APPENDIX E City of Pawtucket HOME Program Site and Neighborhood Standards Policy and Procedures Background HOME Program regulations at 24 CFR 92.202(b) state that for new construction of rental housing “a participating jurisdiction is responsible for making the determination that proposed sites for new construction meet the requirements in 24 CFR 983.6(b).” In order to properly conduct and document the review required by the regulations, the following policy and procedures are used: City staff will perform a HUD Site and Neighborhood Standard Standards review for all new construction rental projects requesting HOME Program funds. This review will occur as a part of the staff underwriting process after receipt of the funding application and before any funding recommendation is made to the board. Procedure All HOME project files shall contain a “HUD Site and Neighborhood Standards review”. During the staff underwriting phase staff will perform this review by completing the “Site and Neighborhood Standards Checklist” which includes the requirements at 24 CFR 983.6(b). The CD Program Manager will review and sign off on the determination. For the purposes of the review, “areas of minority concentration” shall be defined as census tracts where the percentage of any minority group is greater than or equal to twice the percentage in the population of the jurisdiction as a whole as based on the most recent census data. For the purposes of the review, “areas of low/moderate income concentration” shall be defined as census tracts where 51% or more of the residents are at or below 80% of area median income as determined by HUD. In order to determine the census tract of the proposed project site, and to determine whether the census tract meets the definition of an “area of minority concentration”, staff shall use the US Census American Fact Finder website: http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml. In order to determine whether the census tract meets the definition of an “area of low and moderate income concentration”, staff shall use “Summarized Low/Mod Data” provided by HUD for the jurisdiction at .
Debt Coverage Ratio This is the ratio of annual debt service to annual net operating income. In other words how much income must be used for debt service. The City as a Lender wants to be sure there is a cushion of income left over after debt service and other operating expenses have been paid. Generally, if the project appears sound, the debt service coverage ratio would be between 1.1 and 1.3. The City Reviewer determines whether the debt service coverage ratio is at least 1.1 in years 3 – 10 and/or if there are sufficient operating reserves during the lease-up phase. Also the Reviewer will examine the project to see if there are sufficient replacement reserves for the term of the HOME affordability period or the loan term, which ever is longer. Please provide a Table similar to the one below. Table 3: Template for Debt Coverage Ratio (DCR) Item Amount/Rate Amount for Debt Coverage Calculation Gross Rent $80,000 $80,000 Vacancy Rate 6.00% $4,800 Effective Gross Income $75,200 Expenses $20,000 $20,000 Net Operating Income (NOI) $55,200 Annual Debt Payments $46,000 Debt Coverage Ratio (DCR) 1.20 Loan-to-Value Ratio (LTV) The Loan-to-Value Ratio (LTV) should fall between 75 to 85 percent. LTV is an indication of how much mortgage debt is placed on the property relative to its value. The typical range is between 75 – 80% of the property’s fair market value. A high LTV may indicate that there is too much debt on the property relative to its value. In this instance if some of the higher interest debt is replaced with HOME funds this problem could be mitigated. Table 4: Template for Loan to Value Ratio (LTV) Loan Amount Amount for LTV Calculation 1st Mortgage Loan $529,000 2nd Mortgage Loan $250,000 3rd Mortgage Loan $0 Total Mortgage Loans $779,000 Owner Equity $125,000