BILL NUMBER: AB 2509 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 23, 2008
AMENDED IN ASSEMBLY APRIL 10, 2008
INTRODUCED BY Assembly Members Galgiani and Carter
FEBRUARY 21, 2008
An act to add Chapter 5.5 (commencing with Section 51260)
to Part 3 of Division 31 of the Health and Safety Code, relating to
housing. An act to add and repeal Chapter 2
(commencing with Section 13987) of Part 4.5 of Division 3 of Title 2
of the Government Code, relating to housing.
LEGISLATIVE COUNSEL'S DIGEST
AB 2509, as amended, Galgiani. Housing finance: mortgage guarantee
program.
Existing law establishes the California Housing Finance
Agency in the Business, Transportation and Housing Agency for the
primary purpose of meeting the housing needs of persons and families
of low or moderate income prescribes the various
duties and powers of the Business, Transportation and Housing Agency
.
This bill would require the agency to establish and administer
, until January 1, 2014, the Homeownership Preservation
Mortgage Guarantee Program to allow redevelopment agencies, nonprofit
community lenders, and small business financial development
corporations selected by the agency (administrators) to accept and
approve applications for loan guarantees from borrowers, as defined,
and, upon approval of an application, issue a loan guarantee to the
appropriate lender to back the issuance to the borrower of a new or
refinanced loan in lieu of an original loan, as defined.
The bill would establish the Homeownership Preservation Mortgage
Guarantee Fund in the State Treasury and would require the agency to
establish a general account in the fund and, upon
appropriation, deposit the sum of $50,000,000 in
receipt of federal funds pursuant to the Neighborhood
Stabilization Act of 2008 , deposit available
funds in that general account. The bill would require the
agency to establish a trust account in the fund for each
administrator selected to participate in the program and transfer a
portion of the funds in the general account to each administrator
trust account. The bill would require moneys in an administrator
trust account to be used by the administrator exclusively for loan
guarantees and administrative costs. The bill would specify that each
administrator trust account is a legally separate account and would
prohibit an account from being used by the agency to back the loan
guarantees of another administrator.
The bill would prohibit an administrator from approving a loan
guarantee application unless all of certain criteria relating to the
borrower and the original loan are met.
The bill would prohibit an administrator from issuing a loan
guarantee for an amount that is more than 20% of the outstanding
principal of the original loan or for a term exceeding 5 years, as
specified.
The bill would require an administrator to require the terms of
the new or refinanced loan to include a requirement that a
restrictive covenant be recorded on the property for the term of the
loan guarantee, with the terms of the restrictive covenant to be
established by the agency.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. (a) The Legislature finds and hereby declares all of
the following:
(1) Home ownership is a vital piece of California's social and
economic fabric and remains a top priority for California families
and individuals.
(2) Home ownership has been shown to reduce crime, increase school
retention and graduation, civic engagement, children's future
earning potential, and overall life satisfaction, and promote
neighborhood stability.
(3) Home equity represents two-thirds of all low-income family
wealth. The median wealth of elderly, low-income homeowners is 12
times greater than the median wealth of similar renters with the same
income.
(4) According to a recent report by the Mortgage Bankers
Association, the percentage of foreclosures initiated during the
fourth quarter of 2006 was the highest the trade group has observed
since it started measuring foreclosures in 1972. The association also
observed that 4.5 percent of all subprime home loans nationwide were
in the process of being foreclosed at the end of the fourth quarter,
up from 3.3 percent a year earlier.
(5) Foreclosures can devastate families whose primary asset is
their home, leading to bankruptcies, poor credit ratings, and tax
liability from acquired interest and balances that are forgiven debt
and then counted as taxable income.
(6) Foreclosures can cost local governments because foreclosed
property that remains vacant may become an economic and
administrative drain for cities and counties.
(7) Foreclosures can negatively impact communities by creating a
domino effect of foreclosures.
(8) Foreclosures diminish neighborhood financial security and
sustainability as higher foreclosure rates ripple through local
markets and each house is returned to the market, adding to the
supply of homes for sale that could bring down overall home prices.
(9) A recent study found that a single family home foreclosure
lowers the value of homes located within one-eighth of one mile by an
average of 0.9 percent.
(10) The recent spike in foreclosures is a result of either one or
a combination of factors that include, but are not limited to,
relaxed underwriting standards, predatory lending practices,
financial illiteracy, and lack of regulatory oversight.
(11) Many borrowers are unable to switch to another loan product
due to excessive prepayment penalties or a lack of contact with the
holders of secured home loans on the secondary market.
