Loading...
07-30-07 special . . . CITY OF RICHFIELD, MINNESOTA MONDAY, JULY 30, 2007 SPECIAL HOUSING AND REDEVELOPMENT AUTHORITY MEETING RICHFIELD CITY HALL COUNCIL CHAMBERS 6700 PORTLAND AVENUE 8:00 A.M. AGENDA Call to order Roll call Approval of agenda 1. Consideration of subordination request for HRA Deferred Loan at 6625 Fifth Avenue Staff Report No. 31 Notes: Adjournment Auxiliary aids for individuals with disabilities are available upon request. Requests must be made at least 96 hours in advance to the City Clerk at 612-861-9738. . . . AGENDA ITEM # REpORT # 1 31 ...... STAFF REpORT RiCHFIELD HOUSING AND REDEVELOPMENT AUTHORITY MEETING JULY 30, 2007 REpORT PREPARED By: VANESSA HAIGHT, HOUSING SPECIALIST NAME, TITLE REpORT PRESENTER: VANESSA HAIGHT, HOUSING SPECIALIST DEPARTMENT DIRECTOR REVIEW: NAME, TITLE REVIEWED By EXECUTIVE DIRECTOR: ITEM FOR HRA CONSIDERATION: Consider approval of subordination request for HRA Deferred Loan at 6625 5th Avenue South. I. RECOMMENDED ACTION: By Motion: Consider a subordination request for HRA Deferred Loan at 6625 5th Avenue South. I II. BACKGROUND I On May 11, 1984 a Richfield Rehabilitation Deferred Loan (CDBG) in the amount of $8,250.00 was issued to Marie Pauline Nihart. In 1992 the property was conveyed via a life estate to Ms. Nihart's son, Bruce Nihart. Bruce Nihart now owns and resides at the property with his wife, Marias Nihart. At the time of the property transfer, HRA staff did not require the HRA lien to be satisfied (as permitted in the repayment agreement). Since 1984, the HRA has subordinated at the following times: - April 1992 (L TV unknown) - March 1997 (75% L TV) - October 2001 (79% L TV) - May 2002 (84% L TV) - June 2006 (L TV unknown) 073007 Nihart Subordination . Mr. Nihart is requesting the HRA subordinate at this time. Approximately one year ago, Mr. Nihart entered into an adjustable rate mortgage because it offered a more affordable monthly payment. At the next rate increase, the adjustable rate mortgage will no longer be affordable to Mr. Nihart. At this time, Mr. Nihart is seeking a 30-year, fixed rate mortgage with payments affordable at his current income. No equity will be taken out as part of this transaction. . Mr. Nihart needs to refinance now due to the legislative changes to Minnesota Statues Chapter 58 (mortgage lending) that will go in effect on August 1,2007. These changes require verification and documentation of the borrower's reasonable ability to pay. Previously, Mr. Nihart had obtained mortgages through the stated income provision (the stated income provision allows borrowers to obtain a mortgage without verification of income). The rate Mr. Nihart is currently able to lock in is lower than the rate he will qualify for after August 1,2007. Regardless, if Mr. Nihart applied for a subordination request after August 1,2007, his application would be denied based on the current subordination policy. Mr. Nihart has stated that if the subordination request is denied and he cannot refinance to a fixed-rate mortgage, he will end up losing his home. I III. BASIS OF RECOMMENDATION I . I A. POLICY I . At the July 16, 2007 HRA meeting the HRA made changes to the subordination policy. The revised policy lowered the loan to value ratio to 80%, restricted the number of subordinations to two, and required any equity being accessed to be reinvested in the property. . The present subordination request by Mr. Nihart fails to meet two of these criteria. The loan to value ratio is 100% and numerous subordination requests have been approved in the past. . The HRA has taken an active role in mortgage foreclosures and supports mortgage foreclosure prevention. Approving the subordination will allow Mr. Nihart to obtain a mortgage with a fixed- rate with affordable monthly payments. I B. CRITICAL ISSUES I . If the subordination is not granted, Mr. Nihart may be at risk of entering foreclosure because he cannot afford the adjustable rate mortgage. . Mr. Nihart needs to close before August 1, 2007 to avoid the mortgage lending changes that go in effect. FINANCIAL I . The value of the HRA lien will not be diminished by the proposal. . I C. I D. LEGAL . . . . Legal counsel has been involved in the changes to the subordination policy. Legal counsel reviewed the tract index at the county recorder's office and provided the information in the attached tract index summary. . I IV. ALTERNATIVE RECOMMENDATION(S) . Deny the subordination request. I V. ATTACHMENTS . Tract Index Summary . Minnesota Department of Commerce, "FAQs: 2007 