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  







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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  








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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  








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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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