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									              CITY OF MERCED
  THE NEIGHBORHOOD STABILIZATION PROGRAM
        ROUND 2 (NSP2) APPLICATION
Jurisdiction(s): City of Merced               NSP2 Contact Person: Masoud
                                              Niroumand
Jurisdiction Web Address:                     Address: 678 W. 18th Street, Merced,
    www.cityofmerced.org                               CA, 95340
                                              Telephone: (209) 385-6863
NSP2 Link:
                                              Fax: (209) 385-6810
   http://www.cityofmerced.org/civica/fileban
                                              Email: niroumandm@cityofmerced.org
   k/blobdload.asp?BlobID=7574



GENERAL INFORMATION

The Neighborhood Stabilization Program Round 2 (NSP2) funds were provided under
the American Reinvestment and Recovery Act of 2009 for additional activities under
Division B, Title III of the Housing and Economic Recovery Act of 2008, as amended,
for the purpose of assisting in the redevelopment of abandoned and foreclosed homes
under the Emergency Assistance for Redevelopment of Abandoned and Foreclosed
Homes heading, referred to as the Neighborhood Stabilization Program (NSP). In
2009, Congress appropriated additional neighborhood stabilization funds, under the
American Recovery and Reinvestment Act, also referred to as the NSP 2. Under this
program, applicants will compete for up to $1.93 billion of NSP2 funds to carry out a
neighborhood stabilization program. The statute directs that the funds be allocated to
states and units of greatest needs based on:

     A) Number and percentage of home foreclosures;
     B) Number and percentage of homes financed by a subprime mortgage loan;
        and
     C) Number and percentage of homes in default or delinquency.

NSP2 provides entitlement grants to help stabilize neighborhoods significantly
impacted by the housing crisis. The statute calls for the funds to be used to:

     A) Establish financing mechanisms for purchase and redevelopment of
        foreclosed upon homes and residential properties, including such
        mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for
        low and moderate-income homebuyers;




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     B) Purchase and rehabilitate homes and residential properties that have been
        abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes
        and properties;
     C) Establish land banks for homes that have been foreclosed upon;
     D) Demolish blighted structures; and
     E) Redevelop demolished or vacant properties.
        The statute also provides direction to grantees that they should give priority
        emphasis in targeting the funds that they receive to those areas with the
        greatest need.

The statute also provides direction to grantees that they should give priority emphasis
in targeting the funds that they receive to those areas with the greatest need, including
those:

     A) With the greatest percentage of home foreclosures;
     B) With the highest percentage of homes financed by subprime mortgage related
        loans; and
     C) Identified by the state or unit of general local government as likely to face a
        significant rise in the rate of home foreclosures.

NSP2 funds must be used primarily to benefit the most impacted neighborhoods.
Funds must be used for households with income no greater than 120% of the Area
Median Income (AMI). Also, no less than 25% of the funds must be used for purchase
and redevelopment of abandoned and foreclosed-upon homes and residential
properties to house individuals and families whose incomes do not exceed 50 percent
of AMI. In general, HUD considers NSP funds the same as Community Development
Block Grant (CDBG) funds and the regulations under 24 CFR part 570 are applicable.

HUD requires the applicant’s grant request to be for no less than $5 million. The
amount is established in order to be of sufficient size to contribute toward significant
and measurable neighborhood stabilization in the target geography. To meet this
requirement, the applicant must either return a minimum of 100 abandoned or
foreclosed homes back to productive use or otherwise eliminate or mitigate their
negative effects on the stability of the target geography. Target area includes the
following eligible census tracts in the City: 10.05, 11.01, 11.02, 18.01, and 18.02. All
these census tracts have foreclosure scores of 20.

The City will apply for $5.5 million to implement a program of neighborhood
stabilization in the above target geographic areas. The City proposes to carry out
activities identified as eligible in the NSP2 program to address the foreclosure
problems in the City. The City intends to carry out the following activities, in
accordance with the NSP2 program:




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     A) Establish financing mechanisms for purchase and redevelopment of
        foreclosed upon homes and residential properties, including such
        mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for
        low and moderate-income homebuyers;
     B) Purchase and rehabilitate homes and residential properties that have been
        abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes
        and properties; and
     E) Redevelop demolished or vacant properties.

The grant is competitive nationally and request for any greater amount is not practical
considering the size and organization capacity of the City of Merced. The grant
allows for 10% of administrative costs and no more than $550,000 of the grant will be
set-aside for eligible administrative costs.

Approximately $1,500,000 will be used for first time homebuyer financing for the
purchase of foreclosed homes. This program will help by taking about 60 foreclosed
homes off the market (the program will include necessary rehabilitation) and situate
qualified households in these units.

$2,050,000 will be allocated for the acquisition, rehabilitation, resale of foreclosed
homes, and redevelopment of demolished or vacant properties. This program will
restore about 20 foreclosed homes or vacant properties in the areas with the
greatest needs and will place qualified applicants in those homes.

The remaining $1,400,000 (at least 25% of the grant) will be used for development of
affordable housing to house those at 50% or below AMI. All activities will take place
within the City of Merced. The City’s goal is to utilize NSP funds as quickly as possible
in order to help stabilize neighborhoods significantly impacted by blight issues caused
by foreclosures. This program will provide at least 20 affordable multi-family rental
housing units.

Merced has already been awarded $2,046,968 through the State of California
Department of Housing and Community Development for the first round of NSP. With
the severe foreclosure crisis in Merced, those funds are not nearly enough to solve the
community’s problems. The City currently is facing more than 2,400 foreclosures and
those funds will assist only about 50 homebuyer’s applicants and about 4-5 acquisition
and rehabilitation projects. NSP2 funds, if awarded, will make a noticeable difference
in addressing the foreclosure problem in Merced.

