BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          AB 697 (V. M. Perez)
          
          Hearing Date: 7/11/2011         Amended: 5/4/2011
          Consultant: Maureen Ortiz       Policy Vote: VA: 7-0
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          ____
          BILL SUMMARY: AB 697 authorizes the Department of Veterans 
          Affairs to refinance a mortgage loan that is not an existing 
          loan acquired under the Cal Vet Home Loan Program.
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          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           
          Expansion of home loan program     ---unknown, potentially 
          significant---       Special*                               
          Regulations                               ----------------minor, 
          absorbable----------------    General

          *Cal Vet Home Loan Fund
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          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the 
          Suspense File.
          
          The Department of Veterans Affairs indicates the costs of 
          implementing regulations will be absorbable within existing 
          resources.  The Cal-Vet Home Loan Program is funded from general 
          obligation bonds that are repaid through monthly mortgage 
          payments.  The program has no General Fund costs.  While AB 697 
          will expand the use of the funds which will likely deplete the 
          account sooner and potentially require future bond sales, there 
          is currently about $1 billion available in the home loan fund.

          Current law authorizes California veterans to purchase homes 
          through the use of the Cal-Vet Home Loan Program.  AB 697 will 
          expand the program to authorize veterans who have existing 
          mortgage loans to refinance those loans with the Cal-Vet Home 
          Loan Program.  The veteran must have a stable loan and will have 
          to meet all existing qualifications in order to participate such 
          as obtaining an appraisal showing a market value above the 








          AB 697 (V. M. Perez)
          Page 1




          amount of the loan.  This bill will not allow for loan 
          modifications.

          Voters have passed 23 veterans bonds since 1943, the last of 
          which was passed in 2008 as Proposition 12 and authorized $900 
          million in bonds for the Cal-Vet Home Loan program.  The revenue 
          from these bond sales is used by the Department of Veterans 
          Affairs to purchase farms, homes and mobile homes which are then 
          resold to California veterans.  Each participating veteran makes 
          monthly payments to the Department.  These payments are set in 
          an amount sufficient to do all of the following:  1) reimburse 
          the department for its costs in purchasing the farm, home, or 
          mobile home, 2) cover all costs resulting from the sale of the 
          bonds, including interest on the bonds, and 3) cover the costs 
          of operating the program.  The Cal-Vet home loan is advantageous 
          to veterans since it requires little down payment and offers 
          competitive market rates.
           
          The Cal-Vet Program has historically been fully supported by 
          participating veterans. If, however, payments made by program 
          participants do not fully cover principal and interest payments 
          on the bonds, because general obligation bonds are backed by the 
           
          State, the difference would come from the General Fund.  This, 
          however, has not been necessary since the inception of this 
          program.  The default rate on the Cal-Vet home loans is very 
          little as compared to conventional home loans.  These loans are 
          not sold on the secondary market, and because the DVA holds the 
          papers on the homes, if there is a foreclosure, they then sell 
          the home to recoup the loan proceeds.  In the rare event that 
          there is a short sale, the DVA has a mechanism in place referred 
          to as "loan loss reserves" which is a set-aside that is required 
          by their independent auditors and can be used to further prevent 
          any costs to the General Fund.