Friday, October 31, 2008
Questions raised about Community Septic Loan Program
Larry Barton, Carlisle’s Treasurer, attended the Board of Health (BOH) meeting on October 28 to present several concerns about the Community Septic Loan program, adopted by Town Meeting last spring (see the board’s press release “Septic Loan Program now available for homeowners,” Mosquito, October 24).
Currently, the plan allows homeowners with a failing septic system to apply for a 2% interest loan of up to $40,000 from the town. The loan can be paid back over ten years. The town will make the loans by tapping into a $200,000 line of credit offered by the state. Once the initial $200,000 has been allocated, the town can go back to the state for additional funds, although the details and restrictions on this process were not clear. Certain loan parameters are specified by the state, while others are under local control.
Means test questioned
Barton expressed concern about who would qualify for the loans. Under the current structure of the program, anyone with an income less than $150,000 would be eligible to apply. There is concern the money get used up by people who could afford to pay on their own, or who could secure a home equity loan. Board Chair Jeffrey Brem felt they could not ask each homeowner how much equity they have in their home. Barton suggested they can ask if the applicant has sought other sources of funding.
Barton also questioned the terms of the loan. Currently, the homeowner can get the loan at 2% interest to be paid back over ten years. The town can then pay back the state over 20 years. The thought was that the different payoff periods would create a pool of extra money the town could use for administrative costs or future loans. Unfortunately, when Barton ran actual numbers, there was very little, if any, income. If the town keeps the loan from the state for 20 years, Carlisle may end up paying more interest than is received from the borrower.
Barton suggested either increasing the interest rate or repaying the town’s loan from the state sooner, over ten years. The board voted to increase the interest rate to 5%, pending approval from the state trust. The increased rate will allow for a small income to cover administrative costs.
Loans and home sales
Finally, Barton and the board discussed the implications of homeowners borrowing the money to repair their septic system in order to sell their home. According to the guidelines of the program, when the borrower sells their home, they can either pay off the loan early with no penalty, or they can roll over the loan to the buyer as a betterment assessment. On one hand, a faster turnover of the loan puts more money back into the pot for more loans. On the other hand, too much turnover might cause the program to lose money. Brem stated the BOH would like to target people who have failing septic systems but cannot afford to repair them, rather than simply to help people sell their homes.
Finally, the group discussed the question of whether a homeowner who is selling the property is under any obligation to disclose the loan to the mortgage holder. No one was certain of the answer. The board agreed to add three questions to the application: is the property under a mortgage agreement, who is the mortgage holder and may the BOH contact the holder?
Selectmen will look into it
Selectmen also brought up questions about the loan program during their meeting, which also met on October 28. In addition to the concerns above, it was asked if the town would become liable if an applicant defaults on a loan. The Selectmen agreed to discuss the issue in greater depth at a future meeting.
The Board of Health is planning an informational meeting open to the public, scheduled for November 18 at 8 p.m. Members of the BOH will present the loan program and answer questions from the audience. ∆
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