Santa Barbara View Staff Report
Santa Barbara City employees are entitled to a number of perks, including the Employee Mortgage Loan Assistance Program (EMLAP).
According to a document, “City of Santa Barbara Summary of EMLAP Loans,” since 2001, the City has provided 37 employee home loans, initially totaling $5.3 million, and the total amount repaid to date is $948,237. Six of the individuals who obtained one of these home loans are no longer employed by the City; one of the loans is in arrears.
The loans are interest only for the first 5 years; after 5 years, the loans are repaid based on a 30-year amortized period. At year 15, however, the full amount of the loan is due in a balloon payment.
No loans have been made since March, 2009; according to Finance Director Robert Samario, “The Program has been suspended primarily because the authority granted by City Council for loans has been reached.”
The initial amount of the loans range from a high of $500,000 (of which $118,512 has been paid) to a low of $24,086 (of which $505 has been paid). The average loan amount is $100,888.
The interest rates range from 0.46% to 0.56%, and are tied to a State Investment Pool rate, which changes with—but is less volatile than—the market interest rate. According to a source familiar with the program, after five years of employment, the city reduces the points loans by 25%; and another 25% after 10 years.
The program is described in the City’s Employee Handbook dated 7/1/2009:
“Employee Mortgage Loan Assistance Program (EMLAP): This City program is available to regular employees who are first-time South Coast homebuyers (have not owned a home on the South Coast of Santa Barbara in the last three years). The program is structured using a combination of an employee down payment, traditional bank mortgage financing, and City-provided financing.”
The City intends to expand the home loan program for its workers. The General Plan Update appendix, section H12.2, under City Assistance reads: “Expand and improve the existing Homebuyer’s Assistance Programs for City Employees.”
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I especially enjoy the quote in the Sound article about how much of this money “may never be repaid”…Are these workers no longer employees? I’ve never heard of a government worker walking away from a cush job and pension benefit…the loan payments should be directly deducted from their checks until repaid and the city should not be involving our money in any more real estate transactions that don’t involve plunking homeless addicts right in the middle of our residential neighborhoods.
According to an email from the Finance Director of Santa Barbara, the Sound article was off in the following areas:
“Good morning Mayor and Councilmembers
As you know, there’s been a lot of media attention in the Employee Mortgage Loan Assistance Program. Here are some important facts about the program.
1. The vast majority of the loans were NOT made in the midst of budget shortfalls. The national economic recession officially started in December 2007, which is about the time we started seeing some impacts on General Fund revenues. However, even at that time, no one could have foreseen the magnitude of what was ahead. In total, 46 loans were issued since July 2001; 9 have been repaid, leaving 37 outstanding. Of the total loans now outstanding, only 10 were executed since December 2007, with the last executed March 2009. Additionally, the majority of the loans were made when reserves we above amounts recommended per City policy.
2. The secured 15% loan is interest only in the first 5 years, then becomes fully amortized on a 30-year schedule. However, the loans are payable in full 15 years from the date the loan was executed. Since the inception of the program, a total of $632,000 in interest and $188,000 in principle has been paid.
3. The interest rate on the secured loans are variable, tied to the State of California Local Agency Investment Fund (LAIF). Contrary to what was suggested by the article, the interest rates at the time the initial loans were made was not 0.56%. In 2001, when the program was being developed, the LAIF rate was 6.16%. In 2004, the LAIF rate dropped to 1.47% (after the 2001/2002 recession), and increased again to 5.17% in 2007. Due to the economic downturn, the LAIF rate has dropped to the current rate of 0.56%, the lowest this rate has been in decades. This decline is consistent with other interest rates nationally.
4. It is true that those homes purchased in the last 5 years have likely declined in value below the total debt on the property. This is true of most homes purchased during this period across the country. What’s happened to the real estate market is unprecedented and could not have been anticipated. To me, the important thing is that the loans are current. We only have one loan that is not current, which we have been working to resolve. However, in my opinion it would NOT be prudent to pursue any action to have these loans repaid simply because they are “upside down.” I’m not sure it would even be legal since we have contractually obligated terms and conditions that we have to honor so long as the loans are current. Even if we could take action, it would only cause a real loss to the City rather than a “paper loss.” At some point, the real estate market will recover and many of the upside down situations will be resolved.”
It doesn’t matter if the loans were made at the bottom of the market for twice market rates, government has no business putting taxpayer dollars at risk in an arena they have no knowledge of and employees making $250K do not need help buying a house.
An important (and missing, “journalist”) sentence is whether ANY of those loans are delinquent. By the numbers listed here, it seems these loans are all on time. It’s unrealistic to require a city employee (or any employee) to stay at one job for 30 years of the loan.
5.3mil over 37 people is an average of $137k, which are small amounts for home loans. This doesn’t seem outrageous, since it equates to 4 loans a year. Often times, moving packages are the incentive needed to acquire quality talent. Without identifying which city employees (and the offered jobs/projects they had) were given these *small* home loans to assist with moving, its impossible (and idiotic) to judge the benefit of providing a moving incentive.