changes to laws about mortgage lending". I VI. PRINCIPAL PARTIES EXPECTED AT MEETING . N/A . . . Track Index Summary 6625 5th Avenue South . Property is owned in fee by Bruce W. Nihart and Marias Nihart . Property is subject to two mortgages, both in favor of Argent Mortgage Company, LLC. The first is dated 7/12/06 and is in the original principal amount of $212,000 and the second, also dated 7/12/06, is in the original principal amount of $44,750. . HRA mortgage is subordinated, although it is ambiguous as to whether it was subordinated to both or only to one. The subordination refers to only the document number of the first mortgage, but it gives a total loan amount that is equal to the sum of both mortgages. Miimesota Commerce: More FAQs resulting from HF1004 and SF988 ~MlNNESOTA . .. ............ .. . ~~COMMERCE Energy Info Center I News Releases I Contact Us I Advanced Search I Search Topics I 0 All NorthStar I @ Commerce Site Only RSS Feeds I Consumer Info and Services Industry Info and Services Page 1 of3 Commerce Home I North Star Home I Commerce Site Map I Thursday, July 19, 2007 north ttai\ IBJ Licenses, Registration, Certification Weights & Measures Heating Assistance Minnesota Relay Unclaimed Property Petrofund Industry Info and Services Up-to-date information for and about each of the industries we regulate. Includes research, data, government policy and initiatives, policy filing procedures and manuals. Rule Making Cigarette Pricing Energy Utilities Financial Services Franchises Insurance Real Estate Residential Mortgage Originators ~ About Us ~ Changes to Laws ~ FAQ: 2007 changes to laws about mortage originator licensing ~ FAQ: 2007 changes to laws about mortgage lending ~ Non-traditional mortgage guidelines ~ Licensing ~ List Look Up Securities Telecommunications . . Residential Mortgage Originators FAQs: 2007 changes to laws about mortgage lending Also of interest on our site Printable Content · Go to Enforcement Actions . Go to File a Complaint · Look Up Financial Services Licensees . License Lookup Tool Frequently Asked Questions Concerning Legislative Changes to Chapter 58 The department has received questions about the changes made to Chapter 58 in 2007. Answers here are provided for your information but not intended as legal advice. These FAQs will be updated from time to time. (SF 988 and HF 1004.) Question 1: Can a licensee make a "stated income," "no ratio" or "no documentation" loan after August 1, 2007? These loans are covered by the new standards of conduct added to Section 58.13 by House File 1004, which requires verification and documentation of the borrower's reasonable ability to pay. Question 2: Section 23 of SF 1004 prohibits making, providing or arranging a residential mortgage loan without verifying the borrower's reasonable ability to pay the scheduled payments and has an effective date of August 1,2007. Are loans that are currently "in the pipeline" exempt from this requirement? The statutory language is clear and contains no provision for exempting loans in the pipeline. The Department understands, however, that there may be situations, particularly with respect to permanent financing commitments in construction loan situations, where the lender had, prior to the date the law was signed into law (April 20, 2007), made a binding commitment to a borrower and where the actual loan closing would not take place until after the August 1, 2007 effective date of the statute. Failure to honor the commitment could subject the lender to litigation and changing the loan terms could be detrimental to the borrower, http://www.state.mn.us/portal/mnljsp/content.do?subchannel=-536881694&programid=53691445... 7/19/2007 Mihnesota Commerce: More FAQs resulting from HFI004 and SF988 Page 2 of3 . particularly given the rising interest rate environment in recent weeks. While the Department is unable to grant waivers from the statute's requirements, the specific facts of individual cases would be considered and weighed prior to commencing an enforcement action and/or imposing civil penalties. In the meantime, lenders are encouraged to work with customers who have loans in the pipeline in an effort to satisfy the statutory requirements to verify a borrower's financial resources. . Question 3: What is the acceptable method for documenting a borrower's reasonable ability to repay a residential mortgage loan under the new requirements of Section 58.13, subd. 1(a) (23)? The statute does not limit a mortgage originator's ability to rely on criteria other than the