The Section 108 Loan: New Opportunities for Affordable Housing and Neighborhood Stability

Department of Planning and Development June, 2008

The Foreclosure Problem

 Providence hardest hit municipality in Rhode Island  Foreclosures significant impact quality of life; completed and planned neighborhood investment; and property values  1571 properties foreclosed from January 2006 to April 2008   23.9% are Owner Occupied 76.1% are Investor Owned  Vacancies are highly visible and concentrated in the West End, Olneyville, Silver Lake, North End and the Southside neighborhoods 2

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What is being done?

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Foreclosure Prevention and Counseling

 Mortgage Relief Fund  Soft Second to buy down equity  Legislation  Vacant Property Penalty  Vacant property listing  Boarding, maintenance and demolition 4

What assistance is available?

 HOME program - caps on per unit investment has been raised by 20% from to $50k to $60k  Lead Hazard Reduction Program per unit limits are raised from $7,500 to $13,500  Closing Cost Assistance raised from $2,000 to 10% of purchase price  No interest soft second mortgage for renovation of foreclosed housing to be used by owner occupants

With out additional funds, little can be done to address the problem of the vacant housing because of foreclosure!

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What is proposed?

A $10 million Section 108 loan

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What is Section 108?

Part of the CDBG program, but:  governed by its own program rules which are geared to economic development  not all CDBG activities are eligible  public service and administration are not allowable activities or expenses.

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The 108 Program – eligible activities

      Property Acquisition & rehabilitation 24 CFR 570.703 (a) (h) Assistance to acquire property to be rehabilitated for use or resale for residential purposes 24 CFR 570.703 (h) references 570.202

Loans for refinancing secured by a building rehabilitated with CDBG funds when the applicant for the loan meets credit and underwriting standards 24 CFR 570.703 (h) Energy Efficiency Improvements 24 CFR 570.703 (h) Community Economic Development projects 24 CFR 570.703 (h) (2) reference 570.204 Clearance and demolition 24 CFR 570.703 (e) 7

Proposed use of the 108 Funds

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Rehab loans to homeowners buying formerly foreclosed, vacant houses – interest rate is 0% to 5%, No-payment until property is sold, 10% forgivable

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10% Down payment loans for homeowners of rehabbed and formerly foreclosed houses – interest rate 0% to 5%, No-payment until property is sold

 Refinancing support through “Gap Financing” – Loans to homeowners

refinancing to avoid foreclosure – interest rate 0% to 5%, no payment until property is sold, loan is made in conjunction with an approved refinancing product

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Rehab loans to developers to rehab formerly foreclosed, vacant houses for resale to homebuyers - interest rate 0% to 5%, no-payment until house is sold

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Strategic Property Acquisition: for rehab and re-sale as housing.

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Boarding of vacant housing and regular lot cleaning with first lien position.

 Demolition: Selective demolition of houses “beyond salvation.” 8

How will the loan programs work?

 Programs will be marketed citywide!

  Brochures, newspaper ads, web page Information packages will be available in libraries, community centers, municipal offices  Applications will be available through the web page, municipal offices, CDCs, RIH and the Housing Network  Applications will be processed on a first come/first serve basis  Applications will be reviewed and approved based on established underwriting criteria (Credit Score 650+) 9

Ongoing Efforts

 Continue to collect data and analyze trends  Continue dialogue with financial institutions to create financing programs  Work with organizations like the Federal Reserve Bank and Neighborhood Works America to establish new funding sources for acquisition and rehabilitation of foreclosed properties  Enforce minimum housing and environmental codes to ensure safety and maintenance of property and the neighborhoods.

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Proposed Federal Foreclosure Aid To Cities and Towns

[1]  House 5830 and Senate 3221 passed within the last two weeks  Similar in terms of eligible activities  Funds run through the state in the House bill and through the cities in the Senate bill  Loan/grant scenarios are different 11

Proposed Federal Foreclosure Aid To Cities and Towns

[1]  Potential programs (Note: Assumes that all CDBG activities will be eligible under 24 CFR 570.200)         Proposed public service activities Foreclosure Prevention and Counseling Foreclosure Prevention Gap Financing (loan pool) Code Enforcement Activities Loan Loss Reserves (loan pool) Project Based Rental Assistance Down payment and Closing Cost Assistance Tenant Relocation and damage deposit assistance  [1] Based on Summary of Federal Proposals prepared by Citizen’s Housing and Planning Association (4/11/08) 12