BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 984 (Chau) - California Housing Finance Agency.
Amended: June 18, 2013 Policy Vote: T&H 10-0
Urgency: Yes Mandate: No
Hearing Date: June 24, 2013
Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 984 would add two members to the California
Housing Finance Agency (CHFA) board of directors, authorize CHFA
to offer energy efficiency grants in conjunction with specified
mortgage products, and revise the repayment requirements for
certain downpayment assistance loans.
Fiscal Impact:
Initial expenditures from CHFA operating funds (non-state
revenue bond funds) of up to $3 million for short-term
interim funding to finance initial allocations related to
the new energy efficiency grant program (California Housing
Finance Fund). The program must ultimately be funded
through a grantee's CHFA mortgage loan, or securities backed
by those loans, but CHFA is authorized to finance startup
costs on a short-term basis.
Potential delays in downpayment assistance loan repayments
in future years to the extent those loans are assumed by
persons purchasing homes partially financed through a CHFA
downpayment assistance loan. Currently, these loans must be
repaid when a home is refinanced or sold, but this bill
would allow downpayment assistance loans to be assumed by a
new owner or repaid as part of the home purchase.
Background: CHFA was statutorily chartered in 1975 to be the
state's affordable housing bank. The agency is financially
self-supporting; funding for its programs and operations comes
from the sales of tax-exempt and taxable revenue bonds, and it
sets its loan interest rates slightly higher than debt service
costs and charges fees for specific services to cover its
lending costs and risks. CHFA's funding is not subject to
AB 984 (Chau)
Page 1
Budget Act appropriation, nor is it supported by the full faith,
credit, or taxing power of the State of California.
In addition to its primary function of making direct mortgage
loans to low- and moderate-income first-time homebuyers in
California, CHFA also provides downpayment assistance loans,
sometimes referred to as silent second mortgages, from the
proceeds of general obligation housing bonds. The largest of
these programs is the California Homeownership Downpayment
Assistance Program (CHDAP), but CHFA also administers the Home
Purchase Assistance Program and the Extra Credit Teacher Home
Purchase Program. Payments on these downpayment assistance
loans are generally deferred until the homeowner sells or
refinances the home. Existing law allows CHFA to permit the
subordination of downpayment assistance loans to refinancing if
a homeowner has a demonstrated hardship, if subordination is
required to avoid foreclosure, and if the new loan meets the
agency's underwriting standards. If the home has sufficient
equity, subordination is prohibited and the loan must be paid
off at the time of refinancing. Approximately 95% of CHDAP
loans are made to persons whose primary mortgage is a Federal
Housing Administration (FHA) loan.
The FHA recently informed CHFA that California's statutory
requirement that CHDAP loans must be repaid upon the sale of the
home is prohibited when the primary mortgage is an FHA loan. In
addition, a recent interpretation of FHA and federal Housing and
Urban Development Department (HUD) regulations that prohibit
certain types of downpayment assistance associated with FHA loan
indicate that if state assistance is involved in the purchase,
that assistance must be provided directly. Currently, CHFA does
not lend the CHDAP loan funds directly to a borrower, but works
with lenders who provide that loan and CHFA purchases the loans
from those private lenders. As a result of the recent
interpretation of regulations, CHFA will not be able to provide
CHDAP loans to FHA borrowers as of July 1, 2013 without changing
its legal authority and practice.
CalHFA currently participates in FHA's Energy Efficient Mortgage
(EEM) Program, which helps homebuyers save money on utility
bills by financing the cost of adding energy efficiency features
to new or existing housing as part of an FHA mortgage. The
total cost of the financed energy improvements may not exceed
the total dollar value of the energy that will be saved during
AB 984 (Chau)
Page 2
the improvement's useful life as determined by a Home Energy
Rating Systems report. The maximum amount of the improvements
that may be financed is limited to 5% of the property's value
(not to exceed $8,000) or $4,000, whichever is greater.
Proposed Law: AB 984 would add the Secretary of Veterans Affairs
and a new gubernatorial appointee who has specific knowledge of
bonds and related financial instruments, interest rate swaps,
and risk management to the CHFA board of directors. The bill
would also do the following:
Specify that a CHDAP loan shall not be due and payable
upon sale of the home if the FHA owns or insures the first
mortgage loan or if repayment requirement is otherwise
contrary to specified HUD regulations.
Authorize CHFA to fund any second mortgage loan
directly.
Authorize CHFA to make grants to CHFA mortgage borrowers
whose loan is used in conjunction with FHA's EEM Program
for the purpose of making repairs or improvements to
increase energy efficiency in the home.
Require CHFA to fund the cost of the energy efficiency
grant program through revenues realized from the grantee's
first mortgage loan, or securities backed by it, except
that CHFA may provide short term interim funding to
facilitate the transaction.
Staff Comments: This bill is intended to add financial expertise
to CHFA's board, as suggested in a recent California State
Auditor recommendation, and add the Secretary of Veterans
Affairs to the board in an effort to increase coordination
efforts among the agencies. The bill would also bring CHFA's
statutes regarding downpayment assistance loans into conformance
with federal regulations and allow CHFA to provide an additional
product to its borrowers who are not able to fully finance
energy efficiency improvements due to limits in the federal EEM
program.
CHFA indicates that it will finance the initial capitalization
of the energy efficiency grant program from $3 million of its
operating funds, which are derived from non-state funds that are
the proceeds of revenue bonds, loan repayments, and fees it
charges for services. All startup costs, as well as ongoing
program costs, will be covered by an incremental increase in
interest that it charges to its borrowers who are awarded
AB 984 (Chau)
Page 3
grants.
The provisions of the bill that eliminate the requirement to
repay a CHDAP loan upon sale of the home may result in delays in
loan repayments if those loans are assumed by a purchaser of a
home initially supported by a CHDAP loan. The option to assume
the loan would lie with that purchaser, and it is not clear how
many would choose to assume the loan, rather than simply have it
paid off as part of the home purchase. To the extent that new
buyers do assume CHDAP loans, it will result in a slower
repayment, which may affect CHFA's ability to make new CHDAP
loans. Absent this legal change, however, CHFA would be
prohibited from making downpayment assistance loans to FHA
borrowers.