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The Sweetheart Deal That Only Gets Better With Time
By Frazgo | May 2, 2008
The city manager’s “housing assistance package” is a story that won’t die. The more I dig into and separate rumor from fact (and the latter tends to support the former) and think I have covered it all, one more bit shows up. This week went like this: Email from a commenter, “I have a document for you but you have to promise to use.” “Sure,” I say, “what is it?” “The signed promissory note and it looks like not only is he paying interest only, it is a negatively amortized loan.”
What?
The relevant portion of the note is here, click away for a larger version that is easier on the eyes. If you want a copy of your own, ask for it and include your real email when filling out your comment screen so I can send you one.
In looking at it I had to stop and reread a couple of times. I even asked my wife who has dealt with loans for years. She agreed with my take on it. The loan is set with an interest rate of 5%. He makes payment of interest only based on 2% annual interest. The loan is negatively amortized, i.e. the difference in the paid versus charged interest is added to the principal.
I wrote a commenter here who has been very insightful with his comments on this topic in the past. I had questions for him to confirm and he answered me.
Here is what I have and a few questions.
Am I reading this correct? The interest charged is 5% but the interest only payment is 2%?
YES, THE INTEREST RATE IS 5%, BUT THE PAYMENT IS BASED ON ONLY PAYING 2% INTEREST ONLY PAYMENT…..HOWEVER, OCHOA CAN OPT TO FULLY AMORTIZE THE LOAN AT ANYTIME, JUST DON’T KNOW IF HE HAS OR NOT.
If it is, what can we calculate the payment is?
THE PAYMENT BASED ON 2% INTEREST ONLY WOULD BE APPROXIMATELY $459.00 PER MONTH(2% OF 275,000=5,500 DIVIDED BY 12 MONTHS)
What about the difference between 2% and 5% is that being tacked to the principle? Is this a situation of negative amortization?
THAT AMOUNT WOULD BE $8,250 PER YEAR- 2%=$5,500, 5% = 13,750 - SO AS LONG AS OCHOA OPTS TO ONLY MAKE PAYMENTS BASED ON THE MINIMUM 2% BASIS, EACH YEAR 8,250 WILL TACK ONTO THE LOAN BALANCE -HOWEVER HE WILL NOT PAY INTEREST ON THIS NEW ADDITION TO THE BALANCE, ONLY ON THE ORIGINAL PRINCIPAL.
THIS IS THE WILDEST LOAN I HAVE EVER SEEN….SWEETHEART IS AN UNDERSTATEMENT.
I know from talking with realtor and mortgage brokers, a typical 2nd with good credit and going to 80% of value carried an interest range of 6.5-9% depending on how many points were bought up front in 2004. Putting aside the 2% for payment calculation and using the 5% charged the city lost anywhere from 2.5-3% interest if the loan had been done at market value.
So, Monrovians, think about it. In the 4 years this note has been active, an additional $8,250 is tacked annually onto the loan balance. That $275,000 dollar loan is now worth $308,000. What’s better than housing assistance? Subsidized housing for a city manager making 182K plus bonus and benefits.
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Topics: Main Page, City Council, Monrovia |
May 2nd, 2008 at 3:23 pm
WOW! I might not know much, but I know real estate ad I can tell you that this “sweetheart” deal is remarkable.
So here is a question -
Mr.Ochoa’s home is certainly now worth LESS than the total of the loans on the property, what happens if he leaves the city and just walks aways from the property?
May 2nd, 2008 at 3:24 pm
Gilman, good catch and one I thought of. I think it means if he defaults we are left holding the bag with an uncollectable loan.
May 2nd, 2008 at 4:03 pm
Can I work at City Hall please? 100% financing, a 5% second with taxpayer money and I only have to pay 2% interest only payments - as a real estate investor, I can only dream of such a loan.
This is the City that wouldn’t let the police use a DARE van right?
My, but you folks seem to have a real problem over at City Hall.
May 2nd, 2008 at 4:13 pm
This loan is ridiculous. It isn’t even clear that he truly “needed” it in the first place, since he made the original purchase without it.
