BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 984
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          Date of Hearing:   April 17, 2013

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                     AB 984 (Chau) - As Amended:  April 9, 2013 

          Policy Committee:                              Housing and  
          Community Development                         Vote: 7-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill adds two additional members to the board of directors  
          of the California Housing Finance Agency (CalHFA).  The members  
          are the Secretary of Veterans Affairs and a person appointed by  
          the Governor who has specific knowledge of finance issues.  

           FISCAL EFFECT  

          Minor and absorbable.

           COMMENTS 

           1)Purpose.   The author argues AB 984 adds financial expertise to  
            the CalHFA board to assist the board in its mission of making  
            housing more affordable to Californians. The author notes the  
            Bureau of State Audits released a report in 2011 which found  
            that while state law requires the governor's appointees to the  
            CalHFA board to include members with certain types of  
            experience, existing law does not appear to call for the kind  
            of sophisticated financial expertise that would have been  
            valuable in determining whether CalHFA should launch into  
            variable-rate bond debt and interest-rate swaps to the degree  
            that it did.  The author states that although profitable for  
            many years, CalHFA suffered significant losses in fiscal years  
            2008-09 and 2009-10, as a result of these actions.

           2)Background  .  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 costs and debts, including those related to the  








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            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.

            According to the State Auditor, CalHFA experienced losses on  
            its single-family portfolio of $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 risk the agency was exposed to  
            because it had issued so much variable-rate debt.  These  
            factors led to a downgrade in the credit rating. The Bureau of  
            State Audits identified several actions that CalHFA's board  
            could take to shore up the financial viability of the agency.   
            The auditor recommended 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.
                
            3)CalHFA Board  . The board of directors of CalHFA is composed of  
            11 voting members, including the Treasurer, the Secretary of  
            Business, Transportation 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 Rule, 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.
                
            4)Previous legislation.   AB 1222 (Gatto) Chapter 408, Statutes  
            of 2011, responded to the Bureau of State Audits audit by  
            amending CalHFA's conflict of interest statutes to give the  
            agency more flexibility to include board members who are  
            single-family lenders.
                
            5)There is no registered opposition to this bill.  










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           Analysis Prepared by  :    Roger Dunstan / APPR. / (916) 319-2081