Public notices were posted in two newspapers of general circulation on June 11, 2009
and on June 12, 2009 about the NSP2 funding and also the availability of a draft plan.
The notice was also posted on the City’s website and other City locations about the
public hearing and advised the citizens for their participation and comments. On July
6, 2009 the City Council approved the City’s application submittal for the
Neighborhood Stabilization Plan Round 2.


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Merced’s foreclosure problem is widespread throughout the community and the
requested grant will greatly benefit our community. All census tracts in the City have a
foreclosure score of 20 and are considered areas with greatest needs.

FACTOR 1 – NEED AND MARKET CONDITIONS

a. Target Geography

The City of Merced constitutes the targeted geography for this application. Five
census tracts have been identified for this project. See Attachment A for a table and
map listing the foreclosure score.

Housing Market Issues:
The City of Merced has consistently been ranked nationally as one of the communities
hardest hit by the housing foreclosure crisis. The City has made headlines in every
major newspaper and has made the cover pages of NY Times and London Financial
Times. RealtyTrac, the online marketplace for foreclosure properties in its July 2008
report, listed Merced at number 2 in the nation with one in every 73 households
receiving a foreclosure filing during the month, about 7 times the national average.
According to RealtyTrac, this number was one in every 78 in June 2009, which ranked
Merced at No. 5 in the nation. The report on foreclosures for the first quarter of 2009
by RealtyTrac said the highest foreclosure rates were found in Las Vegas, Merced,
California and the Cape Coral-Fort Myers area in Florida.

Foreclosure in the City is widespread and October 2008 data provided by HUD, and
other foreclosure data, showed the City of Merced had an estimated foreclosure rate
of 12.2% compared to the average of 6.7% for the State. ForeclosureRadar.com April
2009 data shows the City has a total of over 1,300 foreclosures. Based on newly
released information, however, the total inventory of available homes in the Merced,
CA market in June 2009 stood at 2,603 homes. Foreclosures are the majority of the
homes for sale, which is 2,431 real estate properties or 93% of the Merced, CA real
estate market. All census tracts in Merced have a foreclosure score of 20. The data
clearly demonstrates the magnitude of the problem and overwhelming need that has to
be addressed in Merced.

Credit Issues:
High cost and predatory loans have a major role in our economic decline when
families are unable to pay their mortgages and lose their homes to foreclosure. The
greatest numbers of high cost loans are found in the areas where the project is
planned. The rate of high cost loans, as of October 2008 provided by HUD, runs from
22% to as high as 43%.

While job loss has been one of the primary reasons for foreclosure in most
communities, including Merced, poor mortgage products with escalating rates and


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other inappropriate lending products have been a key factor in foreclosure. Subprime
loans with adjustable rates and exotic ARMs were a particularly common factor.

According to a national group representing local organizations that work with low and
moderate-income populations, increasing foreclosures are fast-becoming the number
one problem facing their communities, with outright mortgage fraud, questionable
lending practices and job loss all contributing factors.

Employment Needs:
The areas included in this application have all high foreclosure and vacancy rates and
have been greatly affected by the economic downturn. Employment is a serious
concern for this area. The Merced Metropolitan Statistical Area (“MSA”) has
historically endured unemployment levels exceeding State and National averages.
Located at the heart of a primarily agricultural region, much of Merced’s economy has
been, and remains, tied to farming, and agriculturally related industries, including
warehousing, processing and packing, and shipping, although recent decades have
seen the economy diversify into other areas. Most recently, however, the national
economic downturn has had an especially severe impact on the Merced MSA, and on
the City of Merced, driving unemployment to depression era levels.

In March 2009, the unemployment figure stood at 20.4% for the Merced MSA and
20.0% for Merced City. These unemployment figures had been 14.3% for the MSA
and 13.5% for the City in November 2008, just 4 months earlier. The Merced region’s
unemployment figures were nearly double California’s figure of 11.2%, and were
approximately 3 percentage points higher than those of its closest neighboring MSAs
in the Central Valley, Modesto and Fresno. Merced is among the top 5 cities in the
state for jobless rate.

Moreover, the employment picture in non-farm related occupations appears equally
troubled, at least in the near term. The manufacturing sector, which had been
relatively stable from November 2007 to November 2008, lost an estimated 500 jobs
between November 2008 and March 2009, a 5.5% decline in just 4 months. The
trade, transportation and utilities sector, already down almost 5% from the previous
year by November 2008, lost another 900 jobs between November 2008 and March
2009, a further 7.6% job loss. The construction sector, already devastated by a 27.6%
decline in the prior year, fell another 9.5% in the same 4-month period.

On the bright spot, the University of California at Merced, which opened in 2004,
remains a potential economic engine for the City. Its growth to date, however, has
been somewhat slower than originally projected. Nevertheless, this institution is
certain to grow significantly in future years, and will undoubtedly provide both direct
and indirect employment opportunities in the long-term. More immediately, the City
has been actively pursuing the establishment of a major Wal-Mart distribution center in
an industrial zone on the City’s southeast side. This facility, if built, will provide
between 600 and 1,200 jobs.


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b. Market Conditions and demand factors

(1) Projection of the extent to which the market is likely to absorb abandoned and
    foreclosed properties, if NSP2 funding is not received:
Both the Federal and State estimates indicate that the City’s total housing stock has
increased faster than its population during this decade. The growth in the City’s
housing stock, however, has primarily occurred in the single-family housing arena.
Census estimated that single-family dwellings increased by 4,087 units, or 74% of the
total housing stocks increase between 2000 and 2007. California Department of
Finance (CDF), estimated that single-family homes comprised an even higher 86% of
all new housing between January 1, 2001 and January 1, 2008. A clear majority,
53.5% of the population, lived in rental housing. By 2007, however, the percentage in
rental housing had grown dramatically, to 61.3%. Owner-occupied housing had fallen,
correspondingly, to just 38.7%. In California and the U.S., on the other hand, owner-
occupied housing comprised a clear majority of all households in 2000, and this
majority had grown larger for both the State and the nation by 2007.

