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Housing Program Memo
<br /> December 8, 2011
<br /> Page 3
<br /> Program Design Options
<br /> There was much discussion about program design, especially with regard to loan
<br /> amount; interest rate; term; underwriting criteria; and income limits. Each of these
<br /> issues should be evaluated in the context of the broader policy/program goals.
<br /> CEE currently administers a number of different loan programs, most of which are
<br /> funded by the Minnesota Housing Finance Agency (MHFA). CEE acts like a bank by
<br /> handling inquiries, processing applications, underwriting and closing loans. MHFA
<br /> reviews the files and then buys the loans from the CEE. CEE is paid a processing fee
<br /> by MHFA for each loan that is sold. In the case of a locally-funded loan, the City would
<br /> pay the processing fee and handle loan servicing costs.
<br /> Potential Programs:
<br /> • A revolving loan fund, 4% interest rate, no income limit, minimum loan $2,500,
<br /> maximum loan $25,000, income to debt ratio, applicants must have ability to
<br /> repay loan, loan secured with mortgage in favor of the City. This type of program
<br /> would likely need at least $500,000 of initial capital to be effective.
<br /> • MHFA discount loan program, the City would use funds to discount MHFA loans,
<br /> allows City to leverage MHFA money, City dictates the interest rate available to
<br /> residents, underwriting would be according to MHFA procedures, if the City
<br /> invested $25,000 into paying down the interest rate for 47 loans, the City would
<br /> leverage $4,700,000.00 of MHFA money at 4% interest for the residents who
<br /> took the loan. This type of program should be funded at not less than $25,000
<br /> and more realistically $50,000.
<br /> • Mobile home revolving loan fund, 4% interest rate, no income limit, term would
<br /> be one year for each $1,000 borrowed, maximum term is 8 years, minimum loan
<br /> $2,500, maximum loan size $7,500. Recommended funding would be in the
<br /> range of$50,000.
<br /> • Last resort or emergency loan fund, deferred loan for up to $10,000 for single-
<br /> family and two unit owner occupied homes, $7,500 for mobile homes, interest
<br /> rate 0%, see table in attachment for income limits based on family size.
<br /> Recommended funding for this program should be in the range of$100,000.
<br /> CEE provided a memo that describes their fees, which would be based on each
<br /> transaction. Additional expenses would need to be budgeted for marketing, such as
<br /> newspaper ads or direct mail pieces. In addition to CEE, there would be loan servicing
<br /> costs (if the City were to fund installment-type loans). However, loans underwritten and
<br /> serviced by MHFA would be paid for by that agency. Loan servicing would be handled
<br /> by a separate company (Community Reinvestment Fund).
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