BILL ANALYSIS Ó
SENATE COMMITTEE ON VETERANS AFFAIRS
LOU CORREA, CHAIRMAN
Bill No: AB 1084
Author: Davis
Version: As Proposed
Hearing Date: June 28, 2011
Fiscal: Yes
Consultant: Donald E. Wilson
SUBJECT OF BILL
Limited equity housing cooperatives (LEHC)
PROPOSED LAW
1. Allow the California Department of Veterans Affairs to
fund LEHC loans through the Cal-Vet Home Loan Program.
2. Proposed amendment - Close the 1978 Cal Guard Home and
Farm fund and transfer the money to the CalVET fund.
3. Proposed amendment - Adds an urgency clause.
EXISTING LAW AND BACKGROUND
1. In 1921, California chose to forego a wartime bonus for
World War I veterans and, instead, established a home loan
program to encourage home ownership.
2. The latest generation of veterans was unable to take
advantage of this program until 2009 when the Federal
Government finally updated the federal law concerning the
Cal-Vet Loan Program.
3. Up until the renewal of the law, demand for the Cal-Vet
home loan program has dwindled as veterans loans had not
offered the benefits it once did. As a result of the
ability to find better opportunities outside of the CDVA,
demand for the program dwindled. Loans fell from 2,752 in
fiscal year 2000-01 to 954 in 2001-02. The program failed
to break 1,000 loans again in 2002-03. In the same year,
home improvement loans issued fell to 148.
4. Further problems for the program were that housing
prices in California were quickly outdistancing loan limits
under the program. The California Department of Veterans'
Affairs (CDVA) thought it had solved the problem of
continually returning to the legislature for renewed
maximum loan values by tying the Cal-Vet loan limit to the
Federal Fannie Mae Limit (SB 1893, Johannessen, 2002.)
5. As home prices increased over the years, the Cal-Vet
program had to continually request increases for the
maximum allowed home loan amount in order to offer usable
loans for California priced property. Eventually
California home prices far outdistanced the rest of the
nation and the Cal-Vet program had to continually request
increases for the maximum allowed home loan amount in order
to offer usable loans for California priced property.
Assembly Bill 1439 of 2005 (Assembly Veterans Affairs
Committee), finally fixed the loan limit amount for homes
to 125% of the Fannie Mae home loan limit. Farms were
fixed to 150% of the loan limit.
6. In anticipation of the 2009 Federal Law change, SB 1572
of 2008 (Wyland) was put on the ballot as Proposition 12,
which authorized an additional $900 million dollars to the
Cal-Vet fund.
7. Equity housing cooperatives have traditionally not been
allowed to have loans associated with them. Even though a
veteran might own a home within the cooperative, the
cooperative itself is a corporation that retains rights
over the property. Since technically the veteran is not
the full owner Cal-Vet has not been able to give loans to
veterans entering into these agreements since the veteran
is not an owner with right over his property.
8. Limited equity housing cooperatives (LEHC) have a
non-profit as the corporation and are meant to help those
with fewer financial means to get into a cooperative.
9. Since Vietnam it was discovered that many veterans may
not be ready to pick up where they left off when they left
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civilian life. Many veterans who returned home from
Vietnam were found on skid rows across America a decade
after the war and then diagnosed with post traumatic stress
disorder (PTSD). The lack of diagnosis and treatment for
PTSD condemned many to a life most would choose not to
follow. Many have committed suicide or gotten into trouble
with the law.
10. Veterans returning home now not only have PTSD but also
traumatic brain injury (TBI) and both have the potential to
put veterans who are returning home now in the same
position as many of those who returned from Vietnam.
Veterans' advocates have vowed to not let the same thing
happen to this generation.
11. Veterans returning home now that are getting in legal
trouble or facing substance abuse problems are usually
those suffering from PTSD and/or TBI and veterans advocates
are hoping to find some form, or forms, of traditional
housing to help veterans that are going through treatment
or have recently finished treatment and are attempting to
fully integrate into civilian life.
12. Advocates believe that one way to encourage home
ownership for those returning to a full civilian life is to
allow the Cal-Vet program to give loans to veterans who
would like to buy into LEHC.
13. In 1978 the state passed the National Guard Members
Farm and Home Purchase Act. This fund is unused.
COMMENT
1. When Proposition 12 was passed in 2008, it was believed
that the Cal-Vet program would need to return to the ballot
in 2014 or 2016. This bill would not affect that timeline:
the housing market has decreased demand for loans in spite
of the 2009 change in the Federal Law. Additionally, home
prices have dropped significantly since the last
authorization, which should allow the previous
authorization to last longer.
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2. CDVA has a good track record of low defaults on these
loans. The obvious question would be, will entering this
market increase defaults by loaning to higher risks
individuals. However the department states that its
position does not change in these transactions. In the
LEHC scenario the department is still loaning to a veteran
who is expected to pay back the loan, but the risk is
shouldered by the non-profit. If the home needs to be
sold, the VA loan is paid off.
3. Some properties that have common areas, such as condos,
would normally not be able to be fully funded by a Cal-Vet
loan by Qualified Veterans Mortgage Bonds (QVMB) or other
restricted funds. Cal-Vet can only finance the living
space of the veteran with those bonds. In an LEHC, the
non-profit can help make up the difference that Cal-Vet
cannot cover for common spaces.
4. The Federal Home Loan Bank Board has a program to
support low-income housing with a forgivable $15,000 loan
for those buying into co-operative housing. The loan is
forgiven at a rate of $3,000 per year in order to encourage
tenants to stay at least five years.
5. CDVA has an unused fund from 1978 of $5.4 million in
the California National Guard Members' Farm and Home
Purchase Act. Since these funds are not QVMB funds, they
could be used to help veterans get full loans for
transitional housing in cooperatives with common areas.
These dollars would make up the difference of the five or
ten percent that Cal-Vet cannot presently cover and allow
veterans to purchase a home without the uncertainty of
whether or not a non-profit could come up with the money to
cover the difference or whether or not a veteran got the
$15,000 forgivable loan.
6. According to CDVA, "The Calvet program did not charge
any direct or administrative costs to administer the Cal
Guard program. The remaining funds in the Cal Guard
program are the result of the Calvet Farm and Home loan
program (1943 Fund) incurring all the admin costs over the
last 33 years on behalf of the Cal Guard program without
being reimbursed for the work performed. Calvet has the
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authority to charge the Cal Guard program for
administrative costs but, to date, has not done so."
7. The urgency statute is intended to get this money to
veterans who are returning, or have already returned, home
and need this help now. This bill does not differentiate
among veterans. National Guard veterans in need of
transitional housing would qualify as a veteran for this
money.
SUPPORT
AMVETS, Department of California
California Association of Veteran Service Agencies (CAVSA)
Swords to Plowshares
Vietnam Veterans of California
OPPOSE
None received
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