CHICAGO - The board for Ohio's Summit County Port Authority this week rejected a request to issue $12.5 million of tax-exempt bonds to finance a pilot foreclosure program operated by a Cincinnati-based nonprofit group.
The authority's board had too many unanswered questions and concerns about the newly-formed nonprofit, American Homeowners Preservation of Cincinnati, said director Chris Burnham. It was the first time in the port authority's 10-year history that it revoked an inducement resolution, he added.
The rejection comes the same week that the Indianapolis housing police announced they were seeking felony fraud charges against one of the principals involved in AHP-Cincinnati for misusing public funds in previous real-estate deals in that city.
AHP had asked the Port Authority to sell $12.5 million in private-activity revenue bonds to finance a novel foreclosure program in a region that suffers from one of the highest foreclosure rates in the country.
Under the program, AHP would purchase houses in danger of being foreclosed on after negotiating with the mortgage company for a reduced price. The group would then rent the house to the original homeowner, who after three years would have the option to purchase the home at a previously-agreed upon price, plus a 15% fee.
AHP requested the funds in July and in September the Port Authority approved an inducement resolution to consider the matter, Burnham said. With the resolution in hand, AHP began aggressively marketing the plan, and entered into purchase agreements with up to 200 homeowners, despite the lack of final approval - and a required public hearing - for the financing.
"They took that [inducement resolution] a lot more aggressively than we would have expected," Burnham said. "Because we've never really ventured into things that involve homes, we wanted to be extra careful."
Another reason behind the board's caution was the prospect that the bonds would be unrated and unenhanced. "We've never done an unrated bond issue; we've always had some kind of credit enhancement," he said. "So we wanted to be careful with that too."
As the board began looking into the group it either found insufficient or troubling information, according to Burnham. For example, of AHP's three-member board, two of the members had buildings in foreclosure and one was in bankruptcy, he said.
In addition, the board was concerned about the track record of one of AHP's consultants and funders, Jorge Newberry, who has faced some problems with publicly funded housing projects in Columbus, Beaumont, Tex., and now Indianapolis.
The board voted Tuesday to revoke the inducement resolution and reject the funding request, Burnham said. "If this program would have been in our mind viable and useful, we wanted to be part of that," he said. "We had too many questions."
The group's Cincinnati-based executive director, Robert Fredericks, could not be reached by press time. But he was quoted in local media reports as saying AHP was confident it would be able to find an alternative way to fund the program.
While the port authority will not work with AHP, the board said it would consider financing similar programs in the future to help deal with the area's high foreclosure rate.
"The idea definitely has merit," said Port Authority board member Kathy Stafford in a statement. "We simply want to pursue it with an organization in which we have more confidence."