Martin,
Per the salary survey posted here recently, it would appear that these loans were doled out to many types of employees from city attorneys to waterfront workers…the only thing idiotic here is the sense of entitlement our leaders feel to spending our hard earned tax dollars on their Utopian schemes.
Loan = Investment. no one is doling out anything they are actually increasing city money without raising taxes! The vast majority of city workers make five figures or less and many have no benefits.
Just cause you hear something of fox “news” doesn’t make it true.
That’s quite a spin. Flabbergasted.
$187k repaid on $4.4 mil doesn’t sound like good business
That’s just principal reduction it doesn;t count interest. Very misleading of DS to spin it that way. Remember when you first took out your mortgage it took years before you started paying on principle. This is all making a mountain out of a molehill.
Home loan with taxpayer monies does not = ‘investment’. It equals risk. The banking industry imploded from making risky loans to people who couldn’t afford them on properties that dropped in value. The city doesn’t suddenly get instant street cred for being somehow smarter at the same game.
Bingo! If these employees couldn’t afford to live in these homes on the salaries the City was offering, why in the world would the City suddenly think they’re able to afford them just because the City is loaning some of the purchase price to them??? That makes absolutely no sense. The City had to realize it was likely not going to see much of this money back.
Actually, Downtown Res, all investment implies risk, the terms are not mutually exclusive. Any economics textbook covers that,
What happens when an employee leaves? Gotta get a city job _ home loans and Fridays off!
That is indeed one sentence, Section H12.2 that does NOT belong in this or any General Plan.
What kind of security did the City get for the home loans? For the one in arrears, has foreclosure proceedings started? Is there a condition that these loans are only for current employees and that when an employee leaves employment, the loan must be repaid? Is it possible for a city resident, that is, a city taxpayer, to find out which employees receive these loans? …I appreciate privacy and so forth, but since these are public employees whose salaries are public info, and the money lent is public money, all info. should be public.
Thank you for this story. It’s not wrong there are loans to city employees; the only thing wrong would be if they were hidden and kept hidden. I have respect for Mr. Samario and don’t believe that would be his practice, but someone has to ask.
As the Sound article stated, the City does not have any standing to forclose on these loans. On paper, it makes sense to offer a “moving package” to acquire good people, but I doubt few would feel that Cam Sanchez is a quality “catch” and perhaps fewer would agree that employees making good six figure salaries should require low cost loans as part of their benefits package.
This is what you get when you elect and keep re-electing the likes of Marty Blum, Grant House, Bendy White, Helene Schneider……
Think about it before you vote for the new crop…Schwartz, Murillo….
Wake up people.
Who was on the city council in 2004 when this scheme was concocted? Blum surely, Schneider, et al. Blum will be pulling this ***** at City College no doubt. These crooks need to be prosecuted.
Horton. Falcone.
It was started in 2001. And, I think, Falcone and Horton were there in 2002. Falcone has indicated she is going to run again and has stated that part of the reason is her concern at seeing the programs she help institute be dismantled. Probably this is one of those programs. Or, rather, total pol that she is, was.
There is absolutely no basis for suggesting that Schwartz or Murillo would have supported this program or any other injudicious program. As El Smurfo points out, relo incentives are not unusual, nor are they illegal or necessarily improper. Do you know whether “the likes of” the council members you list voted one way or another. And what is necessarily improper about offering hiring incentives. As for Cam Sanchez, that is a separate matter, and however much you may dislike him, you should not tar announced candidate or incumbent legislators because you don’t like cops. It’s a different issue. Who would you replace Sanchez with, Sheriff Joe?
how about sheriff Bill Brown?
There is absolutely EVERY reason to believe that Schwartz and Murillo would support the same lame ideas. My point exactly: these people are cut from the same cloth. They go to the same parties. They get funding from the same groups. They collude and support each other because they all think alike. only reason things are getting better, and people are finding out about these bad programs is BECAUSE we elected politicians cut from a different cloth. If this community lets Schwartz sit on city council, we will suffer more dumb ideas, pet projects, higher taxes, and diminished services. Guaranteed!
Debbie Schwartz may have her faults, but being “dumb” is not one of them. It is almost slander to impute how someone might vote and rail against them for that when in fact you have no basis to project their vote especially in the future when it might be clear – Monday morning quarterbacking etc
downtownres Brown might not be a bad candidate but he probably would not leave his current job. Too bad Gus Frias is not trained for that particular role.