The median sold price for a home in Merced, CA was $96,500 in May 2009. This
average was $117,000 in April 2009, which shows a decline of 17% and $149,900 in
May 2008 indicating a decline of 36% in just one year. Home sales recorded for May
2009 for Merced was 120 and the average home sales from May 2008 through May
2009 was 117. The average day of sold properties on the market from May 2008
through May 2009 was 65 days. With the latest total inventory of 2,603, at 105 sales
per month (about 90% of total sales), the absorption rate is over 24 months.
Depending on the state of the economy, it might take anywhere between 2 to 4 years
for the housing market to recover.

(2) The extent which over-building of housing units, over-valuation of housing, or loss
    of employment is critical factor causing abandonment and foreclosure:
All of the indicators on foreclosure, credit issues, unemployment, and poverty rates,
have created a severe decline in neighborhood stabilization. The current economic
conditions and worsening housing market has added more to the foreclosure problem.
It is unlikely that normal market absorption will make a noticeable difference in
removing neighborhood blight through the purchase of foreclosed homes.

NSP2 funds, if awarded, will address foreclosure issues and at the same time will
create employment opportunities in the area, keeping in mind that unemployment is a
big factor contributing to market conditions and neighborhood decline.

(3) Income characteristics:
The Median Household Income for Merced is $39,717, compared to $59,386 for the
State of California. According to the 2006 American Community Survey, Merced had
the highest poverty rate of 28.7% amongst all American cities with 65,000 or more
population. The National Association of Home Builders/Wells Fargo Housing
Opportunity Index shows how Merced and Northern San Joaquin Valley have flipped

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from being the nation’s least affordable places to buy to being among the most
affordable. NSP2 funds, through acquisition/rehabilitation, and financing mechanism,
will help the low-income families in the community to be able to purchase their homes
in this market at an affordable price.

By 2007, California’s median family income had risen 27.3%, to $67,484, and the
national figure by 22.2%, to $61,173. Yet Merced’s median family income remained
virtually unchanged at $32,840. And, while the percentage of families with incomes
below $25,000 dropped significantly in California (15.2%) and nationally (16.5%), it
actually rose in Merced, to 38.7%. In short, and in light of inflation, this segment of
Merced’s population has been sinking deeper into economic distress throughout the
decade.

(4) Relevant social, governmental, educational, or economic factors contributing to
    local market conditions and neighborhood decline:
The aggressive marketing of low down payment mortgage financing in the first half of
the decade, frequently involving sub-prime and/or ARM option loans, may also have
contributed to Merced’s foreclosure problem. The prospect of Merced emerging as a
lower cost housing option for Bay Area commuters and retirees also probably played
some part in the overall picture, as has been the case in other central valley
communities.

It might seem out of the ordinary to maintain that a City in which the housing stock has
increased at a faster pace than its population nonetheless faces a major housing
affordability problem (as of June 2009, the City has over 2,500 improved single family
residential lots ready for construction). But, at least for a very large segment of the
City’s residents, that is the case. Merced is today a bargain hunter’s dream for
potential single-family home buyers with sufficient resources to make the requisite
down payment, pay closing costs, and meet their monthly mortgage payments. But for
those in the rental housing market, particularly moderate, low, and very low-income
residents, housing affordability remains a serious dilemma.

FACTOR 2 – DEMONSTRATED CAPACITY

a. Past Experience
(1) City and Regional Planning:

The City of Merced is an Entitlement Jurisdiction and is required by HUD to complete
5-year Consolidated Plans, Annual Action Plans, and Consolidated Annual
Performance Evaluation Reports (CAPER). Additionally the City is involved in
preparation of Continuum of Care Plan and grant application submittal annually. The
City keeps all other HUD required reports updated and is now in the process of
updating its Analysis of Impediment to Fair Housing.



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The City is in the process of its General Plan Update, which will include an expanded
Specific Urban Development Plan (SUDP)/modified Sphere of Influence, a new land
use diagram, a public participation program, updates to all the General Plan chapters
(except Housing), and an environmental impact report (EIR). The General Plan
Update is expected to be completed by early 2010. Many public meetings have taken
place throughout the General Plan Update process in the last few years, and will
continue to take place throughout the process.

Housing Element: An update of the Housing Element is due by August 31, 2009, per
the deadline established under state law. A draft of the Housing Element is scheduled
to be reviewed by the Planning Commission in August 2009, and will then be
submitted to the State of California Department of Housing and Community
Development (HCD) for their review and comment as required per State law. Once
the City receives HCD's comments, the City Council will hold public hearings to
consider adoption of the new Housing Element.

Housing Elements and Consolidated Plans have many similar requirements and
features, including a five-year time frame. The City of Merced adopted Consolidated
Plans in 1995, 2000, and 2005. Since 2001, the City of Merced added sites for 5,219
new single-family homes and 614 new multi-family units, for a total of 5,833 units,
including 700 units for low and moderate-income residents.

(2) Acquisition and disposition of foreclosed real estate:
In January 2009, HCD announced that the City of Merced would receive $2,046,968
through the NSP funds. The City has submitted an application for NSP funds and is
awaiting State’s approval of the plan. This will be the first wave of dealing with the
foreclosed real estate by the City. Approximately 70% of funds for that grant will be
used for first time homebuyer financing for the purchase of foreclosed homes and
about 30% of funds will be allocated for the acquisition, rehabilitation, and resale of
foreclosed homes.

