BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    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  
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          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,  

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            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.


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          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:

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           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



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          JA:k  8/12/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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