BILL ANALYSIS �
AB 984
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Date of Hearing: April 3, 2013
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 984 (Chau) - As Introduced: February 22, 2013
SUBJECT : The California Housing Finance Agency
SUMMARY : Makes changes to the board of directors governing the
California Housing Finance Agency (CalHFA). Specifically, this
bill :
1)Adds the following voting members to the board of directors of
CalHFA, increasing the number from eleven to thirteen:
a) The Secretary of Veterans Affairs or his or her
designee; and
b) A person appointed by the Governor that has specific
knowledge of housing finance agencies, single family
mortgage lending, bonds and related financial instruments,
interest rate swaps, and risk management.
EXISTING LAW
1)Requires the board of directors of CalHFA to be made up of 11
voting members, including the Treasurer, the Secretary of
Business, Consumer Services and Housing, and the Director of
Housing and Community Development, or their designees, one
member appointed by the Speaker of the Assembly, one member
appointed by the Senate Committee on Rules, and six members
appointed by the Governor, two of whom must be residents of
rental or cooperate housing financed by the agency or have
experience in counseling, assisting or representing tenants.
2)Provides that the Director of Finance, the Director of
Planning and Research, and the executive director of CalHFA
are nonvoting ex-officio members of the board of directors.
3)Requires the Governor to select four of his six appointees
from among the following categories:
a) An elected official of a city or county engaged in the
planning or implementation of a housing, housing
assistance, or housing rehabilitation program;
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b) A person experienced in residential real estate,
mortgage banking, or the commercial banking industry;
c) A person experienced in building residential housing;
d) A person experienced in organized labor in the
residential construction industry;
e) A person experienced in the management of rental or
cooperative housing occupied by lower-income households;
f) A person experienced in manufactured housing finance and
development; and
g) A person representing the public.
(Health and Safety Code 50901 et. al.)
FISCAL EFFECT : Unknown
COMMENTS :
Established in 1975, CalHFA was chartered as the state's
affordable housing bank to make below market-rate loans for
single-family and multi-family housing through the sale of
tax-exempt bonds. CalHFA is a self-supporting entity and its
debts, including those related to the compensation and
retirement costs of its employees, are separate from the State
of California. Investor capital, through the sale of bonds,
provides the agency's source of revenue, not taxpayers'
proceeds. Existing statutes and bond indentures state that the
agency's debts are not a debt or liability of the state or any
political subdivision thereof and are not backed by the faith
and credit of the State of California.
In 2010, at the request of the Joint Legislative Audit
Committee, the California State Auditor audited CalHFA to
determine what decisions and actions of the agency may have
contributed to its current fiscal condition and its future
financial solvency. According to the State Auditor, beginning in
2008, CalHFA experienced losses on its single-family portfolio
totaling $146 million and $189 million in fiscal years 2008-09
and 2009-10, respectively. These losses were a result of the
high delinquency rates on its single-family loans and the amount
of variable-rate debt that the agency issued, which led to a
downgrade in the credit rating. In an effort to continue to
provide loans on single-family homes in a time of low interest
rates, CalHFA issued variable- rate bonds because the cost of
the debt was less. To mitigate the risks associated with
variable- rate bonds, CalHFA entered into interest-rate swaps
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with counterparts. According to the Auditor, the decision to
enter into variable-rate bonds and interest-rate swaps was a
result of CalHFA's desire to pursue ever-increasing goals for
loan volume. The board of directors approved these strategies.
Ultimately the auditor determined that despite its losses,
CalHFA's "major housing programs and the fund it uses to pay its
operating expenses should remain solvent under most foreseeable
circumstances." The auditor identified several actions that
CalHFA's board could take to shore up the financial viability of
the agency going forward. First, the auditor determined that the
annual delegations of duties to staff were overly permissive.
The decision to enter into interest-rate swaps was not a planned
business strategy and was entered into before the board was
briefed on the risks. CalHFA amended the wording of its annual
delegations in January 2011 to respond to this concern. Second,
the auditor recommend that the Legislature amend CalHFA's
statute to require that the board include appointees with
knowledge "of housing finance agencies, single-family mortgage
lending, bonds and related financial instruments, interest-rate
swaps and risk management."
The board of directors of CalHFA is composed of 11 voting
members, including the Treasurer, the Secretary of Business,
Consumer Services and Housing, and the Director of Housing and
Community Development, or their designees, one member appointed
by the Speaker of the Assembly, one member appointed by the
Senate Committee on Rules, and six members appointed by the
Governor, of which two must be residents of rental or cooperate
housing financed by the Agency or have experience in counseling,
assisting, or representing tenants. The Director of Planning and
Research, the Director of Finance, and the Executive Director of
CalHFA are non-voting members.
In 2011, AB 1222 (Gatto) Chapter 408, responded to the Bureau of
State Audits (BSA) audit by amending CalHFA's conflict of
interest statutes to give the agency more flexibility to include
board members who are single-family lenders. CalHFA does
business with many different lenders through its single-family
mortgage program. Prior to AB 1222, the conflict of interest
statute prohibited CalHFA board members from having any
financial interest in any contract made by the agency. This
prohibition significantly narrowed the pool of financial
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institutions from which CalHFA could recruit board member. The
existing conflict of interest laws still require board members
to recuse themselves from decisions in which their institutions
have a financial interest.
In 2012, the BSA restated its recommendation to require more
sophisticated expertise on the CalHFA board to assist the agency
in avoiding financial difficulties. The BSA continued in its
recommendation that the board make-up include appointees with
knowledge "of housing finance agencies, single-family mortgage
lending, bonds and related financial instruments, interest-rate
swaps and risk management."
Purpose of this bill: AB 984 increases the total number of
members of the CalHFA board of directors to thirteen. It
increases the number of members appointed by the Governor from
six to seven and requires that at least one of the Governor's
appointees have the knowledge that the auditor believes may have
assisted CalHFA in avoiding the financial challenges associated
with variable-rate bond and interest-rate swaps. In addition,
the bill would add the Secretary of Veterans Affairs to the
board of directors.
The committee may wish to consider that the current statue
already includes a person with "experience in residential real
estate in the savings and loan, mortgage banking, or commercial
banking industry" as one of seven categories that the Governor
can choose from in appointing four of his six members to the
board. AB 984 may be redundant in including "single-family
mortgage lending" as an additional position to be appointed by
the Governor. In theory, AB 1222 (Gatto) would have made it
easier for the Governor to appoint a member to the board by
clarifying the conflict of interest standards applied to board
members.
This bill requires the Governor to appoint one person with a
variety of expertise. The committee may wish to consider if one
person would have all of the expertise that the BSA identifies
as lacking in the CalHFA Board of Directors or if it would be
better to amend the existing list of possible types of knowledge
that the Governor must select from when appointing his members
to the board.
REGISTERED SUPPORT / OPPOSITION :
AB 984
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Support
None on file.
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085