Amended in Senate August 5, 2014

Amended in Assembly April 23, 2014

Amended in Assembly March 28, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2161

Introduced by Assembly Member Chau

February 20, 2014

An act begin insert to amend Sections 50560, 50561, 50562, and 50563 of, and end insert to add Section begin delete 50406.8 end delete begin insert 50565 end insert to begin insert , end insert the Health and Safety Code, relating to housing.

LEGISLATIVE COUNSEL’S DIGEST

AB 2161, as amended, Chau. Affordable housing.

begin insert

Existing law authorizes the Department of Housing and Community Development to approve an extension of a department loan, the subordination of a department loan to new debt, or an investment of tax credit equity under specified rental housing finance programs, subject to specified conditions.

end insert begin insert

This bill would include within these provisions the reinstatement of a qualifying unpaid matured loan, as defined. This bill would require a qualifying unpaid matured loan reinstated under these provisions to be treated as if its term has been extended from the expired due date for purposes of calculating obligations of the borrower to the department.

end insert begin delete

Existing law authorizes the Department of Housing and Community Development to provide technical assistance to groups and persons with various housing needs and to administer various housing loan programs. Existing law authorizes the department to extend the term of existing multifamily housing loans made under specified programs upon the request of any borrower, subject to certain conditions, as provided.

end delete begin delete

This bill would authorize the department, upon request of the borrower of any loan issued by the department that has reached maturity, either to reloan the original amount of the matured loan, plus accrued interest, on the same terms and conditions as the original loan, or to restructure the loan, in which event specified provisions relating to the approval of an extension of a department loan, the subordination of a department loan to new debt, or an investment of tax credit equity under specified rental housing finance programs, shall apply.

end delete

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 50560 of the end insert begin insert Health and Safety Code end insert begin insert is
amended to read: end insert

50560.  

(a) Subject to the requirements of this chapter, the
department may approve an extension of a department loan, begin insert the
reinstatement of a qualifying unpaid matured loan, end insert the
subordination of a department loan to new debt, or an investment
of tax credit equity under one or more of the following rental
housing finance programs: the original Rental Housing
Construction Program established by Chapter 9 (commencing with
Section 50735), the Special User Housing Rehabilitation Program
established by Section 50670, the Deferred Payment Rehabilitation
Loan Program established by Chapter 6.5 (commencing with
Section 50660), the rental component of the California Natural
Disaster Assistance Program established by Chapter 6.5
(commencing with Section 50671), the State Earthquake
Rehabilitation Assistance Program established by Chapter 6.5
(commencing with Section 50671), the rental component of the
California Housing Rehabilitation Program established by Section
50668.5, the component of the Rental Housing Construction
Program funded with bond proceeds governed by Section 50771.1,
the Family Housing Demonstration Program established by Chapter
15 (commencing with Section 50880), and the Families Moving
to Work Program established by Chapter 15 (commencing with
Section 50880).

(b) Once the department has approved a loan extension,
begin insert reinstatement of a qualifying unpaid matured loan, end insert subordination,
or tax credit investment pursuant to this chapter, the statutes
enumerated in subdivision (a), and the regulations promulgated
pursuant to these statutes, shall no longer apply to developments
restructured pursuant to this chapter. These developments shall
instead be governed by this chapter and guidelines adopted
pursuant to subdivision (h).

(c) All projects restructured pursuant to this chapter shall comply
with the affirmative marketing and language accessibility
requirements set forth in Section 50736 of this code and Section
65863 of the Government Code.

(d) The department may approve an extension of a loan, begin insert the
reinstatement of a qualifying unpaid matured loan, end insert the
subordination of a department loan to new debt, or an investment
of tax credit equity if it determines that the project has, or will
have after rehabilitation or repairs, a potential remaining useful
life equal to or greater than the term of the restructured loan.

(e) The department may subordinate its loan to refinance existing
senior debt only as necessary for project feasibility and to
reimburse borrower advances for predevelopment costs, recent
capital improvements, and recent operating deficits.

(f) If the extension of a department loan, begin insert the reinstatement of a
qualifying unpaid matured loan, end insert the subordination of a department
loan to new debt, or an investment of tax credit equity will result
in a rent increase for tenants of a development, the department
may only subordinate a loan to senior debt if necessary to increase
the feasibility of a project and to fund reasonable rehabilitation or
improvements including soft costs. The application to refinance
shall include a third-party analysis that supports the need for
refinancing.

(g) The department may approve additional senior debt only as
necessary to finance rehabilitation or repairs, including soft costs,
that are modest in size, scope, and cost, as determined by the
department.