We’ve been told that the City would have gotten a similar return had they invested in the stock market, but most investors wouldn’t keep their money in an investment that was losing, not gaining, which is what a neg-am essentially is. The City Council has a LOT of explaining to do. Oh, and Mr. Adams, there are other Realtors in Monrovia aside from yourself and there are other escrow companies and other mortgage lenders. In other words, you may be able to fool some of the people some of the time with your smoke and mirrors, but you can’t fool us.
Sadly, we’re stuck with Mr. Ochoa, at least until the real estate market picks back up. Ditching him means taking a loss on a rather large sum of money.
May 2nd, 2008 at 4:24 pm
Well another way to look at it is tath if the CM is good enough to negotiate a deal like this, maybe he is doing the same on city business!
The down side is, if the Council is stupid enough to fall for it, what else will they fall for?
May 2nd, 2008 at 4:26 pm
I’m trying to figure out what the logic of all this was. Mr. Adams asserted at the Council meeting that this was to cover Mr. Ochoa’s capital gains hit on his old house.
Well, plainly this vastly exceeds that amount, thus his claim is at best a cover story, one that pretty much defies all credulity. Frankly, I think its kind of insulting to the intelligence of the people.
So, let’s assume the City Council decided that Ochoa was the right guy, and they wanted to entire him with a promise of a loan. OK. Mr. Adams was right, as Mr. Kemp has affirmed, this loan was, to some extent, originally done in public. This cannot be denied.
But why these terms? Did they really think we’d never find out? Did it never dawn on them that this was bad business? The only plausible arugment I can think of is that there were all kinds of extoic loan structures being executed three years ago. BUT EVERYONE KNEW THEY WERE DISASTEROUS - ESPECIALLY REALTORS!
Frazgo’s fantastic unearthing here sheds great light on one key question - what did these folks do - but it really only casts darker shadows on the ultimate matter: Why the heck would they do it?
May 2nd, 2008 at 5:14 pm
I think characterizing that the Council made this decision in “public” is a fair description of the events.
Sure the Council discussed giving Ochoa a loan during a public meeting…they just forgot to mention the loan would represent a 100% of the value of the property and that it was a negatively amortized loan at an interest rate far below the prevailing market. I suspect the public might have been interested in these minor details.
While loans a few years back could be exotic, this goes far beyond that threshold. This is just what it has been reported - a “sweetheart” deal financed with our taxpayer dollars.
One has to seriously question the judgement of a Council that would execute such a deal and try to keep the details secret from the public.
May 2nd, 2008 at 5:45 pm
Ochoa Loan – 6/1/2004
Information from Secured Promissory Note
Dated - 6/1/2004
Escrow closed - 5/21/04
Information from Deed of Trust:
Dated 6/1/2004
Signed 9/1/2004
Recorded 4/26/05
Recording Fee – Free
Borrower & Trustor – Scott Ochoa & Spouse
Lender – City if Monrovia (Scott Ochoa)
Trustee - City if Monrovia (Scott Ochoa)
30 year loan due in full 6/1/34
The Loan was not made until 6/1/04 and escrow closed 5/21/04 how do you close escrow without funding. I read a statement by Tom Adams in the paper a few weeks ago that said the City Managers Position was the only Position that required the Manager to be a resident. The city code does not require that the City manager be a resident.
§ 2.04.030 APPOINTMENT—RESIDENCY. Residence in the city at the time of appointment of a City Manager shall not be required as a condition of the appointment. However, residency is strongly encouraged within 180 days after appointment, unless the City Council finds residence outside the city is appropriate.
(`83 Code, § 2.04.030) (Ord. 82-16 § 3, 1982)
May 2nd, 2008 at 6:42 pm
Wow. Ghostryder the timeline is one I’ve already thought about.
How does the 1st overlay with this. When did funds exchange hands on the second. With the 2nd not signed until 9/1 how can you fund before then? How could the first close sale without complete funds?
What my wife sees as a needed document is the escrow closing instructions on the first showing the complete funds and sources. I suspect that will only be obtained in the MPOA litigation.
The muni code does NOT require residency yet we were told that is the reason behind the deal given the CM. That is even more astounding than the fact he’s pretty much got a sweet deal right now.
RCJP you are too kind “fantastic unearthing”. More like a lot of very frustrated citizens in the area feeding me documents hoping the complete truth come forward. The oddity in all of this is that the more I get the less what was said prior makes sense.