This looks like and sounds like a loan division of a bank run by and for City employees using public dollars to fund loans. Is the City a bank? Does it have a “license” to operate as a bank or loan broker? The customers include existing and some former employees. Do the loan transactions include all of the disclosures required by federal and state laws for loan brokers and/or credit unions? This is a complex business and why should the taxpayers provide the money and the staff to run the business. Clearly the City is losing money at these rates with highly paid staff administering and hopefully overseeing the loan portfolio. What is it costing? If the program exists for and is administered by City employees, does anyone without a conflict of interest review what happens?
why should taxpayers pay the bills.. and their salaries… all city workers are paid by taxpayers, yet we don’t receive these perks. and from what i hear from city employess, there is a whole lot of waste taking place. must be nice to go on city paid lunches, trips, gifts, perks as well
We shouldn’t. NO WAY!!!
Congratulations to the Daily Sound and the SB View for the best piece of investigative journalism we’ve seen around these parts since the newspress imploded. THANK YOU!
Congrats to the Daily Sound http://www.thedailysound.com/032411-SANTA-BARBARA-MORTGAGE-LOAN-PROGRAM-MILLIONS
the police chief front and center in another mess
Getting better but they seriously need to get rid of that Mike on the Move guy. His sloppy article about women in the same publication as this important story is insulting.
Santa BELLabarbara
Don’t they make enough money to qualify for loans on their own? Do other cities like Ventura offer such perks? It’s seems outrageous.
The City of Santa Barbara would say they need such perks to 1) attract qualified applicants and/or 2) alleviate the city’s cost of living hardship.
The first is patently false and belies the second as a simple redistribution of wealth gesture.
The mentality is pure PeeWee League empire building.
Companies do offer relocation assistance as part of a package to recruit a top candidate. They don’t offer direct loans, per se, usually, but there might be help with closing costs or mortgage assistance temporarily if you had to sell a home in another city, and then rent temporarily here, or buy one. The key difference is that they do that with retained earnings. It’s their money. General Fund money is the citizens’ money, taxpayer-funded. These loans are incredibly generous, and the terms for forgiveness of percentages of principal over a period of attrition are unbelievable. I’ve never seen that sweet of a deal in private industry, and I relocated with two different Fortune 500′s. Shareholders would support the limited use of a firm’s retained earnings for recruitment of top talent for a firm, but taxpayers might understandably balk at sweetheart deals using their tax dollars that exceed those of private industry.
I am more concerned on the loan forgiveness sections of the loans, and Cam has a odd track record of loans. Does anyone doubt that he would have come here to be Chief even w/out that generosity? We already have a large planning dept, we had to give a loan to keep one
Seriously the city had other more pressing items that money would have been useful for, especially taking from reserves.
I’m not necessarily against this, but if city employees are eligible so should ever resident – should be a grant like process
City Employee Loan Program : 3/25/2011
I would like to clarify some of the misconseptions about these loans. I was alerted about the existence of this loan program by a city employee and shared the information with Josh Molina as a way of getting it in print. I also had discussions with Councilwoman Michael Self, who, to her great credit, has started her own investigation on the loans. I revealed the loan program on last Wednesday night’s show and I will continue to cover the issue. The News-Press is also publishing the story in the days ahead and I am sure that Josh will continue writing about it. KEYT did not have some of the facts right.
City Hall is tap dancing and they are frightened about the public disclosure of this insane program. Chief Cam Sanchez’s loan has nothing to do with this program. His loan of $500,000 is a First Mortgage and is well secured by a $750,000 home bought in 2001.
The 45 loans in this program were all Second Mortgages and Interest buy-down loans used to reduce the interest on the First Mortgages of the 45 City employees.
These Second Mortgages and point buy-downs were all made out of your rainy day Reserve Fund.
Nine loans have been paid back in full.
One loan is now in default.
36 loans are still outstanding.
The average interest rate is now .56%!
The average loan is about $145,000
12 mortgages were funded since November 2007
17 borrowers have paid nothing back as of today.
All 36 borrowers have paid back a total of only $69,000 as of today
The city has given approximately $400,000 of this loan money to the borrowers as bonuses.
The City Treasurer advised the Council on March 24th that the loans are under water and worthless “on paper”.
The City Council had no oversight system in place to control the program. Many did not know it existed.
The issue is:
Should $5 million of the city’s Reserve Funds have been used to give risky 2nd Mortgages to only 45 city employees, and included $400,000 of this money as bonuses to the borrowers. These Reserve Funds are out of reach while the city cuts jobs and services, including City office closures, reduced hours for workers, layoffs, police protection reductions and even library hour and book buying curtailment. These loans were given to 45 people to the detriment of an city’s entire population.
Ernie Salomon
ERNIE SALOMON-LIVE!
SB’s loan program is hardly unique, nor is it that big a deal. Universities do it, companies do it. Sounds like SB’s terms were particularly attractive, though, due to the index the rate was tied to. City Council can’t be expected to have intimate knowledge of the details, but they are still ultimately responsible. SB is spending WAY more on health benefits for city workers, and I doubt city council knows the details of that contract, either.
Mountain View, CA
http://www.mv-voice.com/news/show_story.php?id=2427
SF/Oakland:
http://articles.sfgate.com/1998-02-18/news/28609562_1