The first time homebuyer program will provide downpayment assistance to first time
homebuyers for a maximum of up to $30,000 for downpayment and closing costs for
the purchase of foreclosed homes that are in move-in condition. The foreclosed
homes can be purchased in all low/mod eligible census tracts within the City. The
acquisition/rehabilitation program will consist of purchase and rehabilitation of
abandoned and/or foreclosed homes. The City may also work with its non-profit
agencies and affordable housing developers that are interested in purchasing and
rehabilitating foreclosed or abandoned homes. The houses will be sold to qualified
buyers. Should an affordability gap exist, the City, at its option, will provide a first time
homebuyer down payment assistance to the buyer. The City’s goal is to place families
in homes as quickly as possible using NSP funds to help stabilize neighborhoods
significantly impacted by the foreclosure crisis and at the same time address selected
blight issues caused by foreclosures.



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(3) Rehabilitation of housing:
The City is already involved in activities that are similar to acquisition and disposition
of foreclosed real estate. The City of Merced has been involved in acquisition,
rehabilitation, or reconstruction of owner-occupied housing units for many years. The
City utilizes CDBG and HOME funds for low-interest rehabilitation/reconstruction loans
to low-income home owners and owners of rental properties. This activity also
includes emergency loans, which provides funds to repair failing roofs, inoperable
sewer lines, and other emergencies regarding health and safety. To date, the
centerpiece of the City's Housing Program effort has been the Housing Rehabilitation
Loan Program, representing the largest budget allocation for housing related programs
in the City. The program has been extremely popular and successful and since 1993,
about 500 emergency, rehabilitation, or reconstruction projects have been completed
through the Rehabilitation Program.

The City, in addition, operates an active First-time Homebuyer Down-payment
Assistance Program. Since 1993, the City has funded over 770 first time homebuyer
loans in excess of $6.5 million (including activities costs) in CDBG, HOME, program
income, and Redevelopment Agency funds. In recent years, the City has also utilized
additional grants from the State of California such as BEGIN and CalHome for first
time homebuyer loans.

In recent years, the City has been involved as a key partner in development of three
large-scale affordable housing projects. These projects (The Grove, Sunnyside, and
Sunny View Apartments) have provided a total of 435 affordable housing units for
Merced residents. The City has provided about $8 million of financial assistance in the
form of low interest deferred loans for the development of these projects.

(4) Redevelopment of vacant properties:
The City’s Redevelopment Agency is heavily involved in redevelopment of vacant
properties. One of the Agency’s primary goals is to expand and improve the
affordable housing stock throughout the community. To help achieve this goal, the
Agency has been actively acquiring properties throughout the community that are
blighted, vacant or underutilized.

The Agency has then been partnering with affordable housing developers like Habitat
for Humanity in rehabilitating, or if necessary, reconstructing the units as affordable
housing units. The Agency is taking advantage of this historic buying opportunity to
acquire parcels to eventually construct numerous new affordable housing units. In the
past 25 years, the Agency has assisted in constructing more than 750 affordable
housing units; the Agency is positioning itself to continue this legacy.

In the past two years, the Housing Program of the City has been provided twelve (12)
first time homebuyer’s application loans, fifteen (15) reconstruction, and seven (7)
rehabilitation projects for a total of 34 activities. The Redevelopment Agency of the
City has been responsible for acquisition of sixteen (16) properties zoned for
construction of approximately 140 units of affordable housing.
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(5) Program marketing and management of waiting lists for potential residents:
Program marketing will take place immediately after the approval of the application for
the grant. Advertisements will be placed in local newspapers, the City’s newsletter,
City’s website, City Hall, and various locations throughout the City including lending
institutions. The City currently has a waiting list of over 100 income-qualified buyers.
Staff will also hold a public hearing before the City Council to announce the funding
availability. Applicants or potential buyers will be notified as soon as the funds
become available.

(6) Accessing operating and investment capital:
The City’s operating and investment capital will come out of the City’s general
operating funding, which will be reimbursed with the NSP2 funds.

(7) Working productively with other organizations:
The City has a leading role, and is an active participant, in the development of
affordable housing in the community. The City supports applications of other
government entities and nonprofit organizations in its jurisdiction to maximize the
resources available for affordable housing and community development efforts in the
City. As the only Participating Jurisdiction in the County, the City also has a key role in
the preparation of Continuum of Care and has recently been approved to receive
Homelessness Prevention and Rapid Re-Housing Program (HPRP) funding. As a
participant in the Continuum of Care, the City is directly involved in the strategic
planning process concerning the capture of all available resources, and efforts will be
made to coordinate all Continuum of Care and mainstream resources with HPRP
system.

The City continues to focus on providing housing opportunities to groups with special
housing needs. A potential source of funding for such activities is the HOME, CHDO
Set Aside. The City of Merced works closely with the Central Valley Coalition for
Affordable Housing (a local CHDO) in developing affordable housing projects. Each
year 15% of HOME funds is set-aside for the CHDO projects. The Central Valley
Coalition for Affordable Housing will focus its efforts now to purchase and rehabilitate
an abandoned, foreclosed home for resale or rent.

The City has addressed the goals in the Consolidated Plan by working closely with the
Merced County Community Action Agency in the operation of a transitional homeless
shelter and funding contribution for a temporary shelter facility during the cold winter
months. The City has contributed over $140,000 of CDBG and other funds to help pay
the rent of the National Guard Armory that serves as the temporary homeless shelter.
The City, in addition, has provided $300,000 of the CDBG and RDA funds for
construction of a new permanent homeless shelter in the City of Merced.

b. Management Structure
Our current core staff is composed of a Housing Program Manager, a Housing
Finance Specialist, two Housing Rehabilitation Specialists (one vacant), and a

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Secretary. There are number of support staff in RDA, Development Services
(Planning, Building, and Engineering), Finance, and Attorney’s Office. Since the
initiation of the City’s Housing Program, Housing and Finance staff has been
responsible for processing all loan applications and loan documents. Staff in Building
and Housing is responsible for property surveys and preparation of work write-ups,
drawings, bid packages, contractors’ selection, and all required inspections.

