Lindsay tightens its own home loan guidelines

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Lindsay clarified rules for its homebuyer assistance program to avoid expensive loans for elaborate homes granted under the previous administration.

At its Jan. 14 meeting, the Lindsay City Council approved changes to its Homebuyer Guidelines in three key areas. The new guidelines also included a clarification on the amount of down payment assistance a homebuyer can receive. Under “Maximum Amount of Program Assistance,” The change states the subsidy limit can’t exceed $60,000 or 49% of the total indebtedness, whichever is less.

This was an important change for the City as builders and lenders had identified a loophole in the guidelines. The guidelines used to state the City would provide assistance in excess of $60,000 but that individuals could be loaned up to 49%. For example, if lenders and builders were allowed to stack loans and funding sources as they have in the past, someone could get up to $124,000 in assistance for a $250,000.

The new rules also state the number of bedrooms will be determined by the appraisal and that homes with in-ground pools may not be eligible if the cost of maintaining the pool causes the housing ratio to exceed 40% of the funding.

A third change only applied to the use of the City’s HOME funds, a federal block grant used exclusively to create affordable housing for low-income households through loans. Under “Location and Characteristics” the City clarified “modest housing” cannot exceed three bedrooms and two bathrooms unless there are documented “extenuating circumstances,” such as if it created an overcrowding situation or if there were not a reasonable inventory of homes of that size. All exceptions must be approved by the loan committee.

Since October 2011, Lindsay’s housing programs have been outsourced to Self Help Enterprises. The decision to outsource its housing programs came after possible “abuse of authority and wasteful spending of public funds” was revealed in the 2009-2010 Single Audit Report in September 2011.

On March 30, 2004, the City and the Lindsay Redevelopment Agency (RDA) signed an agreement with the State of California Housing Finance Agency (CalHFA) to borrow $1.25 million for a first-time homebuyer primary loan program. The loan was to service 35 units for applicants making 80% of the Annual Median Income and that met a debt ratio requirement of 42%.

Instead of the proposed 35 units, the City/Agency only serviced 11 units with the entire amount of the loan. And out of those 11 units, 10 units went to city employees or their relatives. Seven of the 10 employee/relatives exceeded the debt ratio requirement. The City of Lindsay was listed as a lender on 17 deeds of trust on first-time home buyer loans for city employees and/or their family members within the timeframe of the HELP loan scrutinized in the audit, between March 30, 2004 and April 19, 2008. The audit reported that five of the CalHFA loans ranged from $200,000 to $300,000 and went to five City employees. Those five loans represented nearly half of the RDA’s Low and Moderate Income Housing Fund notes receivable balance in 2010.

Two of the 10 exceeded the AMI% and were deliberately excluded from the status report which showed the City had only funded and expended $999,902 of the $1.25 million. In fact, some of the recipients weren’t even first-time homebuyers as defined by CalHFA.

While the audit said the loans were fraudulent, no criminal charges were ever brought against any members of the former administration or those who worked underneath them.

In addition to outsourcing its housing programs, the City also revamped its loan committee to include more than just the city manager and finance director, turned over all of its property holdings to the Tulare County Housing Authority and dissolved its RDA as part of AB126 signed by Gov. Jerry Brown.

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