#5 Rental Rehab Cover Memo
NEIGHBORHOOD SERVICES MEMORANDUM
May 14, 2012
TO: Community Development Authority
FROM: Carrie Clark, Housing Financial & Rehabilitation Specialist
SUBJECT: Agenda Item 5–Policy & Procedure Manual for the Rental Rehabilitation Program.
Summary
At the April, 2012 CDA Meeting, revisions to the Rental Rehabilitation Program modifying the loan
terms of the Program were approved by the CDA. Following approval of these changes, staff has
developed a revised Rental Rehabilitation Program manual incorporating these changes. The manual
also includes revisions required by the HOME Program and some additional policy revisions proposed
by staff. Staff believes that incorporation of the proposed revisions, along with the new loan terms,
with provide an attractive Program and financing tool for property owners, minimize our risk by firming
up underwriting guidelines and ensuring a consistent return of Program funds for the continuation of
the Program, and provide staff with a tool to implement all Housing Programs consistently and
efficiently.
Background
The following table provides a recap of the changes that were approved last month. For the benefit of
our newest members, I have also included the terms of the “old” Program:
Criteria/Component “Old” Program Current Program
Per Unit Loan Limit 14,999.00 14,999.00
Max Units Borrower May Apply No set limit 8
for Funding
Payment Deferral Yes, 5 years Yes, during construction, plus 90-
day lease-up period
Payment Deferral Interest Rate 0% 0%
Interest Rate 5% at end of 5 th year of loan Prime +1% (currently 4.25%) first
of the month following project
completion, plus 90-day lease-up
period.
Loan Amortization 10-years (all borrowers) 10-years – borrowers 80-100%
County median income
15-years – borrowers less than
80% County median
Late Payment Fee $3.00 $25.00
Borrower Credit Review Yes, mortgage of proposed unit Yes, all mortgages, lines of
credit. Must be current.
Property cash-flow analysis Yes, subject property only Yes, all rental property. Plus
profit/loss and replacement
reserve evaluation.
HOME Affordability Period 5 years 5 years (subject to HOME limits)
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The new loan terms have been incorporated into Chapter 4, Loan Types, Terms, and Conditions (page
19) of the manual.
The HOME Program is the major source of funding for the Rental Rehabilitation Program. Rental
Rehabilitation Programs funded with HOME dollars have several HOME Program regulatory
requirements that must be met including: Maximum Home Investment, HOME Rent, Affordability
Period, and Eligible Tenant. Definitions of each of these terms have been incorporated in to the manual
in Chapter 2, Definitions, as well as into their respective, applicable areas of the policy manual.
The Maximum HOME Investment is the maximum amount of HOME dollars that can be invested, per
unit, in a project per HOME regulation. The per-unit maximum limits are set annually by the US
Department of Housing and Urban Development (HUD). The requirement has been incorporated into
Chapter 4, Maximum Loan Amount (page 18).
The HOME Rent is the maximum amount of rent and utilities that a property owner can charge an
eligible tenant residing in a HOME-assisted unit per HOME regulation. These limits are set annually by
HUD. This requirement has been incorporated into Chapter 4, Loan Types, Terms , and Conditions (page
20).
The Affordability Period is the minimum period required by an property owner of a HOME-assisted unit
to offer the improved unit to a low-moderate income tenant at HOME rent levels. The period is
determined by the amount of HOME dollars invested per unit and these levels are set by HOME Program
regulation. This requirement has been incorporated into Chapter 4, Loan Types, Terms, and Conditions
(page 20).
The HOME Program defines an Eligible Tenant as a low-moderate income household that earns no more
than 60% of the County Median income as adjusted for household size. The income limits applicable to
the HOME Program are set annually by HUD. Incorporation of this requirement has been inserted into
Chapter 3, Eligibility (page 11) and Chapter 4, Loan Types, Terms, and Conditions (page 20).
Staff is also proposing changes to the policy and procedure manual that will make it consistent with
other Neighborhood Services Housing Programs, including the Home Improvement and Down Payment
& Closing Cost Programs. Currently, a review of Criminal History records is required of all owner-
occupants applicants to the Home Improvement Program and potential homebuyer applicants to the
Down Payment & Closing Cost Program. Applicants to these Programs must not have been involved in
drug-related for a period of 3 years prior to their application or registered as a sexual offender in the
State of Wisconsin Department of Corrections Registry. Staff is proposing to extend this review to rental
property owner-applicants. A definition of Drug-Related Criminal Activity and Sexually Violent Criminal
Activity has been incorporated into Chapter 2, Definitions and into Chapter 3, Eligibility.
An additional policy revision proposed by staff is the related to the bidding process and award of
contract. Currently, when staff reviews competitive bid proposals submitted for Rental Rehabilitation
projects with the property owner, the property owner has had the discretion to select the contractor of
their choice without regard to whether the bidder was low bid, high bid or somewhere in between.
Staff is proposing that we incorporate a requirement that the property owner be required to select the
lowest competitive bidder and the level of assistance based upon the lowest bid. The property owner
would still have the option to select the contractor or bidder but would have to contribute their own
funds towards the difference between low bidder and their selected bidder/contractor. Staff is
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proposing this change to be consistent with the Lead Hazard Reduction Grant Program as well as to
make an effort to lower Program costs. This change has been incorporated into Chapter 5, Application
Processing (page 26-27).
Action
Staff is recommending that the CDA review and approve the changes to policy and procedure manual as
proposed. Staff feels the proposed policy revisions to be reasonable and consistent with other Programs
and work to achieve the goals of the CDA with respect to affordable housing creation and retention. A
motion to approve the policy and procedure manual would be in order.
Cc: Jennifer Petruzzello, Neighborhood Services Director
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