(b) Accordingly, the Legislature further finds and declares that,
due to the growing foreclosure crisis and its impact on the
California economy, it is necessary for this state to establish the
Homeownership Preservation Mortgage Guarantee Program to leverage
state resources and partner with the private sector for the purpose
of preserving homeownership by providing an option for
income-qualified owner-occupants who do not have an equity home loan
to refinance into an affordable fixed rate home loan with more
favorable terms.
(c) The Legislature further finds and declares that those lenders
who participate in the Homeownership Preservation Mortgage Guarantee
Program should receive favorable credit under the federal Community
Reinvestment Act (12 U.S.C. Sec. 2901).
(d) The Legislature further finds and declares that it is not the
purpose of the Homeownership Preservation Mortgage Guarantee Program
to bail out mortgage lenders or bondholders, nor to assist housing
market speculators and investors.
SEC. 2. Chapter 5.5 (commencing with Section
51260) is added to Part 3 of Division 31 of the Health and Safety
Code, to read:
CHAPTER 5.5. THE HOMEOWNERSHIP PRESERVATION MORTGAGE GUARANTEE
PROGRAM
51260.
SEC. 2. Chapter 2 (commencing with Section 13987)
is added to Part 4.5 of Division 3 of Title 2 of the
Government Code , to read:
CHAPTER 2 THE HOMEOWNERSHIP PRESERVATION
MORTGAGE GUARANTEE PROGRAM
13987. For the purposes of this chapter, the following
terms have the following meanings, unless the context clearly
requires otherwise:
(a) "Administrator" means a redevelopment agency, nonprofit
community lender, or small business financial development corporation
established under Chapter 1 (commencing with Section 14000) of Part
5 of Division 3 of Title 1 of the Corporations Code that has been
selected by the agency to participate in the program established
under Section 51262 13987.1 .
(b) "Administrator trust account" means a trust account
established under subdivision (b) of Section 51266
13987.3 .
(c) "Agency" means the Business, Transportation and Housing
Agency.
(c)
(d) "Borrower" is an applicant for a loan guarantee who
meets the criteria established under Section 51268
13987.5 .
(d)
(e) "Fund" means the Homeownership Preservation
Mortgage Guarantee Fund established in the State Treasury under
subdivision (a) of Section 51266 13987.3
.
(e)
(f) "Guarantee authority" means the authority to
encumber funds in an administrator trust account to back a loan
guarantee.
(f)
(g) "Lender" means a bank, bank holding company, or
the subsidiary or affiliate of either, or a credit union or other
financial institution licensed under state or federal law.
(g)
(h) "Loan guarantee" means a written agreement to
warrant the repayment of a portion of a home mortgage loan with
repayment from an administrator's trust account.
(h)
(i) "Original loan" means the mortgage loan on a home,
plus any secondary or other loans on that home, but does not include
a home equity loan.
(i)
(j) "Program" means the Homeownership Preservation
Mortgage Guarantee Program established under Section 51262
13987.1 .
(k) "Secretary" means the Secretary of Business, Transportation
and Housing.
51262. 13987.1. The agency shall
establish and administer the Homeownership Preservation Mortgage
Guarantee Program. The program shall be structured in a manner that
allows an administrator to accept and approve applications for loan
guarantees from borrowers and, upon approval of an application, issue
a loan guarantee to the appropriate lender to back the issuance to
the borrower of a new or refinanced loan in lieu of an original loan.
51264. 13987.2. The agency shall
select administrators through a request for proposals process.
51266. 13987.3. (a) The
Homeownership Preservation Mortgage Guarantee Fund is hereby
established in the State Treasury. The agency shall establish a
general account in the fund and, upon appropriation, shall
deposit the sum of fifty million dollars ($50,000,000) in the general
account. the receipt of federal funds pursuant to the
Neighborhood Stabilization Act of 2008 (HR 5818), shall deposit
available funds in the general account.
(b) The agency shall establish a trust account in the fund for
each administrator selected to participate in the program and shall
transfer a portion of the funds in the general account to each
administrator trust account. Moneys in an administrator trust account
shall be used by the administrator exclusively for loan guarantees
and administrative costs. Each administrator shall act as trustee of
the funds in its administrator trust account. Each administrator
trust account is a legally separate account and shall not be used by
the agency to back the loan guarantees of another administrator.
However, the director secretary may
reallocate funds among the administrator trust accounts, based on the
administrators' effective use of the funds.
