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THE HABITAT MINNESOTA LOAN FUND
Jump
to to the following sections:
About the Fund
Loan Capital
Annual Funding Process
Application
Funding Criteria
Additional Funding
Requirements
Affiliate Mortgages
Loan Closing
About
the Fund
Over 1,400 Habitat for Humanity homes have been sold to partner
families in Minnesota since the late 1980’s. Like
all
Habitat for Humanity homes, these homes are sold with 0%
mortgages. The Habitat Minnesota Fund allows us to act as a
secondary market for Minnesota’s HFH mortgages. Affiliates
pledge
their homeowners’ monthly mortgage payments to the Fund. In
return they get the cash value of the mortgage right away, rather than
having to wait 20 to 30 years for the payments to come in. Funds can be
used to accelerate home building, acquire land for large-scale
projects, and as leverage dollars for other Habitat sponsors. Any
Habitat for Humanity affiliate building homes in the State of Minnesota
is eligible to apply for Loan funds.
Does the program work? Yes, read the analysis of the first five years of the program.
Loan
Capital
The Habitat Minnesota Fund consists of two separate funding pools
– the 21st
Century Fund and the Next
1,000 Homes Fund.
21st Century Fund: The
Minnesota Housing Finance Agency (MHFA) funded the 21st Century Fund in
the year 2000. The 21st Century Fund enables HFH-MN to make 0% interest loans to
affiliates matching the terms of their homeowner loans. The origination fee is 8%
of the amount borrowed. The 21st Century Fund is worth over $21 million
and the homeowner payments received by HFH-MN generate approximately $1
million annually, which is available for re-lending to affiliates.
The Next 1,000
Homes Fund:
A $10 million loan fund, also funded by MHFA beginning in 2005. The
Next 1,000 Homes funds are provided to HFH-MN in $2 million/year
increments. The Next 1,000 Homes Fund is available to affiliates at 2.6% interest for a
25-year term. The origination
fee is 1.5% of the amount borrowed. Affiliate repayments
have to be used to repay the MHFA.
Annual Funding Process
Requests for credit are considered once each year, with applications
due in August and presented to the HFH-MN Board of Directors at their
September Board meeting.
Application
– A complete Application consists of the following 7 items:
- A
detailed program and operating budget
approved by the Affiliate Board for the upcoming year and a one-year
monthly cash flow projection. A sample cash flow projection
template is available at CashflowHFH.xls
- Financial statements
including a balance sheet, income statement and annual statement of
cash flow for the most recent fiscal year.
- A
Mortgage
Portfolio Quality Report
for each mortgage or contract for deed held by the affiliate as of the
last day of the most recent fiscal year. A copy of the form to be
completed is available at MortgagePortfolioSummaryReportTemplate.xls
- The
affiliate Historical
Summary of Sources of Support
showing data for the previous three fiscal years and projections for
upcoming fiscal year. A copy of the form to be completed is available
at HistoricalSourcesofFundsTemplate.xls
- A
brief narrative of the affiliate's plan for housing production
over the next five years.
- A
description of how HFH-MN resources will be utilized to accomplish
housing production.
- A
Fund
Development Plan
that includes planned fund sources, amount, timing and the committee or
staff person responsible for carrying out the fund development.
Funding
Criteria – the following 4 Criteria are used as
a guide for
loan approval:
1.
Broad Allocation of Resources throughout the State
The
21st Century Fund is allocated to HFH affiliates on the basis of a) the
number of Minnesota Family Investment Program (the State’s
welfare program to help low-income families with children) or
“MFIP “ households residing within each
affiliate’s
service area compared to the statewide total and b) the capacity of the
affiliate to build and grow home production. This is the State of
Minnesota’s method to determine an allocation of funding
based on
need throughout the State.
2.
Local Fund Raising
Funding
is intended to leverage affiliates’ local fund raising
efforts.
As such, HFH-MN loans are considered as matching funds to those raised
locally. Each affiliate’s budget, Historical Sources of
Support
and fund development plan are reviewed to ensure no more than 50% of an
affiliate’s program and operating support comes from HFH-MN.
3.
Home Production
An
affiliate should be active in housing production and have a reasonable
plan in place to continue to utilize HFH-MN loan funds for their
intended purpose of increasing home production.
4.
Credit Risk Rating (CRR)
HFH-MN
CRR system is used as a guide to the affiliates’ financial
health, capacity and the related risk of an HFH-MN
allocation. The
seven criteria include the percentage of number and dollar amount of
loans pledged to HFH-MN compared to the total portfolio of performing
loans, cash on hand compared to budget, amount of accounts payable
compared to cash on hand, amount of debt owed to other creditors, the
percentage of delinquent loans in the affiliate portfolio, and the
ability of homeowner payments to cover debt service payments on loans
secured by pledged mortgages.
