BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2161| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2161 Author: Chau (D) Amended: 8/5/14 in Senate Vote: 21 SENATE TRANSPORTATION & HOUSING COMMITTEE : 9-1, 6/17/14 AYES: DeSaulnier, Beall, Cannella, Galgiani, Hueso, Lara, Liu, Pavley, Roth NOES: Wyland NO VOTE RECORDED: Gaines SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/11/14 AYES: De León, Hill, Lara, Padilla, Steinberg NOES: Walters, Gaines ASSEMBLY FLOOR : 54-23, 5/27/14 - See last page for vote SUBJECT : Affordable housing SOURCE : Author DIGEST : This bill authorizes the Department of Housing and Community Development (HCD) to reinstate a matured loan that would otherwise be eligible for extension of terms or restructuring under current law. ANALYSIS : Over the past 30 years, the Legislature has authorized and funded a variety of affordable rental and homeownership housing development finance programs that HCD administers, each with its own unique requirements for ongoing CONTINUED AB 2161 Page 2 operation. AB 1699 (Torres, Chapter 780, Statutes of 2012) allows HCD to restructure existing loans under various older rental housing and homeownership programs. Rental Housing Programs With respect to older rental housing loans, HCD may extend a loan, subordinate a loan to new debt, or approve an investment of tax credit equity. To qualify for a restructuring, the development must: Currently be operated in a manner consistent with the regulatory agreement and require a restructuring in order to continue to operate. Have a remaining useful life, after rehabilitation, equal to or greater than the term of the restructured loan. The restructuring is subject to the following requirements: The extension shall be for a period of at least 10 years and not in excess of 55 years. The interest rate shall be 3% simple interest, and all loan payments are deferred for the full term of the loan, except for residual receipts payments. HCD may also waive or defer some or all processing and monitoring fees if it determines that a particular development or class of developments does not have the ability to make these payments. The loan shall be subject to HCD-developed guidelines, as opposed to the terms of the original loan, and a new regulatory agreement including specified provisions must be recorded. HCD 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. HCD may subordinate its loan to new senior debt only as necessary to finance rehabilitation that is modest in size, CONTINUED AB 2161 Page 3 scope, and cost and, if the restructuring will result in a rent increase for tenants, to increase the feasibility of the project and to fund reasonable rehabilitation costs supported by a third-party analysis. HCD may adjust rents on units upwards to the minimum extent necessary to support new debt to pay for substantial rehabilitation costs deemed necessary by a third-party assessment and HCD's own inspection, provided that the adjusted rents do not exceed specified caps. Rents may increase no more than 5% per year for existing tenants with incomes less than or equal to 35% of area median income and no more than 10% for all other existing tenants, provided that tenants are not required to pay more than 50% of income in rent. The owner shall provide tenants with a six-month notice of any estimated rent increase and a 90-day notice of any actual rent increase. Eligible households displaced as a result of rehabilitation receive first priority in occupying comparable units in the rehabilitated development, and tenants who are temporarily or permanently displaced as a result of rehabilitation are entitled to relocation benefits. The restructured project must comply with affirmative marketing and language accessibility requirements of existing law. Homeownership Programs HCD also may extend a loan at the time it is due to an owner who occupies his/her home. To be eligible for an extension, the owner's household income must be no greater 50% of area median income, or HCD must determine that it is not in its interest to call the loan due. The extension is for a period of 10 years. The loan terms contained in the existing promissory note continue to apply during the extension, but if the borrower repays the loan prior to the end of the extension, the program restrictions terminate. CONTINUED AB 2161 Page 4 This bill: 1.Authorizes HCD to extend or restructure a "qualified unpaid matured loan" under the same terms and conditions that apply in existing law regarding active HCD rental or homeownership loans, pursuant to AB 1699. Qualified loans must be in material compliance with all terms and conditions, as determined by HCD, other than having reached the due date of its promissory note without being paid. 2.Authorizes a matured loan that is not in full compliance to be transferred to another borrower approved by HCD. 3.Requires that reinstatement of a qualified unpaid matured loan be treated as if its terms have been extended from the expired due date for purposes of calculating a borrower's obligations. Comments Purpose of the bill . Over the decades, HCD has financed a variety of affordable multifamily housing projects and homeowner loans under different programs that are now inactive. According to the author's office, many of these housing developments are 20 to 30 years old and need capital improvements or an infusion of operating capital to allow them to continue to operate. Because HCD has not finished adopting guidelines for the AB 1699 restructuring program, the loans for some projects that want to restructure have reached maturity. It is unclear if HCD has discretion to extend or restructure a matured loan. This bill explicitly gives HCD that authority. Otherwise, a project owner who has fulfilled all the obligations of their original loan and would like to continue providing affordable housing would only be eligible for a restructuring through a default loan workout, which subjects the owner to negative consequences when seeking funding for future projects. Alternatively, the owner would need to convert the development to market-rate rents in order to repay the original loan or surrender the property to HCD. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: CONTINUED AB 2161 Page 5 Reinstatement of loan terms for 5-10 matured loans could result in a deferral of an unknown amount, potentially several million dollars, of loan repayment revenue to HCD (various special funds). Absent this bill, these loans would either go into default, resulting in increased costs, or loan repayments would be used to provide additional affordable housing. However, the costs of funding new affordable housing stock is higher than preserving and rehabilitating existing affordable housing through loan extensions, as provided in this bill. Therefore, absent the bill, there would be increased costs to maintain the current level of affordable housing. All HCD costs to process loan reinstatement transactions and to conduct ongoing monitoring activities would be fully covered by fees charged to applicants and minimum payments on reinstated. SUPPORT : (Verified 8/11/14) Bridge Housing Community Economics Community Housing Partnership EAH Housing Non-Profit Housing Association of Northern California Rubicon Programs ASSEMBLY FLOOR : 54-23, 5/27/14 AYES: Alejo, Ammiano, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chesbro, Cooley, Dababneh, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gray, Hall, Roger Hernández, Holden, Jones-Sawyer, Levine, Lowenthal, Medina, Mullin, Muratsuchi, Nazarian, Pan, Perea, John A. Pérez, V. Manuel Pérez, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Weber, Wieckowski, Williams, Yamada, Atkins NOES: Achadjian, Allen, Bigelow, Chávez, Conway, Dahle, Donnelly, Beth Gaines, Gorell, Grove, Hagman, Harkey, Jones, Linder, Logue, Maienschein, Mansoor, Melendez, Nestande, Olsen, Wagner, Waldron, Wilk NO VOTE RECORDED: Patterson, Quirk-Silva, Vacancy CONTINUED AB 2161 Page 6 JA:k 8/12/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED