BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2161
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          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
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          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
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          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  



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