BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 984
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          AB 984 (Chau and Gordon)
          As Amended  June 18, 2013
          2/3 vote.  Urgency
          |ASSEMBLY:  |76-0 |(April 25,      |SENATE: |38-0 |(June 27,      |
          |           |     |2013)           |        |     |2013)          |
           Original Committee Reference:    H. & C.D.  

           SUMMARY  :  Adds two positions to the board of directors of the  
          California Housing Finance Agency (CalHFA), allows CalHFA to  
          make grants to homebuyers for energy improvements, and makes  
          changes to the California Homebuyer Downpayment Assistance  
          Program (CHDAP) to comply with changes in federal law.  
          The Senate amendments  : 

          1)Allow CalHFA to make grants to homebuyers in combination with  
            a first mortgage financed by the agency and in conjunction  
            with the Federal Housing Administration (FHA) Energy Efficient  
            Mortgage Program to make repairs or improvements to increase  
            the energy efficiency of the home. 

          2)Require the energy efficiency grants authorized by this bill  
            to be financed from revenues realized by the agency, from the  
            grantee's first mortgage loan, or securities backing it.

          3)Prohibit the use of bond funds for the energy efficiency  
            grants, authorized by this bill, except for short-term interim  
            loans to facilitate the transaction.   

          4)Allow CalHFA to fund any second mortgage loan directly.

          5)Provide that a CHDAP loan shall not be due and payable upon  
            sale of the home if Federal Housing Administration (FHA) owns  
            or insures the first mortgage loan or if a repayment  
            requirement is otherwise contrary to Department of Housing and  
            Urban Development (HUD) regulations governing FHA insured  
            first mortgage loans.     

          6)Add chaptering amendments to avoid conflicts with AB 637  
            (Atkins) of the current legislative session. 


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          7)Add an urgency clause allowing this bill to take effect  
            immediately upon enactment. 

           AS PASSED BY THE ASSEMBLY  , this bill added the following voting  
          members to the board of directors of CalHFA, increasing the  
          number from 11 to 13:

          1)The Secretary of Veterans Affairs or his or her designee. 

          2)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. 

          FISCAL EFFECT  :  According to the Senate Appropriations  

            1) 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.  

            2) 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.

           COMMENTS  :  The Senate amendments to the bill add several new  
          provisions.  CalFHA's main lending program is the CHDAP which  
          provides grants for first-time low and moderate-income  
          homebuyers.  The grants are secured as a second mortgage which  
          is repaid by the borrower when the home sells.  The bill makes  
          several changes to conform CalHFA's statute governing its major  
          loan program, CHDAP.  FHA recently advised that it would no  
          longer allow downpayment assistance for FHA insured loans to  
          come from state and local government agencies unless they are  


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          made directly to the borrower.  CalHFA is not authorized to fund  
          loans directly but rather work through private lenders to make  
          the grant to a homebuyer.  This bill would allow CalHFA to fund  
          a second mortgage directly which will allow the program to  
          continue to function. 

          CHDAP statutes also require a loan to be remade by a borrower  
          when a home is sold.  CalHFA was recently informed that FHA  
          prohibits a repayment requirement on loans with an FHA insured  
          first mortgage.  The majority of loans in California for  
          moderate- and low-income homebuyers are insured by FHA, this  
          ruling further jeopardizes CalHFA's ability to lend through the  
          CHDAP program.  This bill provides that a CHDAP loan associated  
          with an FHA first mortgage shall not be due and payable upon  
          sale of the home.  A new buyer may assume the CHDAP loan when  
          the CHDAP borrower sells the home.  It is not clear how many new  
          buyers may choose to assume these loans.  It would only make  
          sense for the new buyer if the interest rate on a new loan were  
          higher than the rate on the existing loan and the seller had  
          equity in the property.  To the extent that new buyers do assume  
          CHDAP loans, it will result in a slower repayment, which may  
          affect CalHFA's ability to make new CHDAP loans.  Absent this  
          legal change, however, CalHFA will be unable to make very many  
          CHDAP loans because so many of their potential CHDAP borrowers  
          have FHA loans.  

          CalHFA currently participates in FHA's Energy Efficient Mortgage  
          (EEM) program to increase loan amounts to pay for a limited  
          amount of qualified energy efficiency improvements.  CalHFA  
          would like to offer grants to pay for energy efficiency  
          improvements over and above the amount the homebuyer may finance  
          through the EEM program.  CalHFA intends to provide grants to  
          fund any remaining improvements recommended in the property's  
          Home Energy Rating Systems report.  CalHFA further intends to  
          pay for the grants and program costs by increasing interest  
          rates on the first mortgages of program participants.  While  
          CalHFA will have to front the grant money, ultimately the  
          borrowers will fully fund the program.  Reflecting these  
          intentions, the bill prohibits CalHFA from using bond proceeds  
          for this program and requires CalHFA to 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.


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          This bill has an urgency clause to make the changes needed to  
          allow CalHFA to continue lending under the CHDAP program and  
          conform to FHA's new regulations.

          Analysis Prepared by  :    Lisa Engel / H. & C.D. / (916) 319-2085  

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