BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1516 (Committee on Housing and Community Development) -
Housing
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|Version: June 22, 2015 |Policy Vote: T. & H. 11 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Mark McKenzie |
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This bill does not meet the criteria for referral to the
Suspense File.
Bill
Summary: AB 1516 would revise repayment requirements for Home
Purchase Assistance (HPA) downpayment assistance loans
administered by the California Housing Finance Agency (CHFA),
and make several minor and technical changes to specified
housing statutes.
Fiscal
Impact:
Potential delays in downpayment assistance loan repayments in
future years to the extent those loans are assumed by persons
purchasing homes partially financed through an HPA downpayment
AB 1516 (H.& C.D. Committee) Page 1 of
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assistance loan. Currently, these loans must be repaid when a
home is refinanced or sold, but this bill would allow
downpayment assistance loans to be assumed by a new owner or
repaid as part of the home purchase. This would only apply to
new HPA loans made by CHFA.
No fiscal impacts related to other provisions of the bill.
Background: CHFA was statutorily chartered in 1975 to be the state's
affordable housing bank. In addition to its primary function of
making direct mortgage loans to low- and moderate-income
first-time homebuyers in California, CHFA also provides
downpayment assistance loans, sometimes referred to as silent
second mortgages, from the proceeds of general obligation
housing bonds. The largest of these programs is the California
Homeownership Downpayment Assistance Program (CHDAP), but CHFA
also administers the Home Purchase Assistance Program (HPA) and
the Extra Credit Teacher Home Purchase Program (ECTP). Payments
on HPA downpayment assistance loans are generally deferred until
the homeowner sells or refinances the home. Existing law allows
CHFA to permit the subordination of downpayment assistance loans
to refinancing if a homeowner has a demonstrated hardship, if
subordination is required to avoid foreclosure, and if the new
loan meets the agency's underwriting standards. If the home has
sufficient equity, subordination is prohibited and the loan must
be paid off at the time of refinancing. The vast majority of
downpayment assistance loans are made to persons whose primary
mortgage is a Federal Housing Administration (FHA) loan.
The FHA recently informed CHFA that California's statutory
requirement that downpayment assistance loans must be repaid
upon the sale of the home is prohibited when the primary
mortgage is an FHA loan. The federal Housing and Urban
Development Department (HUD) recently determined that FHA loans
and any subordinates (including downpayment assistance loans)
must be assumable by a home purchaser, and a strict requirement
that a subordinate downpayment assistance loan be repaid upon
transfer is a violation of that requirement. As a result of the
recent interpretation of regulations, CHFA will not be able to
provide HPA loans to FHA borrowers without changing its legal
authority and practice.
In response to HUD determinations, legislation was enacted to
AB 1516 (H.& C.D. Committee) Page 2 of
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allow the assumption of both CHDAP and ECTP downpayment
assistance loans issued in conjunction with an FHA loan upon the
sale of a home. (see Related Legislation below)
Proposed Law:
AB 1516 would make a technical, non-substantive change to the
Davis-Sterling Act, update cross-references and make technical
changes to the Housing Accountability Act, and make the
following changes to HPA loan repayment requirements:
Delete provisions requiring repayment of an HPA loan at the
end of the term, upon sale of the home, or upon refinancing.
Specify that an HPA loan shall not be due and payable upon the
sale of the home if the FHA owns or insures the first mortgage
loan or if requirement for repayment is otherwise contrary to
HUD regulations governing FHA loans.
Related
Legislation: AB 984 (Chau), Ch. 82/2013, authorized CHFA to
issue CHDAP downpayment assistance loans directly to a home
purchaser, and specified that a CHDAP loan shall not be due and
payable upon sale of a home if the first mortgage is an FHA
loan, or if repayment is contrary to HUD regulations.
AB 2753 (Housing and Community Development Committee), Ch.
298/2014, made similar changes to allow ECTP downpayment
assistance loans to be assumable so it could be used in
conjunction with an FHA loan.
Staff
Comments: The HPA program was initially funded by general
obligation housing bonds in 1988. CHFA has recently accumulated
enough loan repayments under the HPA loan program to begin
issuing new loans. This bill would provide necessary statutory
changes to allow HPA loans to be issued in conjunction with a
home purchase when the first mortgage is an FHA loan.
The provisions of the bill that eliminate the requirement to
repay an HPA loan upon sale of the home may result in delays in
future loan repayments if those loans are assumed by a purchaser
AB 1516 (H.& C.D. Committee) Page 3 of
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of a home initially supported by a downpayment assistance loan.
The option to assume the loan would lie with that purchaser, and
it is not clear how many would choose to assume the loan, rather
than simply have it paid off as part of the home purchase. To
the extent that buyers do assume HPA loans issued in the future,
it will result in a slower repayment, which may affect CHFA's
future ability to make new HPA loans. Absent this legal change,
however, CHFA would be prohibited from making new HPA
downpayment assistance loans to FHA borrowers.
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