CITY COUNCIL AGENDA MEMORANDUM

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1 City and County of Broomfield, Colorado To: From: Prepared by: CITY COUNCIL AGENDA MEMORANDUM Mayor and City Council Charles Ozaki, City and County Manager Cheryl St. Clair, Housing Program Manager Kevin Standbridge, Deputy City and County Manager Meeting Date Agenda Category Agenda Item # June 12, 2012 Council Business 9 (d) Agenda Title: Proposed Resolution No Approving an Agreement with FirstBank for the Home Repairs Program Summary The existing Broomfield home rehabilitation program offers deferred or forgivable no-interest loans to low and moderate income homeowners, but is limited to owner-occupied housing. The continuation of the program relies on Community Development Block Grant (CDBG) funding received from the U.S. Department of Housing and Urban Development. There is also some need for owners of rental properties to repair and rehabilitate properties for various reasons, including, addressing code compliance violations, or making accessibility modifications to their properties to meet the needs of their renters. FirstBank has recently developed a rehabilitation program focusing on low and moderate income homeowners and renters, in an effort to provide low-interest loans for home repairs, upgrades and modifications. FirstBank would like to provide this loan program in conjunction with Broomfield s rehabilitation program. The FirstBank program would be an extension of, and structured similarly to, the current rehab program but would allow Broomfield staff to accept applications from landlords of rental housing in specific low and moderate income census tracts, in addition to owner-occupied housing. Staff would then proceed with inspecting the property, overseeing the construction and paying the contractors. Proceeds for construction, servicing and risk for the loans to the property owners would be assumed by FirstBank, with a fee paid from the loan to Broomfield for the services provided. Since the FirstBank program also allows for owneroccupied rehab, if demand for the Broomfield program exceeded the available CDBG funding, Broomfield could continue to offer the rehabilitation program with FirstBank funding. By entering into the proposed agreement with FirstBank, the Broomfield Housing division, utilizing the current staff, can offer another option to the community to further Council s priority of maintaining the Broomfield housing stock and neighborhoods, without any further financial commitment by the City and County of Broomfield. Proposed Resolution No would approve an agreement with FirstBank, authorizing participation in the Home Repairs Program. Prior Council Action Council approved the Consolidated Plan for HOME Investment Partnership Program (HOME) and CDBG funds and the 2010 housing action plan, including Broomfield s single-family and mobile home rehabilitation program, on January 26, 2010 (Resolution No ). The action plan was subsequently approved by HUD. Council approved the 2011 Action Plan on December 7, 2010 (Resolution No ). The 2012 Action Plan was approved by Council on December 13, 2011 (Resolution No ). Financial Considerations The FirstBank program would be administered with current staff; no additional financial commitment would be needed from Broomfield. Alternatives Do not enter into the agreement with FirstBank. Proposed Actions/Recommendations It is recommended That Resolution No be adopted. 9 (d) - Page 1

2 Agreement with FirstBank for the Home Repairs Program Page 2 BACKGROUND In 2010, the City Council approved the implementation of a Home Rehabilitation Program, which is funded utilizing dollars from the Community Development Block Grant (CDBG) allocation Broomfield receives annually from the U.S. Department of Housing and Urban Development (HUD). Homeowners who are below 80% of the area median income are eligible for a deferred or forgivable, no interest loan to rehabilitate their home. The program addresses, first, health and safety issues such as electrical, plumbing, roofing, heating, smoke and carbon monoxide detectors and flooring, and then addresses any other needs such as accessibility and energy efficiency. The program began accepting applications in 2011 and, to date, eighteen homes have been completed and four homes are in various stages of application and/or construction. FirstBank has developed a home repair program to work in partnership with existing agencies that provide rehabilitation services to their communities. FirstBank has asked the City and County of Broomfield to be a participating agency. Broomfield staff would initially screen the applicants, oversee the construction or rehabilitation process, and monitor the draws of the loan proceeds. FirstBank originates, holds, services, and takes all risks for the loans. Currently, the City of Arvada is operating the program with FirstBank, doing both rental and owner occupied homes. Arvada is using their CDBG funding to serve the lowest income, senior and disabled population with no interest loans, and then utilizing the FirstBank funding to meet the needs of the moderate income homeowners and rental property owners. Arvada city staff has been very pleased with the outcome, thus far, of the program and the working relationship with FirstBank. The FirstBank Home Repairs Program provides funding for repairs and energy saving improvements to homes owned or rented to low and moderate income borrowers, or homes located in low to moderate income census tracts. Eligible properties include single-family homes, condominiums, townhomes, multi-family homes, duplexes, and modular homes or manufactured homes on permanent foundations. Borrowers must meet the loan and underwriting criteria of FirstBank, using standards such as 12 months of reliable income history, monthly obligations ratios, and maximum loan to value ratio of 90%. Loan proceeds would be used exclusively for improvements to the property, and eligible work may include: roofing, heating, electrical, structural, gutters, painting, flooring, doors, window insulation and plumbing. The maximum loan amount would be $50,000 and the term of the loan either five- or 10-year with interest rate fixed based on current prime plus.50%. Loans would be amortized over the term, with borrowers making monthly payments. There would be no pre-payment penalty. FirstBank will not charge the borrowers any origination, underwriting, appraisal, processing or collection fees; however, FirstBank would allow Broomfield to include a fee for the construction oversight into the loan. FirstBank would also allow Broomfield to subsidize the loans on behalf of the borrower. 9 (d) - Page 2

