City suspends loan program
Newark still owed more than $500,000
Over the last 12 years, the city has loaned prospective homeowners more than half a million dollars for down payments on rental houses they planned to buy as permanent homes, but according to Newark officials, most of those people have yet to pay the city back.
Council decided on Monday to suspend the Promoting Owner-Occupancy of Homes (POOH) Program until staff comes back with a better plan to help future homeowners. The vote passed 4 to 1 with Councilman Mark Morehead as the opposing vote. Council members Jen Wallace and Stu Markham were absent.
Created in 2005, the POOH program provides zero-percent interest loans with no pre-determined payback period to people who want to buy rental properties in the city, thereby encouraging the owner-occupancy of homes. The program is capped at $250,000 per year, and loans are distributed on a first-come, first-serve basis, with the money coming directly out of Newark’s reserves.
Finance Director David Del Grande explained that since the program was established, the city has approved 21 loans totaling $667,060. Two have been repaid – a total of $40,000 – and three properties went to sheriff sale in 2010, representing a $100,000 loss to the city. He said there are still 16 properties in Newark that owe the city $527,060, and there is no telling when that money will return.
Newark’s code states that a loan of up to $30,000 does not need to be repaid until the property is sold or transferred. In return for the loan, the city is supposed to receive a percentage of equity in the property when it does sell. However, to date, the city has received only $345 from the equity share in one of the properties that sold and no money from the second.
“The program as written is not sustainable, nor can it be considered effective in its intentions of preserving owner-occupancy homes within the city,” Del Grande said.
He added that the city is draining its much-needed general fund reserves to fund the program, and there’s no guarantee the benefitting homeowners are using Newark’s funds to improve the property, thereby protecting the city’s investment.
Del Grande recommended council suspend the program, but Morehead wasn’t on board. He said the debt owed to the city is shocking, but he doesn’t feel comfortable cutting the program until he knows what is going to replace it.
“Just let it go,” replied Councilman Luke Chapman.
Pamela Bobbs, who lives in The Washington House condominiums, said she’s in favor of more owner-occupied housing downtown because it’s better for business, as full-time residents patronize the shops and restaurants year-round. She suggested the program be re-written, instead of suspended.
“I don’t know how it was sustainable as long as it has been,” Bobbs said.
Resident Jim Nigg felt the opposite, and urged council to get rid of POOH entirely.
“I don’t know why the city needs to get involved in financing homes,” he said.
He argued that because the program eliminates the need for people to use their own money for a down payment on a house, people are buying homes that maybe shouldn’t be because they lack the skills or finances.
“There’s no skin in the game required,” Nigg said.
Resident Jeff Lawrence also wanted to see the program gone. He said the city is manipulating the housing market and “mucking” with supply and demand.
“I would urge that it get replaced with nothing,” he said.
Councilman Chris Hamilton was concerned that because the program has no income limit, a millionaire could get a loan from the city.
“That to me is mind-boggling,” he said.
Council ultimately voted to suspend the POOH program, and Del Grande promised to come back with options for alternatives in August.