borrower's income and financial resources to establish the borrower's reasonable ability to repay. It does specify that a statement by the borrower is not sufficient documentation to establish the borrower's income and resources. The statute requires that the borrower's income and financial resources be verified by tax returns, payroll receipts, bank records or other similarly reliable documents. We would expect that the mortgage originator would have appropriate written file documentation, on a case-by-case basis, to support the underwriting decision if resources other than income were relied upon to repay the loan. Question 4: Can a state or federally chartered bank make a "stated income," "no ratio" or "no documentation" loan after August 1, 2007? State and federally chartered banks and credit unions are not covered by the new standards of conduct added to Section 58.13 by House File 1004. Banks and credit unions can continue to make these loans after August 1, 2007; however, guidance from various federal depository institution regulatory agencies may discourage or prohibit these types of loans. Question 5: Can a licensee "broker" a "stated income," "no ratio" or "no documentation" loan to a bank? No. The language in the statute is broad and does not permit a licensee to "make, provide or arrange" for a residential mortgage loan without verifying the borrower's reasonable ability to pay the scheduled payments. . Question 6: State and federally-chartered banks are exempt from the new standards of conduct that were added to Chapter 58 by House File 1004. Could a licensed mortgage originator and a state or federally-chartered bank form a joint venture corporation which would become a subsidiary of the bank, which could then make residential mortgage loans http://www.state.mn.us/portal/mn/jsp/content.do?subchannel=-536881694&programid=53691445 ... 7/19/2007 Minnesota Commerce: More F AQs resulting from HF1 004 and SF988 Page 3 of3 . and not have to comply with the requirements imposed by the new standards of conduct? The statutory language is silent with respect to subsidiaries of banks. Subsidiary activities of Minnesota state-chartered banks are subject to the provisions of Minn. Stat., Section 48.61, subd. 7, which require, among other things, that the subsidiary be at least 20 percent owned by the bank and that the activity be approved in writing by the commissioner. Questions concerning subsidiaries of federally-chartered banks and thrifts should be directed to the appropriate federal regulatory agency. Question 7: Section 3 of House File 1004 changed the definition of "lender fee" in Section 58.137, which caps the amount of lender fees at 5 percent of the loan amount. The definition has been changed to add amounts payable "by the lender to a mortgage broker." Does this include the yield spread premium? Yes, it includes the yield spread premium payable by a lender to a broker. . Question 8: Does the definition of "lender fee" also include the "service release premium" which is paid to a lender when the servicing rights to a loan are sold? It is our opinion that the new definition of "lender fee" in Section 58.13 does not include the service release premium which is paid to a lender when loan servicing rights are sold. Question 9: Are loans on investment or non- owner occupied properties exempt from the new standards of conduct that were added to Chapter 58? The definition of "Residential mortgage loan" found in Section 58.02, subd. 18, has not changed. Residential mortgage loan means a loan made primarily for personal, family, or household use and secured primarily by either: (1) a mortgage on residential real property; or (2) certificates of stock or other evidence of ownership interest in and proprietary lease from corporations, partnerships, or other forms of business organizations formed for the purpose of cooperative ownership of residential real property (emphasis added). Properties purchased for investment purposes where the purchaser has no intention of occupying the property would not be loans made primarily for personal, family, or household use and therefore not subject to Chapter 58. . Copyright 2000 North Star, Minnesota State Government Online North Star is led by the Office of Enterprise Technology This site best viewed with 1 024X768 or greater and with Netscape 4.7 or Internet Explorer 4.5 or greater. State Of Minnesota I About Us I Get Acrobat Reader I http://www.state.mn.us/portal/mnljsp/content.do ?subchannel=-536881694&programid=5 3 691445... 7/19/2007