BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1699 (Torres) - Affordable housing programs: loan
restructuring.
Amended: August 6, 2012 Policy Vote: T&H 6-2
Urgency: No Mandate: No
Hearing Date: August 6, 2012
Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 1699 would authorize the Department of Housing
and Community Development (HCD) to restructure existing loans
under various older rental housing and homeownership programs.
Fiscal Impact:
Extensions of loan terms would result in a deferral of an
unknown, potentially significant amount of loan repayment
revenue to HCD (various special funds). Absent this bill,
these loan repayments would most likely be used to provide
additional affordable housing. However, the costs of
funding new affordable housing stock is higher than
preserving and rehabilitating existing affordable housing
through loan extensions, as provided in this bill.
Therefore, absent the bill, there would be increased costs
to maintain the current level of affordable housing.
All HCD costs to process loan restructuring transactions
and to conduct ongoing monitoring activities would be fully
covered by fees charged to applicants and payments on
restructured loans.
Background: Over the past 30 years, the Legislature and voters
have authorized and funded a variety of affordable rental and
homeownership housing development finance programs administered
by HCD, each with its own unique requirements for ongoing
operation. Established in 1999, the Multifamily Housing Program
(MHP) is HCD's current program used to finance affordable rental
housing projects. The MHP provides loans to local governments
and both non-profit and for-profit developers to fund the
construction, rehabilitation, and preservation of affordable
AB 1699 (Torres)
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housing. MHP loans are for a term of 55 years at a fixed 3
percent interest rate, but HCD is authorized to defer all
payments except a standard annual interest rate (currently .42
percent) to cover ongoing monitoring and administrative costs.
Existing law, enacted by SB 707 (Ducheny), Chap 658/2007,
authorizes HCD, at the request of a borrower, to extend the
terms of existing loans made under the Rental Housing
Construction Program, the Special User Housing Rehabilitation
Program, and the Deferred Payment Rehabilitation Loan Program.
Restructured loans are subject to specified terms and
conditions, and they must generally comply with the provisions
of MHP, as specified.
Proposed Law: AB 1699 would authorize HCD to approve an
extension of a department loan, the subordination of a loan to
new debt, or an investment in tax credit equity under the
following rental housing finance programs:
Rental Housing Construction Program
Special User Housing Rehabilitation Program
Deferred Payment Rehabilitation Loan Program
Rental component of the California Natural Disaster
Assistance Program
State Earthquake Rehabilitation Assistance Program
Rental component of the California Housing
Rehabilitation Program
The bond-funded component of the Rental Housing
Construction Program
Family Housing Demonstration Program
Families Moving to Work Program
The bill would authorize HCD to adopt guidelines through a
specified public process that is exempt from the requirements of
the Administrative Procedures Act to implement this new program.
The guidelines would be patterned after the regulations that
govern the Multifamily Housing Program (MHP), except as
specified. Loans may only be restructured at HCD's discretion
if a development is in compliance with the existing regulatory
agreement, the development requires a restructuring in order to
continue to operate, and HCD determines that the project will
have a useful life of at least as long as the new loan term. An
extension must be for a period of at least 10 years and up to 55
years, at an interest rate of 3 percent. The bill prescribes
slightly modified terms for restructuring loans for group homes.
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Rents may be adjusted upward to the minimum extent necessary to
support the new debt to pay for rehabilitation, and subject to
specified limits to maintain affordability.
HCD may defer all ongoing principal and interest payments,
except for the amount charged under the MHP. The bill also
authorizes HCD to charge loan processing and monitoring fees to
an applicant to generate sufficient revenue to cover initial and
ongoing monitoring requirements.
AB 1699 would also authorize HCD to extend a loan for a period
of 10 years to an owner who occupies his or her home under any
of the following programs, if the owner's household income is no
more than 50 percent of the area median income:
Owner component of the California Natural Disaster Assistance
Program
California Homeownership Assistance Program
Owner component of the California Housing Rehabilitation
Program
Owner component of the Deferred Payment Rehabilitation Loan
Program
Owner component of the State Earthquake Rehabilitation
Assistance Program
Owner component of the Mobilehome Park Resident Ownership
Program
The loan terms contained in the existing promissory note
continue to apply during the extension, but if the borrower
repays the loan prior to the end of the extension, the program
restrictions terminate. Similar to the provisions noted above
for restructured loans related to rental programs, HCD would be
authorized to adopt guidelines that are not subject to the
Administrative Procedures Act, and HCD would be authorized to
charge a fee to cover loan processing and ongoing monitoring
costs.
Related Legislation: SB 707 (Ducheny), Chap 658/2007, authorized
HCD to extend the term of an existing multifamily housing loan
under three of the programs noted above if the project would
have a continued useful life of at least 30 years, subject to
specified terms and conditions. AB 1699 would replace the
authority provided under SB 707 and expand it to numerous other
programs administered by HCD.
AB 1699 (Torres)
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Staff Comments: Many of the housing developments funded by
various older affordable housing programs are approaching the
end of the original loan terms, and many of the units are in
need of rehabilitation. AB 1699 is intended to provide a
mechanism to fund necessary repairs and upgrades and preserve
affordable housing stock that may otherwise revert to market
rate housing. Specifically, this bill would provide HCD with
the authority to restructure loans or subordinate existing
loans, if necessary, to new tax credit equity or private debt to
make these projects viable for the long term.
While this bill would result in a deferral of loan repayments to
HCD, which could be viewed as a loss of revenue in the short
term, the overall fiscal impacts of the bill must also consider
the likely outcomes absent the authority provided in the bill.
For example, if a current affordable housing project is nearing
the end of its original loan term, the developer could either
repay the loan, which would likely result in a conversion of the
affordable housing to market rate, or default on the loan, which
would leave HCD with no choice but to foreclose on the property.
The latter scenario would leave HCD responsible for maintaining
or rehabilitating the aging property, at significant expense, or
liquidating the asset, which would most likely result in
conversion of the units to market rate. If a loan is fully
repaid, and the property converts to market rate, HCD could use
the funds to finance additional affordable housing projects, but
it is highly unlikely that the revenues would be sufficient to
replace an equal amount of affordable housing stock. This bill
provides a third option of ensuring the long-term viability of
the existing affordable housing by providing a mechanism to
rehabilitate the property and maintain affordability for current
residents, while also providing a stable funding source for
HCD's ongoing monitoring and administrative costs.
Recommended Amendments: Staff recommends the following technical
amendments:
Page 11, line 34, strike out: "(c)" and insert: (h)
Page 13, line 19, strike out: "(c)" and insert: (h)