BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 984| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 984 Author: Chau (D) and Gordon (D) Amended: 6/18/13 in Senate Vote: 27 - Urgency SENATE TRANSPORTATION & HOUSING COMMITTEE : 10-0, 6/4/13 AYES: DeSaulnier, Gaines, Beall, Cannella, Galgiani, Hueso, Lara, Liu, Roth, Wyland NO VOTE RECORDED: Pavley SENATE APPROPRIATIONS COMMITTEE : 7-0, 6/24/13 AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg ASSEMBLY FLOOR : 76-0, 4/25/13 (Consent) - See last page for vote SUBJECT : The California Housing Finance Agency SOURCE : Author DIGEST : This bill makes a number of changes to the California Housing Finance Agencys (CalHFA) statutes. ANALYSIS : Established in 1975, CalHFA is the states affordable housing bank. CalHFA issues tax-exempt revenue bonds and uses the proceeds to make below market-rate loans to income-eligible first-time homebuyers and the developers of affordable rental housing. CalHFA is a self-supporting entity. It does receive money from the state's general fund, and its debts obligate only CalHFA itself, not the State of California. CONTINUED AB 984 Page 2 An 11-member board of directors, each of whom serves a six-year term, governs CalHFA. The board members include the Treasurer; the Secretary of Business, Consumer Services, and Housing; and the Director of Housing and Community Development, or their designees, as ex-officio members. In addition, the Governor appoints six members, and the Speaker of the Assembly and the Senate Rules Committee each appoint one member. The Director of Finance, the Director of Planning and Research, and the Executive Director of CalHFA serve as non-voting ex-officio members of the board. Existing law requires the Governor to select four of his appointees from among the following categories: 1. An elected official of a city or county engaged in the planning or implementation of a housing, housing assistance, or housing rehabilitation program. 2. A person experienced in residential real estate, mortgage banking, or the commercial banking industry. 3. A person experienced in building residential housing. 4. A person experienced in organized labor in the residential construction industry. 5. A person experienced in the management of rental or cooperative housing occupied by lower-income households. 6. A person experienced in manufactured housing finance and development. 7. A person representing the public. CalHFA's California Homebuyer's Downpayment Assistance Program (CHDAP) offers to income-qualified first-time homebuyers a deferred-payment subordinate loan (also known as a "silent second mortgage") in the amount of 3% of the purchase price or appraised value, whichever is less, for the buyer to apply towards a downpayment or closing costs. Payments on this loan are deferred, meaning that the homebuyer does not have to make a payment on this second mortgage until the home is sold, CONTINUED AB 984 Page 3 refinanced, or paid in full. This program allows a homebuyer to afford a more expensive home than he/she would otherwise qualify for. The Federal Housing Administration (FHA) recently informed CalHFA that California's statutory requirement for a CHDAP borrower to repay the loan upon sale is prohibited for FHA loans by FHA regulations. CalHFA does not lend money directly to consumers. Instead, CalHFA works through and uses approved private lenders to qualify consumers and to make all mortgage loans, including CHDAP loans. CalHFA then purchases closed loans that meet CalHFA's requirements from these private lenders. In late 2012, FHA issued an interpretive rule defining "prohibited sources" of downpayment assistance under the federal Housing and Economic Recovery Act of 2008. The new ruling states that "state and local government agencies and instrumentalities can contribute funds, if they do so directly, towards the minimum cash investment even if they are otherwise involved in the transaction." FHA will apply this rule to all loans closed after July 1, 2013. CalHFA currently contributes CHDAP funds indirectly through the purchase of the loans, not directly at the loan closing, and will not be able to provide CHDAP loans to FHA borrowers after this date 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 enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA insured mortgage. The program recognizes that reduced utility expenses can permit a homeowner to pay a higher mortgage to cover the cost of the energy improvements. The total cost of the financed energy improvements may not exceed the total dollar value of the energy that will be saved during the improvement's useful life as determined by a Home Energy Rating Systems report. In addition, the cost of the improvements that may be financed may not exceed 5% of the property's value (not to exceed $8,000) or $4,000, whichever is greater. This bill makes a number of changes to CalHFA's statutes. This bill specifically: CONTINUED AB 984 Page 4 1.Adds the Secretary of Veterans Affairs and an additional gubernatorial appointment to the CalHFA board. 2.Requires that one of the Governor's appointments have specific knowledge of bonds and related financial instruments, interest rate swaps, and risk management. 3.Provides that a CHDAP loan shall not be due and payable upon sale of the home if FHA owns or insures the first mortgage loan or if a repayment requirement is otherwise contrary to HUD (U.S. Department of Urban Development) regulations governing FHA insured first mortgage loans. 4.Allows CalHFA to fund any second mortgage loan directly. 5.Allows CalHFA to make a grant to a homebuyer who is seeking a CalHFA first mortgage under the FHA's EEM Program for the purpose of making repairs or improvements to increase energy efficiency in the home. CalHFA must fund the cost of the program through revenues realized from the grantee's first mortgage loan, or securities backed by it, except that CalHFA may provide short term interim funding of the grant to facilitate the transaction. 6.Contains an urgency clause that applies to all provisions of the bill except for the provisions relating to CalHFA board membership and board member qualifications. 7.Contains double-jointing language with AB 637 (Atkins). Comments According to the author's office, this bill implements the California State Auditor's recommendation to add to the financial expertise to the CalHFA board. In addition, this bill adds the Secretary of Veteran Affairs to the board to increase coordination between CalHFA and the Department of Veterans Affairs, which provides mortgage loans to veterans through the CalVet Home Loan Program. The bill also seeks to bring CalHFA's statutes regarding CHDAP into conformance with recent federal policy changes and allows CalHFA to provide grants for energy efficiency improvements over and above what the EEM program currently provides. CONTINUED AB 984 Page 5 FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Initial expenditures from California Housing Finance Fund (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. 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. SUPPORT : (Verified 6/25/13) Housing California ASSEMBLY FLOOR : 76-0, 4/25/13 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom, Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Maienschein, Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Torres, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Cooley, Lowenthal, Nazarian, Vacancy CONTINUED AB 984 Page 6 JA:d 6/25/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED