on other funding sources for loans and provide subsidies to interest rates for loans issued through other lending sources. The EDC directed staff to develop a program with no income limits. This guideline would create a significant financial obligation for the city by subsidizing market rate loans(9%-13%rates). Particularly for loans not offered through an existing MHFA loan program(2%-8%rates). At this time, homeowners in the city have access to home improvement loans through the MHFA"Fix-up Fund"with interest rates between 2%-8%for homeowners with a maximum adjusted annual household income of $49,000. The city may also apply to MHFA for participation in the"Community Fix-up Fund"program. Under this program,the adjusted annual household income limit is increased to$69,920. However,the city must identify a specific need/objective for this program (i.e.homes built before 1965). The city should apply for these funds at this time so that MHFA can process the application and make funds available. MHFA program applications take approximately 30 days to process. Attached is a copy of the Community Fix-up Fund application for review. Staff has recently discussed options which would attempt to provide low-interest loans to all homeowners of the city with both Western Bank and CEE. Some of the concerns expressed include the significant expense to the city as a result of loans made to borrowers who do not qualify for MHFA programs. These loans will require a subsidy of a market rate loan over a potential 10-20 year period. This would be a significant expense to the city,and most likely deplete the subsidy funds in a short period of time. Particularly if the city is attempting to buy down a market interest rate of say 10%to a targeted 5% rate. In lieu of these circumstances and the limited amount of TIF funds available for a housing loan program, it may be suggested that a program be established which would buy down lower than average rates which already exist through the MHFA programs. In addition,as an attempt to provided subsidies for homeowners not qualifying for MHFA loans, provide a proportionate subsidy to