BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 1084 (Davis) Hearing Date: 8/25/2011 Amended: 8/15/2011 Consultant: Maureen Ortiz Policy Vote: VA: 7-0 _________________________________________________________________ ____ BILL SUMMARY: AB 1084, an urgency measure, expands the use of the CalVet Home Loan Program to include shared equity cooperative housing, and consolidates the California National Guard Members' Farm and Home Building Fund into the CalVet Home Loan Fund. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Share equity coops loans -------unknown, potentially significant------ Special* Fund consolidation -----------approximately $5,400 ----------- Special** -----------approximately ($5,400)---------- Special* *CalVet Home Loan Fund **Cal Guard Home Loan Fund _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Author's amendments require the funds to be transferred within 30 days of enactment of this measure. There is approximately $5.4 million currently in the National Guard Members' Farm and Home Building Fund that AB 1084 will require the transfer of into the CalVet Home Loan Fund for the purpose of providing loans to qualified veterans for shared equity cooperative housing. Currently, the bill contains an unspecified time frame for the transfer of the funds upon enactment of the bill. Specifically, AB 1084 does the following: a) Repeals the California National Guard Members' Farm and Home Purchase Act of 1978, to be effective on an unspecified date. AB 1084 (Davis) Page 1 b) Repeals the California National Guard Members' Revenue Bond Act of 1978, to be effective on an unspecified date. c) Transfers all moneys in the National Guard Home Loan Fund and the National Guard Members' Revenue Bond Revenue Account that are not needed to meet revenue bond obligations to the CalVet Home Loan Fund within an unspecified number of days. d) Provides that any future revenue that would be deposited into the National Guard Home Loan Fund instead be directed to the CalVet Home Loan Fund. e) Continuously appropriates all moneys deposited into the CalVet Home Loan Fund. f) Includes "shared equity cooperative" within the definition of "cooperative housing corporations" to authorize the use of the CalVet Home Loan Program for shared equity cooperative purchases; and outlines administrative procedures regarding the program. g) Requires the Department of Veterans Affairs to continue to administer any outstanding loans made pursuant to the National Guard Members' Home Loan Program. The National Guard Members' Farm and Home Purchase Act was established in 1978 and the bond funds were used to provide home loans to members of the California National Guard who were not eligible for the CalVet Home Loan Program at that time. The program has not been operative for several years and there are currently only four outstanding loans. AB 1084 will transfer the remaining money in the National Guard loan fund to the CalVet Home Loan Fund so that the money can be used to provide loans for shared equity cooperative housing. Expanding the use of the CalVet Home Loan Program to shared equity cooperatives is intended to provide an additional path for low income veterans to become homeowners. The CalVet 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 1084 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. Voters have passed 23 veterans bonds since 1943, the last of AB 1084 (Davis) Page 2 which was passed in 2008 as Proposition 12 and authorized $900 million in bonds for the CalVet 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 CalVet home loan is advantageous to veterans since it requires little down payment and offers competitive market rates. The CalVet 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 CalVet 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. AB 1330 (Chapter 524, Statutes of 2009) authorized the DVA to establish a pilot project for cooperative housing. In a cooperative housing project, people collaborate to own or control the housing facilities in which they live. The cooperative is comprised of members who own stock in a nonprofit public benefit corporation. Rather than paying just a mortgage payment each month, the tenant pays his or her share of the total operating costs of the corporation which is formed, thereby benefiting from such things as controlled maintenance costs, and resident participation and control. AB 1084 (Davis) Page 3 AB 2266 (Chapter 834, Statutes of 2004) authorized the Cal-Vet program to offer loans for the purchase of individual shares of stock in cooperative housing corporations.