(h) It is the intent of the Legislature in enacting this chapter to
provide to the department the flexibility necessary to maintain the
quality of the affordable rental housing units for which the state
has already made a significant public investment. The department
may implement this chapter through guidelines that shall not be
subject to Chapter 2.5 (commencing with Section 11340) of Part
1 of Title 2 of the Government Code. These guidelines shall be
developed through the following process:

(1) The department shall provide a notice of proposed action as
described in Section 11346.5 of the Government Code to the public
at least 21 days before the close of the public comment period.

(2) The department shall schedule at least one public hearing
as described in Section 11346.8 of the Government Code before
the close of the public comment period.

(3) The department shall maintain a rulemaking file as described
in Section 11347.3 of the Government Code.

(4) The final version of the guidelines shall be accompanied by
a final statement of reason as described in subdivision (a) of
Section 11346.9 of the Government Code.

(5) The rules and guidelines shall be effective immediately upon
adoption by the department.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 50561 of the end insert begin insert Health and Safety Code end insert begin insert is
amended to read: end insert

50561.  

(a) The department may approve an extension of an
existing rental housing development loan, begin insert the reinstatement of a
qualifying unpaid matured loan, end insert the subordination of a department
loan to new debt, or an investment of tax credit equity as long as
the rental housing development is being operated in a manner
consistent with the regulatory agreement and the development
requires an extension in order to continue to operate in a manner
consistent with this chapter. Each extension shall be for a period
of not less than 10 years and each extension shall not exceed 55
years, or 58 years if needed to match the term of tax credit
restrictions. The interest rate shall be 3 percent simple interest. All
loan payments shall be deferred for the full term of the loan, except
for residual receipts payments. These residual receipts payments
shall be structured to avoid reducing the amount of payments on
local public agency loans resulting solely from changes in the
payment terms on the department’s loan, and not resulting from
fees or other payments to the borrower, and shall otherwise be
consistent with the provisions of the department’s Uniform
Multifamily Regulations or successor regulations. The department
may charge a monitoring fee to cover the aggregate monitoring
costs it incurs in years that the loan is extended and charge a
transaction fee to cover its costs for processing restructuring
transactions. The department may waive or defer some or all fees,
if it determines that a particular development or class of
developments does not have the ability to make these payments.
In determining the fees and payments to be charged, the department
shall seek to share monitoring activities with other regulatory
agencies and to minimize the impact on tenants with the lowest
incomes and on the capacity of the developments to support private
debt or secure tax credit investments.

(b) To the minimum extent necessary to support new debt to
pay for rehabilitation, rents for assisted units in these developments
may be adjusted. This rehabilitation shall be determined by the
department to be demonstrably necessary, based on third-party
assessment and on the department’s own inspection. Assisted units
in developments with a specific, department-approved plan to
undertake the necessary rehabilitation, at a level that equals or
exceeds the minimum per-unit rehabilitation cost standards under
the low-income housing tax credit program, may be adjusted as
follows:

(1) For developments originally financed under the bond-funded
component of the Rental Housing Construction Program pursuant
to Section 50771.1, and the Family Housing Demonstration
Program, rents may be increased up to a maximum of 30 percent
of 60 percent of area median income, for units designated in the
development’s original regulatory agreement as lower income
units, and up to a maximum of 30 percent of 35 percent of area
median income, for units designated in the development’s original
regulatory agreement as very low income units.

(2) For developments originally financed under other programs,
rents for at least 35 percent of the assisted units, or as specified in
the original regulatory agreement governing the development,
whichever is greater, shall be restricted to the midlevel target used
by the Multifamily Housing Program. Rents for the balance of the
assisted units may be increased up to a maximum of 30 percent of
60 percent of area median income. For purposes of this paragraph,
“midlevel target used by the Multifamily Housing Program” shall
mean either of the following:

(A) For counties with an area median income of 110 percent or
less of state median income, it shall mean 30 percent of 30 percent
of state median income, expressed as a percentage of area median
income.

(B) For counties with an area median income that exceeds 110
percent of the state median income, it shall mean, 30 percent of
35 percent of state median income, expressed as a percentage of
area median income.

(c) Rent increases for tenants living in assisted units at the time
of restructuring pursuant to this chapter shall be limited as follows:

(1) For existing tenants with incomes not exceeding 35 percent
of area median income, increases shall be limited to 5 percent per
year, until the rents reach the levels set under subdivision (b).

(2) For existing tenants with incomes exceeding 35 percent of
area median income, increases shall be limited to 10 percent per
year, until they reach the levels specified in paragraphs (1) and (2)
of subdivision (b) of Section 50561.

