MEETING DATE:
NOVEMBER 10, 2026
SUBJECT:
Title
RESOLUTION NO. 2026-9680 - AUTHORIZING LOAN EXTENSION OPTIONS FOR DEFERRED LOAN BORROWERS, ESTABLISHING A LOAN MODIFICATION FEE, AND PROGRAM MODIFICATIONS LOAN EXTENSION OPTIONS FOR DEFERRED LOAN BORROWERS
Body
Recommendation
Recommendation
ADOPT a resolution authorizing a hardship pathway of loan extension options for income qualifying deferred loan borrowers and a passthrough of the Loan Application Fee onto borrowers.
Body
Board or Commission Action
City Council Resolution No. 2000-5415 adopting the 1999-2024 Housing Element, which included applicable homebuyer assistance programs.
City Council Resolution No. 2005-6639 adopting the 2005-2010 Housing Element, which included applicable homebuyer assistance programs.
City Council Resolution No. 2013-7805 adopting the 2013-2021 Housing Element, which included applicable homebuyer assistance programs.
City Council Resolution No. 2021-8906 adopting the 2021-2029 Housing Element, which included applicable homebuyer assistance programs.
City Council Resolution No. 2012-7654 authorized the application for CalHome funding for the Down Payment Assistance Program (DAP).
City Council Resolution No. 2014-7953 authorized an application for CalHome funding for the Down Payment Assistance Program (DAP).
Executive Summary
The City of San Marcos and the Successor Housing Agency have provided housing programs including the first-time homebuyer program, down-payment assistance program, mortgage assistance program and residential rehabilitation loan programs since 1996. These programs are targeted at providing access to permanent housing solutions for low to moderate income qualifying families. Funding for these programs have been funded through the former Redevelopment Agency, the current Successor Housing Agency (SHA), federal HOME funds and state CalHome funds. These programs have provided over 150 households with long-term affordable home ownership through low-interest or deferred interest loans. The deferred low interest, or no interest, loans are issued to low-income households at 80% of the area median income (AMI) or lower. The deferred low interest, or no interest, loans do not require a monthly payment and only require a full payment upon loan maturity, resale, or in the event of a title transfer. Upon maturity or title transfer, the loan principle and interest are due in full. This full payment may create hardship for some homeowners without the funds required for repayment. The actions proposed in this staff report will provide a hardship pathway for income-qualifying homeowners which align with the State of California’s Cal Home loan extension options.
Discussion
The City’s Downpayment Assistance (DAP), Mobile Home (MHP), Mortgage Assistance (MAP), and Housing Rehabilitation loan programs are designed to preserve and expand affordable homeownership opportunities for low- and moderate-income households. These programs assist residents who cannot otherwise access conventional financing with deferred, low-interest, or no-interest, loans that reduce upfront housing costs and support long-term housing stability.
The purpose of the programs is to expand and preserve affordable homeownership opportunities for low- and moderate-income households. By reducing financial barriers to buying or maintaining a home, these programs help prevent displacement, support neighborhood stability, and maintain the City's long-term affordable housing stock. Offering and administering these programs has been, and continues to be, a required implementation action of both past and current Housing Element cycles, ensuring compliance with State housing mandates while delivering meaningful housing assistance to the community.
While most loans issued over the years have been closed, the Successor Housing Agency and the City of San Marcos currently have 45 loans totaling $2.5 million provided to income qualifying San Marcos households. (See loan details in Attachment 2.) The earliest remaining loans were distributed in December 1996 and will mature at the end of 2026. Staff have proactively notified borrowers of their balances, received inquiries from some that they have financial hardships, and they do not have the resources to fulfill the required payoff amount.
Staff Recommendation
Staff identified the following provisions that are required under the CalHome program. Staff is proposing to include these terms and conditions, modified to remove CalHome specific references, as an optional addendum to all existing and future loans, if a financial hardship is applied for and a household is determined to be eligible based on the income qualifying financial details of the household. Applicable CalHome program language will be included in any new deferred loan agreements.