All loan packages are prepared in-house and we have established relationships with
all major title companies and lenders for other required transactions. Fannie Mae,
FHA, and CHFA have approved the City of Merced’s loan documents. As an
Entitlement Jurisdiction, using CDBG and HOME funds, we are familiar with federal
regulations and fully comply with the requirements.



 Names/Position                         Job Description/Responsibilities
                                      Housing Division
Masoud             Manages and administers a wide variety of activities in the analysis,
Niroumand,         design, technical, financial, implementation, coordination, evaluation, and
Housing Program    monitoring of housing programs and projects. Develops housing
Manager            opportunities, including the creation and improvement of affordable housing
                   and elimination of substandard housing. Provides budget preparation,
                   forecasting, funding and program direction; oversees loan and property
                   related activities, federal, state and local regulations related to housing
                   programs. Oversees coordination with other agencies, non-profit
                   organizations and committees.
Dawn Mendonca,     Performs financial counseling, processing, implementing, and monitoring
Housing Finance    duties in applying for, obtaining and ensuring repayment of rehabilitation
Specialist         loans, first time home buyer loans and / or grants in compliance with
                   federal and state regulations.
Jeff Farr, Housing Provide basic assistance for local property owners in the rehabilitation,
Rehabilitation     demolition, or reconstruction of their homes; to perform inspections of
Specialist (+ one  housing rehabilitation projects; and to do related work as required in
vacant)            compliance with federal and state regulations.
Claudia Weeks,     Coordinates and performs a variety of administrative support work for the
Housing Secretary Housing Division. Gather information and perform special projects, public
                   information and relation assignments. Maintains and updates accounts
                   receivable data; develops and prepares special reports, creates forms, and
                   operates a variety of office equipment.
Greg McSwain and Inspects existing residential buildings and dwelling units to determine
Kelly Roseman,     compliance with City ordinance standards, inspects premises for
Code Enforcement compliance with property maintenance ordinance, and other related work.




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                                 Planning and Building Divisions
                                         (Supporting Staff)
Julie Nelson,        Performs a variety of technical and professional planning, zoning, land use
Planner              activities, assist in preparation of housing reports. The housing reports
                     include Annual Action plan, Consolidated Annual Evaluation and
                     Performance Report (CAPER), and Consolidated Plan.
David Gonzalves,     Oversees and directs the functions and operations of the Development
Development          Services Department. Represents the City Council policies and programs
Services Director    with City staff, community organizations, other agencies, and the public.
Gerald Brown,        Conducts inspections of residential, commercial, and industrial building
Building Inspector   structures and to determine that construction, alterations, and repairs are in
                     compliance with City and Uniform Building Codes and ordinances.


FACTOR 3 – SOUNDNESS OF APPROACH

a. Proposed Activities

(1) Overall neighborhood stabilization program including any coordinated components
    not directly funded with NSP:
The City proposes to implement NSP2 funding using the same strategies currently in
place for the NSP1. The overall neighborhood stabilization program will include the
use of NSP2 funds to expand its NSP1 efforts and further stabilize the targeted
geographies. NSP2 funding will be used to focus on the same foreclosure-stricken
areas of the City to increase the impact of neighborhood stabilization.

Merced’s foreclosure problem is widespread throughout the community and the
allocation will not be enough to begin to address the needs of the community. For
example, the City is proposing only 4-5 acquisition/rehab with those funds (the majority
of funds will assist homebuyers with the downpayment assistance). NSP2 funding will
take at least 100 foreclosed homes off the market and to productive use, which will
include opportunities for affordable rental housing. The affordable rental housing will
address those individuals and households at or below 50% of Area Median Income.
Target area includes five census tracts in the City: 10.05, 11.01, 11.02, 18.01, and
18.02. All these census tracts have foreclosure scores of 20.

The following numbers are based on the City receiving $5.5 million and returning a
minimum of 100 abandoned or foreclosed homes back to productive use. The City will
set aside 10% of these funds or a maximum of $550,000 for eligible administrative
costs. The remaining funds will be used in the following categories:

Financing Mechanism: Approximately $1,500,000 will be used to establish financing
mechanisms to assist first time homebuyers for the purchase of foreclosed homes.
This program will help by taking about 60 foreclosed homes off the market and into
productive use (the program will include necessary rehabilitation from our existing
CDBG rehab account) by placing qualified households in these units.


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The downpayment assistance will give many households and individuals the
purchasing power they need to afford homes that fit their income levels and household
size. The City will require each NSP2-assisted homebuyer to receive and complete at
least 8 hours of homebuyer counseling from a HUD-approved housing counseling
agency before obtaining a mortgage loan.

The program will provide downpayment assistance for a maximum of $30,000
(average loan is about $25,000) for downpayment and closing costs for the purchase
of foreclosed homes. All funds will be used to benefit households at or below 120% of
area median income. Depending on the housing market condition, the City might
revise the amount of the downpayment; and/or extend the program to include all
qualified homebuyers. Loans are provided interest free for the first five years, with a
fixed three (3) percent interest rate, initiating on the 61st month. Debt is amortized
over the following 25 years and there are profit sharing or penalties for subsequent
sale to non low-income homebuyers.

Acquisition, rehabilitation, and redevelopment of vacant properties: About $2,050,000
will be allocated for the acquisition, rehabilitation, and resale of foreclosed homes.
The City will concentrate on rehabilitation of the foreclosed units and redevelopment of
demolished or vacant properties. The City does not plan to use these funds for
demolition of existing structures except in isolated extreme circumstances. This
program will restore about 20 foreclosed homes or vacant lots in the areas with the
greatest needs and will place qualified applicants in those homes. Acquisition and
rehabilitation of foreclosed or abandoned homes for resale may include additional
downpayment assistance. Additional financing such as downpayment assistance, if
needed, will be provided through the City’s Redevelopment Agency’s funds (letter of
commitment is attached).