(3) It is the intent of the Legislature that rent increases for
existing tenants authorized by this subdivision shall not be greater
than necessary to ensure the financial feasibility of the project.
The projected maximum rent for tenants in assisted units, as
determined by subdivision (b), shall not exceed 50 percent of the
household’s actual income. This requirement shall be applied using
maximum rent levels and household incomes determined at the
time of restructuring or at the time of the department’s approval
of the restructuring.

(4) If the refinance of a loan results in a rent increase, the project
sponsor shall provide tenants with the following notifications:

(A) Notice six months prior to the scheduled rent increase with
an estimate of the amount of the increase.

(B) Notice 90 days prior to the actual increase with the exact
amount of the new rent.

(d) If existing tenants move, the rent for these units may be
increased immediately up to the level specified in paragraphs (1)
and (2) of subdivision (b). The income limit for new tenants shall
correspond with the rent limit set pursuant to paragraphs (1) and
(2) of subdivision (b).

(e) Once rents achieve the levels set forth in paragraphs (1) and
(2) of subdivision (b), income levels and rent limits shall be
calculated consistent with the calculation methodology used under
the Low Income Housing Tax Credit program and the Multifamily
Housing Program, and rent increases shall be based on increases
in the area median income.

(f) Eligible households displaced as a result of rehabilitation
pursuant to this section shall be accorded first priority in occupying
comparable units in the development from which they were
displaced, subsequent to rehabilitation. Tenants of rental housing
developments repaired with assistance provided under this chapter
who are temporarily or permanently displaced as a result of
rehabilitation or other repair work, shall be entitled to relocation
benefits pursuant to, and subject to, the requirements of Section
7260 of the Government Code. Sponsors of assisted rental housing
developments shall be responsible for providing the benefits and
assistance. The costs of the benefits and the assistance provided
to tenants shall be eligible for funding by a loan provided pursuant
to this section.

(g) The guidelines adopted by the department pursuant to
subdivision (h) of Section 50560 shall be patterned after the
regulations governing the Multifamily Housing Program, including
the Uniform Multifamily Regulations, except that the department
may adopt different standards for the following factors:

(1) Commercial vacancy loss assumptions must reflect project
operating history.

(2) Debt service coverage ratios.

(3) Payment terms and principal amount of senior debt,
considering financial market conditions, including costs and
department risk, as determined by the department.

(4) Developer fee limitations shall be consistent with California
Tax Credit Allocation Committee regulations for inclusion in the
basis for projects receiving 9 percent tax credits, for projects
receiving the special rent increases contemplated by this chapter,
and, consistent with the requirements of other funding sources, for
projects not receiving special rent increases.

(5) Replacement reserve deposit amounts must be based on
projected costs over 20 years, adjusted for inflation, and as shown
in an independent replacement reserve analysis.

(h) It is the intent of the Legislature in enacting this section that
the department shall manage its reserves for the original Rental
Housing Construction Program in a manner that will allow for the
continuation of benefits to current low-income tenants for the
longest period of time possible up to the term of the original
regulatory agreement or the depletion of the annuity funds,
whichever occurs first. Accordingly, rents for those households in
units subsidized by the annuity fund established pursuant to Section
50748 may be increased to 30 percent of household income. Any
household affected by the rent increase permitted by this
subdivision shall be given at least 90 days advanced notice of the
increase.

(i) (1) The department shall, within available resources, post
on its Internet Web site information regarding household incomes
and rents for developments approved for restructuring.

(2) The information shall be provided within six months of a
restructuring and, thereafter, no less than every three years.

(3) The information shall include the following or similar
information:

(A) The monthly rent of each household at the time of
restructuring.

(B) The current monthly rent of each household.

(C) The annual income of each household as a percentage of
area median income at the time of restructuring.

(D) The current income of each household as a percentage of
area median income.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 50562 of the end insert begin insert Health and Safety Code end insert begin insert is
amended to read: end insert

50562.  

(a) If a department loan is extended or subordinated,
begin insert the department approves the reinstatement of a qualifying unpaid
matured loan, end insert or begin delete if end delete a new tax credit investment occurs, begin insert then end insert the
department shall enter into a new regulatory agreement with the
development’s owner, or amend the existing agreement. The
agreement shall be binding upon the development’s owner and
successors in interest upon sale or transfer of the development
property, regardless of any prepayment of the loan. The agreement
shall be recorded in the office of the county recorder in the county
in which the development is located. The new or amended
regulatory agreement shall:

(1) Set standards for tenant selection to ensure occupancy by
the eligible households.

