BILL ANALYSIS Ó AB 2161 Page 1 ASSEMBLY THIRD READING AB 2161 (Chau) As Amended April 23, 2014 Majority vote HOUSING 5-2 APPROPRIATIONS 12-5 ----------------------------------------------------------------- |Ayes:|Chau, Gordon, Brown, |Ayes:|Gatto, Bocanegra, | | |Quirk-Silva, Yamada | |Bradford, | | | | |Ian Calderon, Campos, | | | | |Eggman, Gomez, Holden, | | | | |Pan, Quirk, | | | | |Ridley-Thomas, Weber | |-----+--------------------------+-----+--------------------------| | | | | | |Nays:|Beth Gaines, Maienschein |Nays:|Bigelow, Donnelly, Jones, | | | | |Linder, Wagner | ----------------------------------------------------------------- SUMMARY : Authorizes the Department of Housing and Community Development (HCD) at the request of a borrower of any loan issued by the department, that has reached maturity, to modify the loan. Specifically, this bill : 1)Authorizes HCD at the request of a borrower of any loan issued by HCD that has reached maturity to do either of the following: a)Reloan the original amount of the matured loan plus any accrued interest on the same terms and conditions as the original loan; or b)Restructure the loan pursuant to a streamlined process authorized by AB 1699 (Torres), Chapter 780, Statutes of 2012. FISCAL EFFECT : According to the Assembly Appropriations Committee, minor and absorbable costs to HCD. COMMENTS : HCD has financed a variety of affordable multi-family housing projects under different state-funded programs. From 1980 to 1995, HCD operated multiple programs that provided low-interest loans for affordable multifamily housing. The AB 2161 Page 2 programs provided 3% interest rate, deferred payment loans for rehabilitation or new construction of housing for low-income families, single-room occupancy hotels, and other special needs populations. Many of these housing developments are 20 to 30 years old and are in need of capital improvements or have significant operating deficits. HCD's current program to finance affordable rental housing is the Multifamily Housing Program (MHP). Created in 1999, this program is the department's omnibus rental housing program, able to finance different types of rental housing for various populations under a uniform structure. This program funds the new construction, rehabilitation, and preservation of affordable rental housing through loans to local governments, non-profit developers, and for-profit developers. Affordable units are those affordable to households earning no more than 60% of the county AMI, but HCD gives heavy priority to projects that serve households at even lower income levels. Loans are for a term of 55 years at a rate of 3% simple interest. All payments are deferred except for a standard annual interest payment (currently .42%) to cover HCD's ongoing monitoring and management duties. In 2012, AB 1699 gave HCD the authority to extend and modernize the loans in its older portfolio through conversion to MHP. As noted above, many of these loans were awarded in the late 1990s and are coming close to their term. Once the loan is paid off, the regulatory agreement which requires the units to remain affordable is extinguished. Many affordable housing providers would like to keep their projects affordable but need to take on additional debt financed with a low interest rate. AB 1699 set up the framework for a streamlined process for sponsors to restructure their HCD loans or extend the term of loans without new debt. The terms of the process will be spelled out in guidelines so that both an affordable housing sponsor and HCD can anticipate the process. This bill is a follow up to AB 1699. Although AB 1699 was passed in 2012, the guidelines have not been adopted. Some of the loans for projects that want to use the AB 1699 guidelines to restructure have reached maturity. These projects are in limbo and would like to extend the term of their loan and the accompanying affordability covenants, to continue to provide affordable housing to their tenants, using the AB 1699 process. AB 2161 Page 3 It is unclear if HCD has discretion to modify a loan that's term has ended. This bill would explicitly give HCD two options for loans that have reached maturity: reloan the original loan amount plus the accrued interest with the same terms and conditions as the original loan or restructure the loan. Without this bill project owners who are in good standing and did not default on their loans would have to go through a workout process. Projects that go into workout risk receiving a notice of default from HCD. Sponsors typically have to disclose in HCD funding competitions whether they have ever experienced a default or have gone through "workout." These experiences can make sponsors and a project less competitive. The stigma of being in workout, which suggests non-compliance and default, can impact a sponsor's critical and longstanding relationships with local public and/or philanthropic funders. While a workout can be helpful in some instances because HCD can waive some provisions which are otherwise cannot be waived, it's also true that every solution is a one-off, with no predictability and no rules. Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0003467