3 Agreement with FirstBank for the Home Repairs Program Page 3 There is no liability to Broomfield for the FirstBank program. Broomfield staff would be acting as an agent for FirstBank. FirstBank would approve the construction estimates with a 20% contingency built in, and Broomfield staff would oversee the rehabilitation and disburse funds to the contractors once construction is complete and all permits have been cleared. Any loan proceeds not needed to pay for the improvements will be returned to FirstBank and applied against the outstanding loan balance. The Broomfield home rehabilitation and mobile home repair program, currently being operated through the Housing division, assists low and moderate income owners of singlefamily housing and mobile homes in Broomfield, with the opportunity to rehabilitate and repair their homes with a zero interest deferred or forgivable loan. By expanding the current housing program to include the FirstBank partnership, the program can offer a loan option to owners of rental housing to improve and rehabilitate their rental units. The units must be rented to low-income families or be located in a qualified census tract, as defined by the Department of Housing and Urban Development. The funding for the existing rehabilitation program comes from HUD through CDBG, and the allocation to Broomfield for 2012 is $184,737. This funding allows approximately eight to 10 owner-occupied homes to be rehabilitated each year, as well as funds the Housing Counseling Program, and would also fund any incentive programs with private rental property owners to purchase, rehabilitate, and keep rental units affordable. If the demand for the existing single-family rehab program exceeds the available funding, Broomfield would be able to continue offering a similar rehabilitation program to the Broomfield homeowners through the FirstBank program. An option for a future year s program could be that Broomfield uses the current CDBG funds to write down the interest rate to zero on the FirstBank loan rather than using the funds for the actual construction costs, thus further leveraging the limited CDBG funds. If the program is approved, Broomfield staff and FirstBank will work together to develop a marketing strategy and outreach to owners of rental property for the program. With the addition of this Home Repairs Program, Broomfield would add another opportunity and service to the citizens of the community. PROPOSED RESOLUTION NO Proposed Resolution No would approve an agreement with FirstBank to participate in the Home Repairs Program. Broomfield staff would pre-screen applicants and manage the home rehabilitation. Funds for the repairs would be provided to Broomfield by FirstBank, after the closing, and Broomfield would disburse to the rehabilitation contractors. The agreement, attached to proposed Resolution No , specifies the responsibilities of Broomfield and FirstBank. The agreement has no specified term and can be terminated at any time by either party.. 9 (d) - Page 3

4 RESOLUTION NO A RESOLUTION APPROVING AN AGREEMENT BETWEEN THE CITY AND COUNTY OF BROOMFIELD AND FIRSTBANK FOR THE HOME REPAIRS PROGRAM BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY AND COUNTY OF BROOMFIELD, COLORADO: Section 1. The agreement attached hereto by and between the City and County of Broomfield and FirstBank for the Home Repairs Program is hereby approved. Section 2. The mayor or mayor pro tern is authorized to sign and the city and county clerk to attest the agreement, in form approved by the city and county attorney. Section 3. The resolution is effective upon its approval by the City Council. APPROVED ON June 12, 2012 THE CITY AND COUNTY OF BROOMFIELD, COLORADO Mayor City and County Clerk APPROVED AS TO FORM: City and County Attorney 9 (d) - Page 4