(2) Govern the terms of occupancy agreements.

(3) Restrict rents for assisted units, consistent with this chapter.

(4) Provide for periodic inspections by the department.

(5) Require occupancy and financial reports, and financial audits
for the development.

(6) Govern the use of operating income for the development.

(7) Govern the use of reserves for the development.

(8) Have a term for not less than the term of the loan, including
any extension.

(9) Include other provisions necessary to carry out the purposes
of this chapter.

(b) The development’s owner shall agree to replace or amend
any other loan document to accomplish the purposes of this chapter.

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 50563 of the end insert begin insert Health and Safety Code end insert begin insert is
amended to read: end insert

50563.  

(a) Sections 50560 and 50562 shall apply to the
restructuring of loans for group homes, except as modified in this
section.

(b) The department may approve an extension of a department
loan at the end of the current loan term to an existing owner of a
group home, begin insert or the reinstatement of a qualifying unpaid matured
loan to an existing owner of a group home, end insert as long as the group
home is being operated in a manner consistent with the regulatory
agreement and the group home requires an extension in order to
operate in a manner consistent with this chapter. The extension
may be for a period of no less than 10 years and up to 30 years.

(c) The guidelines adopted by the department pursuant to
subdivision (h) of Section 50560 may simplify requirements as
appropriate to group homes and may include a limitation on
occupancy of vacant units or rooms to extremely low-income
households, rent limitations appropriate to required income levels,
requirements that property be maintained, financial reporting, and
other provisions as determined necessary by the department.

(d) Loan terms contained in the existing promissory note shall
apply during the period of the loan extension. All unpaid principal
and interest shall be due at the end of the extension. However, the
department may require periodic payments of principal or interest,
or both, during the extension period. If the borrower repays the
loan prior to the end of the extension, regulatory requirements
shall be removed. As necessary to generate sufficient revenue to
cover the cost of processing loan transactions and long-term
monitoring of program requirements, the department may also
assess loan processing and monitoring fees. This subdivision shall
not authorize a rent increase that exceeds 30 percent of the
household’s actual income, based upon the most recent income
certification.

(e) Rent increases for tenants living in assisted units at the time
of restructuring pursuant to this chapter shall be limited as follows:

(1) For existing tenants with incomes not exceeding 30 percent
of area median income, rent increases shall be limited to 5 percent
per year until rents reach the levels for targeted income levels
specified in the regulatory agreement.

(2) For existing tenants with incomes exceeding 30 percent of
area median income, rent increases shall be limited to 10 percent
per year until rents reach the levels for targeted income levels
specified in the regulatory agreement.

(f) It is the intent of the Legislature in enacting this chapter that
the department shall manage its reserves for the original Rental
Housing Construction Program in a manner that will allow for the
continuation of benefits to current low-income tenants for the
longest period of time possible up to the term of the original
regulatory agreement or the depletion of the annuity funds.
Accordingly, rent subsidies shall be continued only for units
occupied by lower income tenants who were in residence at the
time of the extension authorized under this section and rents for
those households shall be increased to 30 percent of household
income.

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 50565 is added to the end insert begin insert Health and Safety Code end insert begin insert , end insert immediately following Section 50564 begin insert , to read: end insert

begin insert

begin insert 50565. end insert   

(a) For purposes of this chapter, “qualifying unpaid
matured loan” shall mean either of the following:

(1) A loan made pursuant to the programs listed in subdivision
(a) of Section 50560 that is in material compliance, as determined
by the department, with all loan terms and conditions, including,
but not limited to, those required by the department loan documents
or applicable statutes and regulations, or otherwise required by
the department, other than having reached the due date of its
promissory note without being paid.

(2) A matured loan that is not in compliance, as described in
paragraph (1), and is being transferred to another borrower
approved by the department.

(b) A reinstatement of a qualifying unpaid matured loan under
this chapter shall be treated as if its term has been extended from
the expired due date for purposes of calculating obligations of the
borrower to the department.

end insert

begin delete

SECTION 1.  

Section 50406.8 is added to the Health and Safety
Code, to read:

50406.8.  

Notwithstanding any other law, the department, upon
the request of the borrower of any loan issued by the department
that has reached maturity, may do either of the following, at the
option of the borrower:

(a) Reloan the original amount of the matured loan, plus accrued
interest, on the same terms and conditions as the original loan.

(b) Restructure the loan, in which event the provisions of
Chapter 3.9 (commencing with Section 50560) shall apply.

end delete