The City may also work with its non-profit agencies and affordable housing developers
that are interested in purchasing and rehabilitating foreclosed or abandoned homes.
The houses will be sold to qualified buyers. Should an affordability gap exist, the City,
at its option, will provide a first time homebuyer down payment assistance to the
buyer. The foreclosed homes can be purchased in low/mod eligible census tracts
within the City limits. All funds will be used to benefit households at or below 120% of
area median income.

Rehabilitation of the foreclosed or abandoned properties will be done according to all
applicable laws, codes, and other requirements relating to housing safety, quality, and
habitability. All rehabilitations will include improvements to increase the energy
efficiency or conservation of such homes and properties. Upon preparing the home for
resale, the properties will be made available to families meeting the City’s first time
homebuyer program guidelines. The City will make no profit in the turnover of the
property to a new homeowner.

Multi-family rentals: The remaining $1,400,000 of the grant (about 25.4%) will be used
for development of affordable housing to house those at 50% or below AMI. The City

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will enter into agreements with non-profit agencies and affordable housing developers
to implement this part of the program. The City’s goal is to utilize NSP funds as
quickly as possible in order to help stabilize neighborhoods significantly impacted by
blight issues caused by foreclosures. This program will provide about 20 affordable
rental-housing units.

To ensure affordability of NSP assisted housing, the City of Merced will require any
housing funded through the program to have an affordability covenant. All NSP2
activities will be implemented within 3 years from the time the grant is awarded. The
City staff will monitor the programs and also screen income eligibility requirements.

NSP-Eligible Uses                                Correlated Eligible Activities From
                                                 the CDBG Entitlement Regulations
(A) Establish financing mechanisms               NSP eligible use: Section 2301
                                                 (c)(3)(A)
Providing downpayment and closing costs          CDBG eligible activity: 24 CFR
assistance to qualified first time               570.201 (n)
homebuyers. 60 units for a total of
$1,500,000 (Average loan of about $25,000)
(B) Purchase and rehabilitation of homes         NSP eligible use: Section 2301
and residential properties that have been        (c)(3)(B)
abandoned or foreclosed upon, in order to        CDBG eligible activity: 24 CFR
sell, rent, or redevelop such homes and          570.202
properties.
(E) Redevelopment of demolished and
vacant properties

Acquisition, rehab, and resale of 20 units at
+$100,000 a unit (average) for a total of
$2,050,000 (RDA, CDBG, and HOME funds
will be used if additional funding is needed).
(B) Purchase and rehabilitation of multi-        NSP eligible use: Section 2301
family residential properties that have been     (c)(3)(B)
abandoned or foreclosed upon, in order to        CDBG eligible activity: 24 CFR
sell, rent, or redevelop such homes and          570.202
properties to those at or below 50% AMI.

Acquisition, rehab, and resale of 20 multi-
family units at $70,000 a unit (average) for
a total of $1,400,000 (RDA, CDBG, and
HOME funds will be used if additional
funding is needed).




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b. Project completion schedule
Acquisition/Rehabilitation/Sale;
Redevelopment of Vacant and
abandoned properties:               Year 1, 7 units; year 2, 7 units; and year 3, 6 units;
                                    Total of 20

Financing Mechanisms:               Year 1, 20 units; year 2, 20 units; and year 3, 20
                                    units; Total of 60

Acquisition/Rehabilitation of
affordable multi-family
residential units:                  Year 1, 7 units; year 2, 7 units; and year 3, 6 units;
                                    Total of 20

Total number of units for three years will equal 100 of which 25.4% will be affordable
units sold to, or occupied by, families that earn less than 50% of AMI. We will project
annual program expenditures proportionally to the number of units completed each
year.

Year 1: 34 units /100 total units = $5.5 million x 34% =      $1,870,000
Year 2: 34 units/100 total units =$5 million x 46% =          $1,870,000
Year 3: 32 units/100 total units = $5 million x 28% =         $1,760,000

Total Units: 100                          Total Grant:        $5,500,000

c. Income targeting for 120 percent and 50 percent of median

Income targeting levels will be met through public information meetings, flyers, and
other advertising, including on the website and in local media where applicable.
Incomes will be verified through approved documentation and records will be kept to
insure the requirements are met. The City will use a minimum of 25% of NSP2 funds
for individuals and households at or below 50% of the Area Median Income (AMI). All
other NSP2 activities will benefit only those with income not exceeding 120% of the
AMI.

d. Continued Affordability

The City will apply affordability requirements to all its NSP2 activities. Affordability will
be attained by placing a deed against the property for the length of the affordability
period. In addition, the City will verify the occupancy status annually to assure the
place is in decent condition and also that it is not used as a rental unit. For any NSP-
funded rental activity, “affordable rents” shall be defined as 30% of the household’s
adjusted income, less utility allowance as adopted by the County of Merced Housing
Authority for the Section 8 program, as appropriate. HUD’s Fair Market Rent schedule
and HOME Program Rent limits for the Merced County will also be used as a
reference.

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The City will implement the HOME program standards at 24 CFR 92.252(a), (c), (e),
and (f) for rental properties and 24 CFR and 92.254 for homeownership properties.
Tables below show the HOME program rental and homeownership assistance
requirements.

