Low-Cost Loans Brighten Worn Homes

Agustin Herrera had to face it: The house was a mess.

After nearly 80 years of wear and tear, the two-story Victorian home in San Pedro had virtually none of the features that dominate the real-estate ads.

The plumbing leaked. Electrical shorts caused lights to go on and off. Broken shingle siding and faulty insulation were among the least of the problems.

“The ceilings in the bathroom were literally falling down,” Herrera remembered. “The plaster had fallen out in big chunks. The carpet was shot. The old wood-frame windows were falling apart. Some of the steps were cracked and ready to break--definitely a hazard.”

If some homes deserve space in Sunset magazine, the house Herrera and his wife purchased two years ago deserved a write-up by a legion of building inspectors.

“In our opinion,” he recalled, “the whole place was fit to be condemned.”

Despite its drawbacks, Herrera saw the home as a place where he and his wife could raise their three children and own property as an investment. And now, thanks largely to an 8-year-old program administered by the city of Los Angeles, Herrera’s one-time nightmare is becoming a dream house.

Using low-interest loan money designed to improve targeted areas of San Pedro and Wilmington, Herrera is adding the final touches to a thorough overhaul. Textured blue stucco has replaced the tattered shingle exterior. The ceilings, windows and carpeting are new. So are the wiring and plumbing. No longer do the lights flicker, and no longer does ugly black mold cling to the den and bedroom walls; the walls are new, too.

“We left the frame and the roof and the foundation, and we started over,” Herrera said.

The program, known as the Homeowners Opportunity Maintenance Effort (HOME), is designed to correct building-code violations and to breathe fresh life into lower-income communities where residents are often unable to afford home repairs.

In 10 selected areas of Los Angeles--from the harbor to Highland Park, Pacoima and Boyle Heights--federal loans up to $27,500 are being made available to homeowners at interest rates of 10% or less, depending on family size and income.

A family of four, for example, may qualify for a 20-year loan without interest if the family’s yearly income is below $24,150. The same family earning less than $16,600 may qualify for an interest-free loan that need not be repaid until the home changes ownership.

“(Even) if a person can’t qualify for a bank loan, we can fund them,” said program manager Solomon Banks.

Apartment owners are also eligible for the program. Regardless of income, they can borrow up to $57,500 for a four-unit building, at 10% interest over 20 years, if their properties are judged in need of refurbishment.

Since 1978, the program has distributed loans exceeding $87.1 million to help restore about 8,000 structures, according to Banks. In many cases, he said, buildings had been so poorly kept that plumbing and wiring had become health and safety hazards.

“You have to bring them up to (safety) code standards,” he said. “They need electrical and plumbing work. They often need painting. We’re able to help add a bedroom if there is overcrowding. We can also help do many other kinds of things--put new tile in the bathrooms, put on a new roof.”

Amado Flores, project director for San Pedro and Wilmington, said about 100 property owners a year have used the program since portions of the two areas became eligible in recent years.

San Pedro became a part of the program in 1979. To qualify for loans, residents need not meet income limits, which are used only to establish interest rates. But all borrowers must live in the targeted community--a lower-income, turn-of-the-century neighborhood bounded by Gaffey, Beacon, 9th and 22nd streets.

In Wilmington, a 16-block area became a part of the program in 1982. The area is roughly bounded by Alameda, Anaheim and Sandison streets and Wilmington Avenue.

Not all of the homes in the areas are poorly kept, Flores said. But he has seen cases where porches are falling off, where heaters do not work and families huddle through the winter in blankets, and where damaged roofs invite flooding during rainstorms.

Three loan specialists in the program’s South Bay regional office screen applications and work with homeowners and contractors to assure that the improvements are carried out, Flores said.

“This is no-frills,” he said. “We don’t put in new dens, swimming pools or saunas.”

The program is not a policing effort to enforce building-code laws because participation is voluntary, Flores said. Yet those who apply for loans are asked to repair structural violations first--and often, in low-income communities, the violations are extensive.

“In one house in Wilmington, you could see the sky,” Flores said, referring to roof damage, not skylights. “Some people only come here as a last resort. Some people only go to a doctor when they’re dying, and some people only come to us when their house is falling apart.”