Additional
Funding Requirements
– the following conditions pertaining to the affiliate and
their
Mortgage portfolio must be met at the time of application or
disbursement and be maintained as long as the affiliate is a borrower
of HFH-MN:
Affiliates:
- Must
be in good standing
with the HFH-MN, MN Secretary of State, the MN
Attorney General's Office, and HFH-I.
- Filed
a current IRS 990 (when income exceeds $25,000).
- The
percentage of an affiliate's mortgages that may be pledged will not
exceed 50% of the performing
mortgages in an affiliate's portfolio both in dollar amount of
principal outstanding and in number of mortgages as evidenced by a
current Mortgage Portfolio Quality report at the time of fund
disbursement.
- Annual audited financial
statements for affiliates with revenues exceeding $125,000
or assets exceeding $500,000.
- Must
submit quarterly
financial statements and a quarterly Mortgage Portfolio
Quality Report for the entire loan portfolio for
as long as the affiliate has an outstanding loan balance with HFH-MN.
- Funds
generated from homeowner loans pledged must be used for building in
Minnesota.
- Monthly
payments for loans will be debited from the affiliate's checking
account.
- Outreach
and marketing efforts need to ensure MFIP families are aware of the
Habitat program in their area.
Affiliate
Mortgages:
- The
property must be covered by title
insurance
or an attorney's opinion as to status of title (title must be vested in
homeowner and must be acceptable to HFH-MN), and by property and liability insurance
(with affiliate named as loss payee).
- The
first mortgage loan amount may not exceed 80% of the appraised value of
the home. The value of the property will be determined based on a copy
of an appraisal
submitted to HFH-MN.
- Only
mortgages can be pledged (not contracts for deed).
- A
professional servicer
(see information on Professional Servicing) must service all homeowner
loans.
- All
homeowner loans pledged must be for property in Minnesota.
- All
homeowner loans pledged must be for families with incomes not exceeding
50% of the greater of state or county median incomes at the time the
homeowner applied to Habitat for a home (see income limits
for most recent income limits). This income must be verified and
documented by the affiliate.
- Once
pledged, homeowner loans
cannot become more than 90 days delinquent – at
this point the affiliate must provide replacement collateral.
- No
homeowner loans will be accepted as collateral if the homeowner has
been more than 60 days delinquent in the past 12 months. New homeowner
loans may be pledged – the payment history does not have to
be
long.
- Outside
subordinate financing (home equity loans) may not be placed on any
loans pledged as collateral without approval of HFH-MN.
Disbursement
Request
Once approved for an Annual Allocation, affiliates must submit a
request for Disbursement. Affiliates can request disbursement
anytime after the Allocation is awarded, up to June 30th of that fiscal
year.
The Disbursement Request consists of the following materials:
- A
Disbursement
Request Form
- The
first 4 pages of last year’s IRS Form 990
- A
Mortgage
Information Sheet for each mortgage to be pledged and the
following attachments:
b)
Copy of recorded first mortgage.
c) Copy of promissory note.
d) Homeowner payment history for mortgage to be pledged.
e) Appraisal
f) Title Policy or Title opinion.
g) Homeowner application and copies of verification of income
documents.
h) Homeowner’s property insurance statement showing
that it is current.
Loan
Closing
After the Disbursement Request completed, HFH-MN will schedule a loan
closing. HFH-MN staff will attend the closing at the
affiliate’s office. The closing documents will include the
following:
- A
Promissory Note
or an Amended Note
between
HFH-MN and the affiliate for the total amount to be repaid at the time
of closing.
- A
Loan Agreement
and Security Agreement,
or Amended Loan Documents.
- A
Loan
Certification that outlines the outstanding
principal balance at the time of closing and monthly payment for all
loans pledged to HFH-MN. Your monthly payment to HFH-MN will
equal the sum of the homeowner monthly payments of the pledged loans.
- An
Assignment of
Mortgage for each mortgage pledged which will be recorded
in the appropriate County.
- The
original Homeowner Promissory Note endorsed to
HFH-MN. It is absolutely necessary for you to have the original
note in order to close the loan.
- An
Authorization
to Debit your bank account automatically for the amount of
the monthly payment.
- A
Disbursement
Authorization that we will sign
authorizing our trustee to automatically credit your bank account for
the amount of the disbursement.
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