Submitted By
Tammie Grossman, Director of Development Customer Services
Reviewed By
LKS
Agenda Item Title
Title
A Resolution Authorizing Subordination Of A Lien For The Property Located At 1026 South Harvey Avenue (BPIP-056).
End
Overview
Overview
The loan recipient is requesting a subordination of their Barrie Park Investment Program loan mortgage to a new first mortgage. The Village remains secure in junior position on the title.
Body
Staff Recommendation
Approve the Reoslution.
Fiscal Impact
The subordination is not a direct cost to the General Fund. Staff time in document preparation, which is a regular part of loan portfolio management, is the only cost.
Background
On September 6, 2005, the Board of Trustees approved a $15,000 loan to the owner of 1026 South Harvey Avenue. The loan is supported by a mortgage which was recorded against the property. The mortgage was recorded as a third mortgage on the property with the purchase loan mortgage being first.
Loans made under the Barrie Park program are deferred for repayment until conveyance or transfer of any interest in the property. The guidelines were amended in September 2008 to clarify under what circumstances requests for subordination will be granted. The guidelines provide that in cases where former loan recipients wish to refinance mortgage(s), other than the Village's, and request that the Village maintain its subordinate position, the Village will agree to maintain its junior position if: a. The terms of new first mortgage are more advantageous to the homeowner and are reasonable under current market conditions; and
b. There is adequate equity in the property to support the total proposed encumbrance, at least 15% equity (if necessary, homeowner(s) will submit an appraisal as proof of equity); and
c. The cost of the refinance is the only allowable equity taken out of the property.
In cases of extreme hardship, staff may recommend that the Board consider subordination when the homeowner is requesting cash back from the refinancing and the equity taken out is being used for emergency home repairs. The homeowner shall provide a written statement
desribing the emergency.
The homeowner is seeking to refinance her current primary mortgage and substantially pay off a home equity line of credit. The current primary mortgage is 15 year fixed at 4.25% interest rate and the home equity line is a 20 year variable with a 4% interest rate at this time. The interest rate on the home equity loan is set to increase in the near future. The new mortgage will be a 15 year fixed at 3.25% interest. The amount of the new loan will be $200,000.00. The homeowner is taking approximately $18,000 in equity out of the property for closing costs and needed home repairs. The homeowner submitted a statement and discussed these repairs with Neighborhood Services staff. Staff is recommending approval of this loan to help the homeowner maintain a low, fixed interest rate on her debts and maintain the property for sale at a later date.
The issuing lender will not make the loan unless that mortgage is the first mortgage lien against the property. The lender is requesting that the Village subordinate its mortgage to their new first mortgage. The Village’s mortgage was created as a third mortgage. By agreeing to subordinate, the Village is agreeing to remain in junior position as a third mortgage.
In this case, the property is appraised at $385,000.00. The first mortgage of $200,000.00, the second mortgage, $2,000, and the Village’s $15,000.00 mortgage equal total debt of $217,000.00, leaving $168,000.00 (43.6%) equity.
The request complies with the Village subordination requirements.
Alternatives
The alternative would be to deny the subordination request which would result in the homeowner being unable to obtain a new mortgage and reduce their monthly payments or make improvements to the home. They could also repay the Village loan, which would have the ultimate effect of increasing the interest rate on a senior mortgage.
Previous Board Action
None.
Citizen Advisory Commission Action
NA.
Anticipated Future Actions/Commitments
NA.
Intergovernmental Cooperation Opportunities
NA.
Performance Management (MAP) Alignment
A Governance Priority established for the Development Customer Services Department Division of Neighborhood Services is Multi-family and Single Family Grant and Loan Programs.