        Rental Housing Activity                 Minimum period of affordability in
                                                            years
 Rehabilitation or acquisition of existing
housing per unit amount of HOME funds:                            5
             Under $15,000
           $15,000 to $40,000                                    10
 Over $40,000 or rehabilitation involving
                                                                 15
              refinancing
New Construction or acquisition of newly
                                                                 20
        constructed housing
     If any RDA funds are used                                55
  Homeownership assistance HOME                 Minimum period of affordability in
          amount per-unit                                   years
             Under $15,000                                        5
           $15,000 to $40,000                                    10
              Over $40,000                                       15
       If any RDA funds are used                                 45


e. Consultation, outreach, communications

The City of Merced, as a local government, makes every effort to encourage its
citizens in engaging in community affairs. Public hearings are held as to how funds
are going to be spent on all types of funding such as CDBG, HOME, and NSP. The
City Council engages in public meetings twice a month to discuss and take action on
important matters affecting the community. The City, in every respect, is accountable,
not only to HUD, but also to the citizens of Merced, to assure the expenditure of funds
within the appropriate guidelines. Although NSP funding is new, the City has been
carrying out similar housing activities for many years and as an entitlement jurisdiction
has a sound success record of timely and effective programs in the community.

Public notices were posted in two newspapers of general circulation on June 11, 2009
and on June 12, 2009 about the NSP2 funding and also the availability of a draft plan.
The notice was also posted on the City’s website and other City locations about the
public hearing and advised the citizens for their participation and comments. On July
6, 2009 the City Council unanimously approved the City’s application submittal for the

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Neighborhood Stabilization Plan Round 2. The City will ensure accountability for all
programs, keeping its citizens actively informed, and provide all required NSP2
reporting elements.

The City will continue the communication process it currently has in place. If NSP2 is
awarded, advertising in papers of general circulation will be done when appropriate,
the City’s website will be kept updated, brochures will be produced and sent to various
agencies, and staff will work with appropriate agencies, housing providers and
realtors. The City has already conducted several meetings regarding the NSP funds
including a meeting with the Board of Realtors. These outreach and communications
have already resulted in more than 100 qualified applicants on the waiting list for the
first round of the NSP funds. Several developers of affordable housing have already
contacted the City and are eager to be involved in the implementation of the NSP
program.

f. Performance and monitoring

In accordance with its Consolidated Plan, the City of Merced undertakes annual
evaluations of the housing programs included in the Plan. To ensure that the City is
meeting the long-term comprehensive planning requirements, a Consolidated Annual
Performance and Evaluation Report (CAPER) is compiled each year, which
subsequently is submitted to HUD for review and approval. When bidding and
performing work financed by CDBG and HOME funds, it is the adopted policy of he
City of Merced to conduct outreach efforts to provide an equal opportunity for the
participation in all activities.

The City has established monitoring procedures for its subrecipients in order to ensure
compliance. Those procedures include written contracts with subrecipients before
funds are disbursed and workshops with applicants and all new subrecipients to
ensure that they understand all reporting requirements. In addition, annual reports are
required of each subrecipient. City staff also conducts site visits at least annually and
verifies that subrecipients are keeping required records and meeting eligibility
requirements. If discrepancies are found, the subrecipient is informed immediately
and a formal letter is mailed. The subrecipient is then given 30 days to correct the
problem or provide a timeline for correction. The City will work with the organization to
understand requirements and to achieve compliance. Once compliance has been
achieved, the subrecipient receives a closure letter from the City. The City Council is
informed of any unresolved problem.

Management of the City of Merced is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of the City are protected
from loss, theft or misuse and to ensure that adequate accounting data is compiled to
allow for the preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America. In addition to its annual audit,
the City is required to undergo an annual single audit in conformity with the provisions
of the Single Audit Act Amendments of 1996 and U.S. Office of Management and

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Budget Circular A-133, Audits of State and Local Governments. The City of Merced
has always received “clean” audits, and has not had any negative findings or
disallowed expenses on any federal grants received. In addition, the City has received
annual awards for the quality of its financial reporting from the Government Finance
Officers Association for each of the last twelve years running.

FACTOR 4 – LEVERAGING, INTEGRATION, REMOVAL OF NEGATIVE EFECTS
The City will use non-federal funds either in combination or independently in order to
achieve greater leverage for NSP funds. The specific source of non-federal funds is
Redevelopment Agency Housing Set-Aside funds and private funds to be used in NSP
projects. The City will leverage $600,000 of its RDA funds, if the NSP2 funds are
awarded. These funds are already in the adopted budget for the land acquisition and
housing rehabilitation for low and moderate-income families. The letter of commitment
is attached.

The City will stabilize the current housing market by removing negative effects or
destabilization influences. With NSP2 funds, the City will remove at least 100
foreclosed and/or abandoned homes and occupy with qualified individuals or families
within the 120% or 50% AMI. The City is currently is in discussion with developers
and local agencies regarding ongoing neighborhood stabilization activities. This
coordinated effort will continue in order to maximize both leveraging and negative
effects.

FACTOR 5 – ENERGY EFFICIENCY

The City has adopted the latest California Energy Code. All NSP2 constructions,
where applicable, will be required to exceed Energy Star. The City will also implement
Green Building Standards if required. The City will follow the NSP2 rehabilitation
standards and improve the energy efficiency of all foreclosed and vacant residential
properties purchased with NSP2 funds. The City of Merced will also follow the Energy
Star standards for all housing rehabilitation to establish maximum energy efficiency
rating. All houses will be checked for the following items:

       Efficient insulation, energy-efficient windows, sealed construction and ducts,
       effective heating and cooling equipment, sustainable and energy efficient
       landscaping, and efficient products such as Energy Star qualified products.

All inefficient items and fixtures, to the extent economically possible, will be replaced
with energy efficient products. An orientation will also take place with homeowners
and tenants informing them about green energy and the use of energy efficient
materials.