51267. 13987.4. (a) The use of
state funds deposited in an administrator trust account and any
return on those funds from investment is conditional pursuant to
subdivision (b). Each administrator shall enter into a written signed
agreement with the state at the beginning of each fiscal year. The
agreement shall govern the activities in which the administrator
engages, the investment of state funds and any return on that
investment, and the budgeted administrative expenses the
administrator may incur. If the state and the administrator do not
reach an agreement, or the state finds that the administrator has
violated the terms of an active agreement, the state may take action
under subdivision (b) or other action as appropriate. If the state
and the administrator do not reach an agreement, or the state finds
that the administrator has violated the terms of an active agreement,
the administrator shall have no authority to withdraw or encumber
the administrator trust account or any return of those funds by the
issuance of guarantees, or by incurring expenses against the account
and its return in any manner whatsoever. Any guarantee or other
encumbrance made by the administrator in violation of this section
shall be null and void, and neither the state nor the administrator
trust account will be liable therefor.
(b) (1) Upon a finding by the director
secretary that irreparable harm may occur if guarantee
authority is not temporarily or permanently withdrawn from an
administrator, the director secretary
may withdraw guarantee authority from that administrator as
appropriate. The temporary or permanent withdrawal of guarantee
authority, restoration of that authority, and any appeal of the
director's secretary's determination
shall occur pursuant to regulations established by the agency. The
administrator's yearly contract shall remain in effect during the
period of any temporary withdrawal, and the administrator shall
continue to receive reimbursement of necessary operating expenses.
(2) The state has a residual interest in the funds deposited by
the state to an administrator trust account and in any return on
these funds from investments. Upon imposition of a temporary or
permanent withdrawal of guarantee authority, these funds shall be
withdrawn by the director secretary
from the administrator trust account and returned temporarily to the
general account in the fund pending termination of the temporary
withdrawal of guarantee authority, or transferred permanently to
another administrator trust account upon permanent withdrawal of
guarantee authority. This provision shall be contained in trust
instructions provided to each administrator.
51268. 13987.5. An administrator
shall approve a loan guarantee application only if all of the
following criteria are met:
(a) The original loan is at risk of foreclosure due to the fact
that the mortgage has an adjustable rate that is due to increase and
will cause the loan payment amount to grow beyond the ability of the
borrower to pay with existing income.
(b) The property securing the original loan is a single family
home that is the sole and only residence of the borrower.
(c) All holders of the original loan agree to waive all prepayment
penalties, fees, and other penalties.
(d) The borrower's household income does not exceed 150 percent of
the area median income, adjusted for family or household size by the
agency in accordance with adjustment factors adopted and amended
from time to time by the United States Department of Housing and
Urban Development pursuant to Section 8 of the United States Housing
Act of 1937.
(e) The outstanding principal of the original loan is four hundred
fifty thousand dollars ($450,000) or less.
(f) The lender agrees to issue a new or refinanced loan to the
borrower in lieu of the original loan, subject to the loan guarantee.
(g) The borrower has not defaulted on the original loan and will
be able to pay under the terms of the new or refinanced loan issued
pursuant to the loan guarantee.
(h) The borrower has equity in the home that is equal to 5 percent
or more of the original loan. The equity shall derive from a
downpayment made by the buyer, and not from a down payment assistance
program.
(i) The borrower has completed a homeownership counseling course
approved by the administrator.
(j) The borrower meets all underwriting guidelines established by
the agency.
51270. 13987.6. The administrator
shall not issue a loan guarantee that is either of the following:
(a) For an amount that is more than 20 percent of the outstanding
principal of the original loan.
(b) For a term that exceeds five years. However, the administrator
may extend the loan guarantee for no more than an additional five
years if the administrator determines that the value in the current
housing market of the property securing the original loan is less
than the amount of the original loan.
51272. 13987.7. The administrator
shall require the terms of the new or refinanced loan to include a
requirement that a restrictive covenant be recorded on the property
for the term of the loan guarantee. The terms of the restrictive
covenant shall be established by the agency.
51274. 13987.8. (a) After
considering the allocation and balance of risk, the administrator may
approve a loan guarantee for a new or refinanced loan provided that
the loan is not more than 125 percent of the current appraised value
of the property securing the original loan.
(b) Notwithstanding subdivision (a), if the current appraised
value of the property securing the original loan is equal to, or
greater than, the original loan amount securing the property, the
administrator may not approve a loan guarantee for a new or
refinanced loan in excess of the current appraised value.
(c) If the borrower defaults on the new or refinanced loan, and
upon completion of foreclosure proceedings, the administrator shall
pay to the lender the amount of the loan guarantee.
(d) If the new or refinanced loan, subject to the mortgage
guarantee program, results in a short sale agreement between the
borrower and lender, the administrator shall pay the lender the
difference, not to exceed 20 percent, between the amount of the loan
and the resulting sale price.
13987.9. This chapter shall remain in effect only until January
1, 2014, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2014, deletes or extends
that date.