5 HOME REPAIRS PROGRAM AGREEMENT THIS HOME REPAIRS PROGRAM AGREEMENT ("Agreement") is entered into as of this 30th day of May, 2012, by and among FIRSTBANK, a Colorado banking corporation, with an address at 8800 Wadsworth Boulevard, Westminster, CO ("FirstBank") and City and County of Broomfield, with an address at 1 DesCombes Drive, Broomfield, CO (the "Agency"). RECITALS: A. FirstBank has established a loan program to extend to: (i) low-to-moderate income borrowers; and/or (ii) borrowers that own or rent housing in low-to-moderate income census tracts or Section 8 housing, loans to finance necessary home repairs and energy saving improvements (the "Home Repairs Program"). The eligible borrowers, eligible properties and eligible repairs/improvements are set forth on the Product Guideline attached hereto as Exhibit A and incorporated herein by this reference. B. In connection with the Home Repairs Program, the Agency has agreed to prescreen potential borrower applicants (each a "Borrower") prior to such potential Borrower submitting a loan application to FirstBank, all as set forth herein. The Agency has also agreed to act as construction manager and disbursing agent with respect to all loans extended under the Home Repairs Program by FirstBank to a Borrower pre-screened by the Agency. C. The purpose of this Agreement is to set forth the duties and obligations of the Agency under the Home Repair Program and the terms and conditions of the relationship between FirstBank and the Agency with respect thereto. NOW, THEREFORE, in consideration of the recitals set forth above, the promises herein contained, and for valuable and other consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Pre-Screening of Potential Applicants. As a participating organization in the Home Repairs Program, the Agency hereby agrees to do the following: 1.1 Pre-screen potential Borrowers, analyzing each Borrower's eligibility to borrow funds under the Home Repairs Program, and pre-qualify a Borrower based on the underwriting criteria furnished by FirstBank to the Agency; 1.2 Refer to a FirstBank loan officer potential Borrowers who, based on the Agency's pre-screening, would qualify for a loan under the Home Repairs Program; and 1.3 Assist FirstBank loan officers with the collection of information required to underwrite loans to Borrowers, as more specifically described in the "Origination Procedures" set forth in the Product Guidelines attached hereto as Exhibit A and in the { ; 9 (d) - Page 5

6 Loan File Checklist attached hereto as Exhibit B and incorporated herein by this reference. Notwithstanding the forgoing, FirstBank shall not be obligated to approve any Borrower applicant or fund any loan under the Home Repairs Program if any Borrower applicant is not eligible to participate in the Home Repairs Program or fails to qualify under FirstBank's underwriting criteria, in FirstBank's sole and absolute discretion. 2. Construction Draw Account. Upon the closing of each loan from FirstBank to a Borrower referred by the Agency, FirstBank shall disburse the loan proceeds in the form of a cashier's check payable to the Agency on behalf of the Borrower. The Agency shall deposit the loan proceeds into a deposit account at Lender (unless otherwise agreed by the parties) (the "Construction Draw Account"). The Agency must have exclusive control over such Construction Draw Account. The Agency shall and hereby agrees to be solely responsible for disbursing funds from the Construction Draw Account to subcontractors engaged to perform those repairs and improvements as approved by FirstBank for funding. If the Agency fails to act as disbursing agent for any loan or fails to properly and timely disburse loan proceeds for any project, then upon the request of FirstBank, the Agency shall execute a pledge of the Construction Draw Account for the benefit of FirstBank ("Pledge"). 3. Construction Management. The Agency hereby agrees to act as the construction manager in connection with each repair/improvement project funded by loan proceeds disbursed to the Agency for the benefit of a Borrower under the Home Repairs Program. Accordingly, the Agency hereby agrees to do the following: 3.1 Engage, approve and supervise all subcontractors performing the work for each project; 3.2 Act as the disbursing agent for the loan proceeds, reviewing all applications for payments, invoices and receipts submitted by subcontractors performing the work and disbursing funds directly to subcontractors to pay for the project costs; 3.3 Periodically inspect and approve the work performed by the subcontractors and in any event perform an inspection in connection with each application for payment submitted by a subcontractor; 3.4 Obtain from each subcontractor an appropriate lien waiver in connection with any payment to a subcontractor; 3.5 Upon a final inspection of the repair/improvement project by the Agency or its designee, submit to FirstBank a reconciliation of the project budget with the actual project costs and a certificate of approval/completion of the home repairs/improvements; and 3.6 Issue a certified check to FirstBank in the amount of any remaining funds in a Construction Draw Account following completion of the repairs/improvements, which funds shall be applied by FirstBank to pay down the loan balance owed by the Borrower. { /3} 2 9 (d) - Page 6