The Transportation and Circulation Chapter or the City’s General Plan addresses the
City’s major road system, local street patterns, air facilities, bus and rail transit, and
bicycle and pedestrian ways. The goal is to identify the most effective ways to plan for

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circulation while enhancing the community and protecting the environment. The goals
and policies presented are intended to coordinate circulation with land use by
concentrating higher residential densities and major trip destinations in the vicinity of
major roadways and public transit corridors. All areas in NSP2 project are transit
accessible including local bus services.

The Merced Vision 2015 General Plan seeks to build an environmentally and
economically “sustainable” city. A “sustainable city” is a city designed, constructed,
and operated to efficiently use land and other natural resources, minimize waste, and
manage and conserve resources for the use of present and future generations. It
promotes housing, schools, and shopping areas in proximity to one another; higher
population densities around transit stops; and mixed use and transit-friendly
commercial and employment centers thus helping to preserve both our air quality and
quality of life. According to the Merced Bus system, there are 15 buses on 10 routes
for the City of Merced. More information is available on
http://www.mercedthebus.com/routes.html.

The City is also a member of Merced County Association of Governments (MCAG).
As a Regional Transportation Planning Agency and Metropolitan Planning
Organization, MCAG is the primary transportation facilitator in Merced County. MCAG
is a Council of Governments with responsibility to manage and implement regional
transportation, transit, and solid waste disposal services, while providing a public
forum for cross-jurisdictional issues. Responsibilities are many, from identifying
priority projects to assuring money accepted for improving transportation has been
properly utilized.

FACTOR 6 – NEIGHBORHOOD TRANSFORMATION AND ECONOMIC OPPORTUNITY
California's San Joaquin Valley is composed of eight counties: Kern, Tulare, Kings,
Fresno, Merced, Madera, Stanislaus, and San Joaquin. According to the American
Community Survey, these counties have a combined population of approximately
3,863,000. Each of these Counties has been severely affected by the real estate and
foreclosure crisis over the past several months. Indeed, several communities
throughout the San Joaquin Valley have been noted nationally for their high rates of
foreclosed-upon and abandoned properties. The affects of over-valuation, over-
building, rising foreclosure rates, declining property values, and rising unemployment
rates are not unique to any single area of the San Joaquin Valley.

To that end, several units of local government and non-profit and for-profit entities,
including the City of Merced, are applying for NSP2 funds to address the issues
related to foreclosure in their jurisdiction. Although these applications are being
submitted to HUD separately, these applications include separate target area
geographies, the sum of which addresses the overall issues of the foreclosure crisis in
the San Joaquin Valley on a regional level.

To facilitate a regionally coordinated effort, the following NSP2 Lead Applicants have
discussed their individual and mutual intent to address the issues of foreclosure in
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their respective target area geographies with the full cooperation and understanding
that the issues being experienced in one area are being experienced throughout the
entire San Joaquin Valley:

                County of Tulare
                County of Fresno
                City of Fresno
                County of Merced
                County of Madera
                County of Stanislaus
                County of San Joaquin
                City of Merced

In addition to these entities’ expressed concern for the regional dimensions of
foreclosure, each of these entities has entered into a Letter of Commitment, which
states that, to the extent practicable, where NSP2 funds will be used for the
acquisition of property, these entities will endeavor to purchase, on a bulk-scale,
foreclosed-upon properties from banks and real estate financing companies in an
integrated manner. This method of purchase will allow for each entity to realize
purchase price savings, which will then be conveyed as further affordability on the
future homeowner or renter of that property.

The Letter of Commitment states that the leading agencies in the San Joaquin Valley
commit themselves to the following:

   1) To use our collective buying power to negotiate with large banks and holders of
      REO a uniform set of rules and a consistent process for acquisition and the best
      possible prices so that housing can be rehabilitated and made energy efficient
      and sold with a savings to families who intend to reside in the home.

   2) To work collectively with banks and holders of REO in order to receive early
      notice of properties in foreclosure and to buy properties in bulk at a savings in
      NSP areas.

   3) To work together with No Homeowner Left Behind and with HUD approved
      counseling agencies to prevent as much as possible further foreclosures in
      NSP areas and to prepare families who are buying foreclosed homes with
      homeownership counseling.

   4) To maintain continued communications to inform each other as to what is
      working and what is not in stabilizing areas and to provide timely advice and
      technical assistance with the assistance of the San Joaquin Valley Housing
      Trust under the California Partnership for the San Joaquin Valley.

   5) To share practices and help each other in utilizing resources for energy
      efficiency and renewable energy with the assistance of the San Joaquin Valley
      Clean Energy Organization.
                                                                                          20
   6) To provide reports and reveal the effectiveness of the efforts, using the services
      of the local Fresno HUD Office, in order to demonstrate the impact of the
      program on the total regional market.

   7) To work together to hire local residents who have lost and are seeking
      employment and to work with the regional network of Workforce Investment
      Boards and agencies to prepare residents for employment.

   8) To work together to maintain a regional process dealing with the regional
      market that will support housing that is affordable to residents, connected to
      transportation and jobs, without diminishing agricultural lands, limiting carbon
      emissions, and protecting natural resources within the land use agreement of
      the San Joaquin Valley Blueprint.

It is believed that through these efforts, these entities will have more effectively
addressed the issues of foreclosure not only in the San Joaquin Valley but in the
smaller geographies included in each application.

The proposed NSP2 activities are all consistent with the City’s General Plan. The City
of Merced Vision 2015 General Plan envisions a growing community that has
improved economy, adequate public services, cultural facilities, and a good overall
quality of life for its residents. The General Plan seeks to build an environmentally and
economically sustainable city. It addresses transportation, economic revitalization,
and sustainable development including a city designed, constructed, and operated to
efficiently use land and other natural resources, minimize waste, and manage and
conserve resources for the use of present and future generation.




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