The Loan Guarantee Program (LGP) aims to help affordable housing developers secure loans more easily or more favorably. By guaranteeing a portion of the loan used for building, buying, or renovating housing for people with moderate to very low incomes, the program reduces risk for lenders.
This encourages lenders to finance a wider range of projects than they normally would and potentially provide loans at more favorable rates than they would otherwise. Ultimately, the goal is to boost development in underserved areas and for emerging developers.
By reducing risk in these scenarios, a guarantee can help by building lender confidence. Supporting lending in these areas this product can also help prove these underserved areas and developers are viable markets and borrowers for the future for the long term.
OHCS manages this by leveraging a "guarantee account." If a guaranteed loan defaults, the state can use resources in this account to cover losses, following procedures outlined in the Loan Guarantee program manual.
Eligibility
Eligible organizations include:
- Local governments
- Local housing authorities
- Nonprofit organizations
- Federally recognized Tribal Governments
- For-profit businesses
Eligible lenders include:
- State and federal regulated banks
- Credit unions
- Savings and loans
- Savings banks
- Finance companies
- Life insurance companies
- Pension funds
- Mortgage bankers
- Public or private lending consortiums
- Government entities that offer loan funds
Successful guarantee recipients will demonstrate sound experience and strong development capacity.
Funding requirements
Guarantee Terms:
- Eligible Loan Types: Permanent loans for low or very low-income housing. The guarantee can be used at the time of conversion from construction to permanent loans if there is a forward commitment.
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Payback: If the guarantee is used, it converts to a subordinate mortgage loan with a zero percent interest rate. Payments are due at loan maturity, sale, or refinance.
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Top Loss: In case of default, the LGP covers the first loss up to the guaranteed amount.
Usage Options:
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Principle Pay-down: Lump sum payment to right-size a loan post Certificate of Occupancy.
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Debt Service Payments: Covering debt service payments for a negotiated period.
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True-loss Repayment: Repayment to the lender up to the guaranteed amount.
Different pathways guide the terms of the guaranteed amount, detailed in Appendix A of the LGP manual.
Applicants must demonstrate financial viability and meet OHCS general underwriting criteria. Key criteria include:
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Operating Expenses: Reviewed for reasonableness.
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Minimum Debt Coverage Ratio (DCR): 1.15:1 for all hard amortizing debt.
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Vacancy Rate: Assumptions between 5% and 7%.
How to apply
Applicants can apply through the
Oregon Centralized Application (ORCA) process. The application process is a two-step process requiring indication of interest through the ORCA intake form, after which they will be contacted and provided with a Loan Guarantee Program application.
An application fee of $500 is required with submission of the application. Applications are accepted on a rolling basis, subject to fund availability. OHCS staff will review applications for completeness and negotiate with applicants as necessary.
Evaluation criteria include:
- Organizational and financial capacity.
- A well-thought-out and attainable housing plan.
- Collaboration with lender and lender commitments.
- Urgency to acquire the loan for providing affordable housing.
Download the Loan Guarantee Program manual