7 4. Subsidies. FirstBank understands that the Agency may subsidize loans to Borrowers under the Home Repairs Program. If the Agency subsidizes any loan, regardless of the structure of such subsidy or the Agency's expectation of repayment from a Borrower, the Agency acknowledges and agrees that the Agency will not receive from FirstBank out of the loan proceeds a refund of any amount subsidized by the Agency. 5. Default. In the event the Agency is in default of any term or provision set forth in this Agreement, FirstBank shall provide notice of such default and the Agency shall have ten (10) days after receipt of such notice in order to cure the default. If the Agency fails to cure the default, FirstBank, in addition to any other remedies to which it is entitled under law, shall have the right to exercise any and all remedies provided in the Pledge (if any) of any Construction Draw Account, including exercising control over the Construction Draw Account. 6. Hold harmless. The Agency hereby agrees to hold harmless FirstBank and its shareholders, directors, officers, employees, representatives, agents, successors and assigns, from any and all claims, damages, assessments, liabilities costs and expenses (including attorneys' fees) arising out of or related to the Agency's breach of this Agreement. 7. Miscellaneous. 7.1 This Agreement shall be governed by the laws of the State of Colorado. 7.2 This Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. 7.3 This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 7.4 This Agreement sets forth the entire agreement of the parties with respect to the subject matter. It may not be amended, and no provisions hereof may be waived, absent a writing signed by all parties hereto. 7.5 In the event any party is required to enforce this Agreement in a court of law, the prevailing party shall be awarded its fees and costs, including attorneys' fees, incurred in the prosecuting of such action, from the non-prevailing parties. [Remainder of Page Intentionally Left Blank] 1 5 t 3; 3 9 (d) - Page 7

8 This Home Repairs Program Agreement is executed on the day and date first above written. a f--- C tit.3l r^ /1 By: Name: Title: FIRSTBANK, a Colorado banking corporation { / 3) 4 9 (d) - Page 8

9 EXHIBIT A PRODUCT GUIDELINES { / 3) 5 9 (d) - Page 9

10 FirstBank Home Repairs Program Product Guideline Purpose: Eligible Borrowers: This Program will provide funding for repairs and energy saving improvements to homes owned or rented to low to moderate income borrowers, or homes located in low-to-moderate income census tracts or designated as Section 8 Housing. Each borrower must be either: 1.) a low- to moderate-income borrower, or 2.) a borrower that owns an owner-occupied or investment property in a low- to moderate-income census tract or owns rental property designated as Section 8 housing. o o a o ID The borrower must have at least 12 months of reliable income history. Net worth will not be a primary consideration, but should at least be zero or above. The borrower's total monthly obligations should not exceed 40o and borrowers The borrrower's are required to have at least three active tradelines reported on their credit reports, with no late payments beyond 30 days or other derogatory information. if a borrower does not have three active tradelines reported on their credit report, they must provide alternative credit references (phone bill, utility bill, etc.) proving 12-months of timely payments. This program is limited to one loan per property or borrower at any point. If a borrower repays an outstanding loan booked under this program, they would again be eligible to re-apply to the program for another qualifying property. Eligible Property: Eligible Repairs or Improvements: Single family homes, condominiums, townhomes, multifamily homes, duplexes, modular homes or manufactured homes on permanent foundation taxed as real property. Properties must be located in the FirstBank trade area which includes all Colorado communities that FirstBank serves. Loan Proceeds shall be used exclusively for improvements to the property in the nature of 9 (d) - Page 10

11 rehabilitation and renovation of the property, conditions posing health and safety concerns, and general property improvements. Work eligible under this program may include, but is not limited to, the following: roofing, heating, electrical, structural, gutters, painting, floor coverings, ceramic tile, doors, windows, insulation, storm doors, lead hazard controls, and plumbing (water heaters, kitchen sinks, bath fixtures, drains, and distribution lines). A representative from the participating agency will inspect the property to prepare a written list of improvements to be undertaken with the proceeds of the Loan or can accept a sufficient description of work submitted by the applicant. The agency representative will provide FirstBank with a list of the approved improvements and a cost estimate in order. FirstBank, in its discretion, will accept or deny the application and so notify the borrower and agency representative. income Threshold: For properties designated as low- to moderateincome housing by census tract or Section 8 designation, there is no income threshold for this program. For properties not designated as Section 8 housing or located in low- to moderate-income census tracts, the borrower income will be limited to 80% of the HUD Median Family income. Income is established by the currently demonstrated income, excluding overtime, shift bonus, commission and bonus income that have not been earned consistently for the most previous 2-year period with a strong likelihood of continuance. Loan Amount: Term: Interest Rate: Loan to Value: Each loan originated under the program will be limited to $50,000 or less. 5-year term or 10-year term. Interest rate for 5-year term will be a fixed rate based on the most current Wall Street Journal Prime. 0%. Interest rate for 10-year term will be a fixed rate based on the most current Wall Street Journal Prime T 0.50'%. A floor rate of 5`x will apply for both options. Maximum Combined Loan to Value 90% of the taxassessed value for both the 5-year tern, option and 10-year term option. For condominiums, townhouses, modular homes, and manufactured homes, loan-to-value will be limited to 70% 9 (d) - Page 11

12 the tax-assessed value. Prior deeds of trust filed against the subject property should not show any terms that would allow the loan amounts to increase above the original note amount. If the improvements proposed are substantial, and there is evidence to suggest that the value of the property would be significantly impacted by the improvements, FirstBank may increase the loan-to-value limitations at its discretion. Repayment: Loan Fees: Loans must be fully amortized over the loan term. There is no pre-payment penalty. FirstBank will typically not charge the borrowers any origination, underwriting, appraisal, processing, or collection fees. Each agency may add their typical loan processing fees and these fees may vary from agency to agency. These fees may be financed with the loan as an allowable cost, but should not exceed $400. Origination Procedures Application: All borrowers must meet with a participating agency staff person prior to applying for this program. The participating agency will prescreen the applicant. Based on their initial underwriting and opinion that the borrower would qualify under FirstBank underwriting criteria, the agency will refer them to a FirstBank officer. The FirstBank officer will complete the application with the borrower and collect HMDA related information. Officer shall collect the following referring agency: from the o Verification of low-to-moderate income or property status Evidence of hazard insurance o The description of work and cost estimates Q Ownership and Encumbrance report o Estimate of proposed property value after repairs, renovations, and repairs are completed o A recommendation of the borrower by the participating agency o Any other supporting documentation available. 9 (d) - Page 12

13 Processing: FirstBank will perform review of the submitted file to ensure that the loan application, subject property, and proposed repairs will qualify for the approved Home Improvement Loan Program. FirstBank will provide borrower with initial disclosures for their loan request. A loan approval is usually issued within 48 hours, or less. Any remaining documentation requirements will be detailed. Final loan documents are to borrower by FirstBank. it will be required that the borrower establish a deposit relationship at FirstBank, and all payments for the loan will be automatically withdrawn from their FirstBank account. All outstanding items must be cleared prior to funding. Closing: For loans subsidized by the participating agency, the agency will pay to FirstBank, at the time of loan closing, funds in the amount of the difference between the agency-approved loan interest rate for an applicant and the annual interest rate committed to by Funding Partners. In the event a loan applicant prepays a subsidized loan, the participating agency will not be entitled to a refund from. FirstBank for that portion of the interest subsidy. FirstBank will release 100ti of the loan amount to the participating agency when the loan is consummated. The participating agency should disburse these funds as they monitor the construction project. If there are any funds remaining after construction is complete, the funds must be returned to FirstBank to be applied back to the principal balance. Repair Period: Post Closing: The originating agency will act as general contractor for the repairs. All work by subcontractors will be engaged, approved, and supervised by the participating agency. The participating agency will be responsible for using loan proceeds to disburse to subcontractors directly for the cost of the approved repairs. Upon final inspection, the participating agency must submit to FirstBank a certificate of approval/completion of home improvements by the participating agency. 9 (d) - Page 13

14 EXHIBIT B LOAN FILE CHECKLIST ( / 3) 6 9 (d) - Page 14

15 FirstBank Home Repairs Program Loan File Checklist Please fax or mail the following documents to FirstBank for review and processing: Ownership and Encumbrance Report Homeowner's Insurance Information Construction Cost Estimate Estimate of Current Property Value Estimate of Proposed Property Value after Improvements For low-to moderate-income applicants: Verification of income One of the following: One month paystubs Most recent year W2 Most recent year tax return* For low- to moderate-income property: Verification that housing is affordable to low- to moderate-income borrowers One of the following: Documentation of Section 8 Designation Documentation that home is in a low- to moderate-income census tract Documentation that property is a rental property with below market rents to specifically attract low- to moderate-income tenants Copy of current lease (s) if subject property is non-owner occupied. Self-employed borrowers should include recent (within 6 month) business balance sheet, year-to-date profit and loss and their most recent business tax return. Please contact FirstBank with any questions. Leah Dirks Vice President - Littleton 9409 S. University Boulevard Highlands Ranch, CO Direct: (303) Fax: (303) Jake Wuest Banking Officer - Arvada 6355 Ward Road Arvada, Co Direct: (303) Fax: (303) (d) - Page 15