BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 1516 (Committee on Housing and Community Development) - Housing ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 22, 2015 |Policy Vote: T. & H. 11 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 17, 2015 |Consultant: Mark McKenzie | | | | ----------------------------------------------------------------- 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 ? 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 ? 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 ? 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. -- END --