Because of the loans, program managers contend, hundreds of homes have been repaired that otherwise might have gone entirely untended.

Robert Sorensen, 66, a retired machinist, said he became involved in the program about three years ago to pay for needed repairs to his home and a small duplex behind it in San Pedro.

Sorensen, whose income comes largely from the $600 a month he collects in rents, said he borrowed about $30,000 to remodel the three units on his property. His two-story, adobe-colored home now has new wiring, resurfaced ceilings and new kitchen cabinets. The two rear units have new plaster and plumbing.

“I don’t see how anyone could turn it down,” he said of the money, made available through the federal Department of Housing and Urban Development. He is paying back $10,000 at $56 a month, Sorensen said. The remaining $20,000 will not have to be repaid until he sells the property.

Mary Bell, 51, a housekeeper who lives in Wilmington, said she is a single parent who struggled to raise six children. Although the children are now grown and on their own, she was too busy working and caring for them to do much more than put a roof over their heads.

“The house just went down, period,” she said.

In November, Bell borrowed $27,500 under the program--money she will not have to repay until she sells her house. She installed new kitchen cabinets, new tile floors in the kitchen and hallways, new bedroom and closet doors, and new wiring in the garage.

She replaced the roof as well.

“I got a new house,” Bell concluded.

Her job would have made it impossible to qualify for a bank loan because her income hovers at $200 to $225 a week and she is self-employed, Bell added. A lender could not have garnisheed her wages if she had become delinquent in loan payments.

Saved by Free Loan

That is typical of the homeowners who join the HOME program, Flores said. He cited one pending case involving a five-member family living on $20,000 a year. The family hopes to borrow $21,000 to make repairs and add a third bedroom, he said.

At market rates of about 11%, the family would be forced to make payments of $206 a month on a 20-year, $20,000 loan, Flores said. Under the HOME program, the family is qualified for an interest-free loan. Payments over 20 years will be $83 a month.

Would the family have qualified for a bank loan if it had applied?

“I doubt it,” Flores said. “They have a real high ratio of debt to income.”

The city’s yearly share under the federal block-grant effort is about $12 million--a figure that is not expected to change in the next fiscal year beginning in July, program manager Banks said.

The money is used in two ways, he said. In cases where homeowners can qualify for bank loans, the city works with cooperating commercial lenders to secure the money. The city pays the interest rates up front and leaves remaining payments to be made by the homeowners, Banks said.

In more and more cases, however, the city is making the loans itself. The city is able to avoid paying interest fees and it eventually recovers all the loan money.

“When we first started, back in 1978, over 80% of our loans were funded through the banks,” Banks said. “Now we may fund 60% and the banks fund 40%.”

Communities participating in the program have been chosen based on median-income guidelines and other standards, Banks said. At least half the homes in a target area must be occupied by their owners, rather than held by absentee landlords, and at least half of the housing must show a need for rehabilitation.

Council Approval Needed

In addition, the communities must show an interest in the program. Neighborhoods are considered only if applications are made by community groups and the appropriate City Council member--for example, Councilwoman Joan Milke Flores in San Pedro and Wilmington.

Only after a study by the city and the approval of the City Council does an area qualify to participate, Banks said.

“Once the area has been selected, we have to publicize” the program, he said. “We send out a brochure. We usually put ads in the local (newspapers). In some communities, we’ll even go the local churches--especially in the Hispanic communities, where the (Catholic) parishes are very powerful.”

Usually, communities remain in the program for at least three or four years, until the loans are no longer in demand. South Bay program director Flores said demand in San Pedro and Wilmington remains strong, partly because many homeowners are slow to become involved in such a program until they see it work on someone else’s home.

Some Owners Suspicious

“Some people come in here and they can’t believe it,” Flores said. Some are distrustful of city government. “They say, ‘Somebody’s going to take my house,’ or ‘What’s the catch?’ Then they see other houses being rehabilitated.”

Bell said she learned about the program from a friend. Alejandro Vega, who has used a no-interest, $27,500 loan to resurface ceilings, expand and remodel his kitchen and redo plumbing and electrical work in his San Pedro home, said he ignored informational brochures about the program. He was talked into it by his daughter, he said.