“Loans shall be repayable upon sale or transfer of the property, when the property ceases to be owner-occupied, or upon the CalHome program Loan maturity date; However, if it is determined by the Recipient that repayment of the CalHome program Loan at the maturity date causes a hardship to the Borrower, the Recipient has two other options. They are:
(A) Amending the note and deed of trust to defer repayment of the amount due at Loan maturity, that is the original principal and the accrued interest, for up to an additional 30 years (at 0 percent additional interest), this may be offered one time, or
(B) Converting the debt at Loan maturity, that is the original principal balance and any accrued interest, to an amortized Loan, repayable in 15 years at 0 percent additional interest.”
The proposed addendum is recommended for income-qualifying, eligible borrowers and would not transfer the current loan but would require a formal application including a statement of hardship, proof of income, financial statements and a current credit report. (See Attachment 3 Hardship Application.) Staff will complete an eligibility review and will typically engage a third-party financial reviewer to confirm eligibility status on income qualifying applications.
Eligibility is proposed to be limited to a small percentage of borrowers that demonstrate a hardship resulting in inability to pay the original maturity balance, which will be verified through financial documentation, and require income qualification and repayment ability which will typically be verified by a third-party consultant. The loan extension program is not intended to be applied to all loans and is only intended to be a resource for borrowers experiencing hardship at loan maturity or up to 3 months prior to loan maturity. The Loan Extension Hardship Application has defined hardship as a significant and documented change in a borrower’s financial or personal circumstances that adversely affects the borrower’s ability to meet loan repayment obligations. To qualify for a hardship-based loan extension, the borrower must demonstrate the presence of one or more of the following conditions:
1. Significant loss or reduction of income impacting the household’s capacity to afford ongoing housing costs.
2. Increased essential expenses beyond ordinary inflationary costs, including but not limited to medical care, caregiving responsibilities, disability-related expenses, or other necessary expenditures.
3. Death or incapacitation of a household wage-earner, resulting in reduced household income or increased dependence-related expenses.
4. Necessary and unavoidable property repairs that materially affect the safety, habitability, or affordability of the home.
5. Other unforeseen circumstances outside the borrower’s control that substantially affect the borrower’s ability to repay the loan as originally agreed.
A hardship must be supported by documentation and must show a direct connection to the borrower’s decreased ability to meet repayment requirements.
Annual communication including loan statements distributed to borrowers will include details of the Loan Extension Program and will inform borrowers with loans maturing within the upcoming 12 months. Additionally, the Loan Extension Option will be added to the Housing and Neighborhood Services web page for borrowers to access.
The proposed Loan Extension Options anticipate the use of a consultant to support the financial review for eligibility; thus, staff are also recommending passing through the review cost onto the borrower when applicable. There may be applications which are determined to be eligible based on staff review and financial materials provided. This has been proposed to be included in the City Council resolution included as Attachment 1.
Additionally, to allow greater program flexibility, staff is requesting the removal of the $60,000 maximum DAP loan amount identified in Resolution Nos. 2012-7654 and 2014-7953, and to instead permit the maximum loan amount allowed under the CalHome Program Guidelines or other applicable program guidelines.
Environmental Review
The proposed City Council action is not a project as defined under Section 15378 of the CCEQA guidelines and is not subject to environmental review pursuant to CEQA Guidelines.
Fiscal Impact
Adoption of the proposed resolution is not anticipated to result in a significant fiscal impact to the City. Fees associated with third-party financial review are estimated at approximately $1,500 per application and are proposed to be passed through to the borrower, with adjustments based on actual costs incurred. Approved loan extensions may defer future loan repayments. All financing contributed to the loan programs were approved via prior resolutions.
Attachments
1. City Council resolution authorizing loan extension options and loan processing passthrough fee
2. Loan portfolio details as of June 30, 2026
3. Loan Extension Hardship Application
Prepared by: Sylvia Daniels, Housing and Neighborhood Services Director
Reviewed by: Tim Selke, Assistant City Manager
Approved by: Michelle Bender, City Manager