Stay tuned I suspect yet something else will come my way to keep people thinking.
May 3rd, 2008 at 6:34 am
What a bunch of crap. Throw all the bums out. I dont care about the loan but throw them out anyway. The loan is not much different than Manfredi’s. He now owes more than his house is worth, owes over 600K yet the house is worth a little over 400K.
Big deal, get a life. I want my retirement at 50.
May 3rd, 2008 at 8:24 am
Bad Boy, The First is down to what maybe 490, add in the 308 on the second, the balance is something like 798, more than the house cost in 2004. I think you are correct that prices have slipped, close to ‘04 at this point which puts him top heavy and us with a big second that should things go wrong, we could not collect the difference.
Retirement at 50 doesn’t mean you don’t have to do something still.
May 3rd, 2008 at 12:46 pm
[…] is sure to catch some attention. I’m sure that folks on the FC Blog will have some opinions on the […]
May 3rd, 2008 at 2:24 pm
What bank made the loan? How much business do they do with the City?
May 3rd, 2008 at 3:16 pm
Dublius-
To my understanding, it wasn’t a bank. It was The City of Monrovia. It was 100%, uninsured taxpayer funds.
I don’t think any bankers in their right mind would make 5% seconds at 2% pay-back for 100% of the value of the property.
That’s a deal nobody could get at a bank. And that, it seems to me, makes this a sweetheart deal.
May 3rd, 2008 at 3:41 pm
Dublius, RJCP is correct.
No banks made that loan. The city made the loan from our tax dollars.
May 3rd, 2008 at 4:23 pm
Two seagulls:
Gertude thez to Heaththcliff she thez,
Th th th that soundth like a good deal. Th th th thitty of Monrovia will make a lot of money, juth like th th th bankth did in th th th thubprime lending!
Heathcliff thez he thez,
Nope. All th th thoth bankth lothed money and hath to fly to China for help.
Not funny.
May 3rd, 2008 at 4:32 pm
I was working daywatch out of Monrovia. I looked on my computer and saw the post by bad boy. It made no sense. I put his name in the contact file as a possible escapee from Patton State home for the criminally insane.
Joe Friday
May 3rd, 2008 at 6:55 pm
Ha, every bodys a detective? Joe Friday is probably a child molestor?
May 4th, 2008 at 1:24 am
heh!
May 4th, 2008 at 7:23 am
Joe Friday has bo criminal record, he’s Joe Friday. He knows Hay and Bad Boy are the same escaped mental case. Got their prints off a discraded can of Pabst from the VFW. Slapped around by the cops when they were smoking the Mary Jane when they were a split personality juvenile delinquent. Now they bad mouth the boys in blue because the liquor runs their life. A sad case of a bum on the skids that we’ve all seen. I deal in facts that big mouths never know and just the facts.
Joe Friday
May 4th, 2008 at 7:50 am
Another point that needs to be made is this loan came from the cities reserves. If the city ever had to fall back on its reserves, which has happened to many cities, we now have a loan that has little value on the secondary market. I would hate to think of how deep this loan would have to be discounted to sell it in the current market place.
May 4th, 2008 at 10:04 am
WOW!!! That billboard is great…they mean business but i wonder if it will turn even more negative. I’ve never seen anything like it.
May 4th, 2008 at 10:12 am
Well YHIHF time will tell what the effect will be on the community at large.
I can only guess the community reaction, but face the facts violent crime is way up and we are understaffed. I would hazard a guess and say it is safe to say there will not be any positive reactions out of city hall that will help bring this to resolution.
May 4th, 2008 at 12:43 pm
Frazgo-
I totally agree with you…i’ll just keep passing out those signs and wish for the best for our Department.
PS. I think a t-shirt would be great with the billboard on it…don’t you think?
May 4th, 2008 at 7:46 pm
What billboard? Where? Pictures! I want pictures!
May 4th, 2008 at 8:03 pm
It is on the Monrovia City Watch page and will try to get some more info if RJCP doesn’t beat me to it. I’ll defer to him as he has better contacts with the MPOA than I.
http://monroviacitywatch.com/blog/?p=24
May 4th, 2008 at 8:33 pm
If only i knew how to insert pics. WAHHHHHHHH!!!!!!!!
