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Home Improvement Program
Program Description

Community Partnership

NIFA is interested in partnering with communities to operate home improvement programs, which couple the use of tax-exempt NIFA debt and Community Development Block Grant funds. The following example illustrates how Lincoln successfully utilizes this structure.

Background

The City of Lincoln, Urban Development Department, operates a subsidized home improvement program which couples the use of tax-exempt NIFA debt, sold on a private placement basis to banks with offices in Lincoln, with Community Development Block Grant Funds (“CDBG”) provided through the City of Lincoln. The program provides a zero percent (0.00%) interest rate to the borrower on a 10-year or shorter loan.

The block grant funds are provided to the banks to increase the yield on the home improvement loan from zero percent (0.00%) so that the bank’s total yield is 6.5% on a tax-exempt basis. This 6.5% yield was negotiated between the Urban Development Department and the various banks. The tax-exempt issuance is not “bank qualified” for federal tax purposes so the effect of the tax-exemption is somewhat diminished for the bank. The banks likely look at this as a Community Reinvestment Opportunity and a way to support the City.

Urban Development supervises all facets of the program including pre-screening of applicants for compliance with the CDBG income limitations, the geographic areas being targeted by the City and the types of home improvements being encouraged. The City also monitors the workmanship and completion of the home improvements. Once the borrower and the project meets the requirements of the City, the file is referred to one of the banks for loan underwriting. The individual bank determines whether or not the pre-screened loan will be made. The bank bears the majority the loan loss risk.

In the case of defaulted loans, the unamortized balance of the loan’s CDBG funds are retained by the bank to absorb a portion of the loss. If the loan pays off early, the unamortized balance of the loan’s CDBG funds are returned by the bank to the City.

For complete details of the City of Lincoln's Home Improvement Loan Program, visit their website at this link.

Buydown Costs

The following represents the cost (in CDBG funds) to subsidize loan rates for illustration purposes. Both examples assume a 10-year loan of $15,000 principal with a total yield to the bank of 6.50%:



Subsidizing the rate
Block Grant


to the borrower to:
Funds Needed



3%
$2,244.16


0%
$3,991.44

Cost of Developing a Program

The Nebraska Investment Finance Authority will provide technical support at no charge. The community will incur legal costs to develop and execute the various legal documents. It has been our experience that these legal costs range from $10,000 to $15,000 per transaction.

NIFA Contact:
Finance



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Nebraska Investment Finance Authority - NEW
200 Commerce CourtBullet1230 'O' StreetBulletLincoln, NE 68508
Phone: 402-434-3900Bullet800-204-NIFA (6432)
Fax: 402-434-3921BulletE-mail: info@nifa.org