May 4th, 2008 at 10:38 pm
http://cityofmonrovia.org/index.cfm/696293/POA-Response.cfm
It struck me as improper to opine that Cyrus Vance was a “perennial city council baiter” as opposed to simply the resident that he is.
Is he? Sure, but I don’t think the place to make that judgment is on a web site that I help pay for.
While I’m at it, as co-owner of monrovia.com, I want the immediate dismissal of the nincompoop responsible for editing content on the site. “Obfiscations”? C’mon guys. Spelling matters more than warm fuzzy trolleys.
May 4th, 2008 at 11:25 pm
anticustomerservice
When they speak of you by name then you know you are having an effect on them; when they speak poorly of you by name, then you know you are making their life miserable. I Love It!
If you check the community calendar they have the Monrovia Days celebration happing on Monday 5/19/08, they did not even have it on the calendar until I brought it up on my Blog. Those clowns would not last a full day in the private sector.
May 5th, 2008 at 6:13 am
It is personal attacks on citizens like is on the city page right now that disgust me and make me ashamed of living in Monrovia.
I know it is how they deal with anyone disagrees with them. Part of being a public official is having to work with people who disagree with you. To make personal attacks is unacceptable.
It certainly is not “nordstrom customer service” I mean, have you ever seen them personally attack a customer?
May 5th, 2008 at 6:28 am
I’m not surprised that the City is being childish and petty in the face of dissent. That is apparently their only recourse. What, actually fix or address problems? That would be silly. It is far easier to tell those who point out that the emperor is wearing no clothes (or that the CM has a disgusting sweetheart RE deal) that they need new glasses and are blind.
It is neither customer service nor is it good government. As a tax payer, I am becoming more and more disenchanted by their antics. Luckily, we hold the ultimate power, which they know. Their time is limited and since they’re going to waste it by arguing with us instead of addressing problems, it will be easy to throw them out when the elections roll around.
May 6th, 2008 at 10:19 am
[…] T have never heard of such things happening… except maybe in Monrovia. […]
May 6th, 2008 at 10:41 am
Election could fix some things but it won’t fix a certain financial entanglement, ie. loan contract. That is a separate matter from the police and their concerns. Even if the police get what they want, the people still have the threat of a larger loss of city services due to a bad investment and California budget cuts.
The cops bullboard put me over the edge when I saw it. Who is advising you? Fire them.
May 7th, 2008 at 5:34 pm
So if Bad Boy and Hay are the same and alleged to be Tom Adams, the this begs the question, what’s in it for Tom? Did the City of Monrovia loan him money too? Maybe the COM should have allocated those reserve dollars to our police and programs to stop gang activity in our city and thereby preserve our future real estate values. High crime = low real estate prices. Recession is already impacting our land values. Crime is only adding to the problem.
May 7th, 2008 at 5:55 pm
You talk about conserving real estate values and support the views of the MPOA (i.e. Billboard ads). Tell me who is destroying real estate values in Monrovia. I respect the MPOA. I worry that this Charlatan attorney has sold them a bill of goods. The City has a pretty active anti gang program. They also promote service clubs that do the same. It is a whole network that works in unison to prevent gang problems. Do you think the Police can stop gangs? This starts at home. Police like teachers can not stop kids from acting out.
May 9th, 2008 at 12:06 pm
I agree that every citizen has a responsibility to the community they live in. The gang problem is no exception. However, the average citizen is not armed, equipped, or trained to deal with the problem. That is why we look to law enforcement to lead the way. If our law enforcement is not fully staffed to deal with the problems as they arise and to make a show of presence to discourage potential negative activity, then what are the citizens to do? Do we start polishing our guns and prepare to take things into our own hands? If that is the case, what separates us from the gangs? I for one am willing to do my part and aid in any way I can but I know I don’t have intestinal fortitude to face off with a gang member that is waving a gun around. The fact that the police can and have taken the bullets for us, I am grateful beyond words. That is not to say that I haven’t been annoyed by being given a ticket that I didn’t feel was just. Fortunately, my getting a ticket doesn’t affect real estate values but gang violence does.