BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
                              Senator Jim Beall, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 2280           Hearing Date:    6/28/2016
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          |Author:   |Ridley-Thomas                                         |
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          |Version:  |4/21/2016                                             |
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          |Urgency:  |No                     |Fiscal:      |Yes             |
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          |Consultant|Alison Dinmore                                        |
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          SUBJECT:  California Housing Finance Agency notice requirements


            DIGEST:  This bill requires the California Housing Finance  
          Agency (CalHFA), within five business days of making a change to  
          the eligibility requirements for a program it administers, to  
          provide a lender or other party participating in the program  
          notice of the change.  

          ANALYSIS:
          
          Existing law:
          
          1)  Provides that the primary purpose of CalHFA is to meet the  
            housing needs of persons and families of low or moderate  
            income.  

          2)  Authorizes CalHFA to make loans to housing sponsors for  
            housing developments and to qualified mortgage lenders, among  
            others.  

          3)  Provides that CalHFA is administered by a board of directors  
            and is supervised on a day-to-day basis by an executive  
            director.  

          This bill:

          1)  Requires CalHFA, within five business days of making a  
            change to the eligibility requirements for a housing or  
            lending program that the agency administers, to provide a  







          AB 2280 (Ridley-Thomas)                           Page 2 of ?
          
          
            lender or other party participating in the program with notice  
            of the change, unless providing notice within five days would  
            impose an undue burden on the agency.

          2)  Provides that the notification may be provided by means of a  
            program bulletin board.  

          
          COMMENTS:

          1)  Purpose of the bill.  According to the author, there have  
            been instances in which a family "assumes it qualifies for a  
            down payment assistance program" only to later find out that  
            it doesn't.  That family must then find other financing and  
            risk losing the opportunity to become first-time home buyers.   
            The author asserts that that this bill provides certainty to  
            potential homebuyers who participate in programs like the  
            California Homebuyer's Downpayment Assistance Program.  The  
            bill increases confidence in these programs because families  
            can determine acquisitions costs without the fear of  
            eligibility requirements being changed without their  
            knowledge.  If changes in a program are made after a  
            prospective home buyer has entered into a contract to purchase  
            a home, the bill helps those individuals secure other means of  
            financing as soon as possible.  Also, directing the public to  
            the agency's website will reinforce the details of the program  
            administered by the agency and foster improved understanding  
            of the downpayment assistance process.

          2)  CalHFA background.  The California Housing Finance Agency  
            (CalHFA) is the state's affordable-housing bank.  CalHFA  
            borrows money from the private financial market at  
            below-market interest rates by issuing tax-exempt revenue  
            bonds.  CalHFA passes these interest rate savings on to low-  
            and moderate-income first-time homebuyers and affordable  
            rental housing developers by offering below market-rate  
            mortgages.  These bonds are backed only by CalHFA revenues and  
            not by the state General Fund. 

            One program that CalHFA operates is the Mortgage Credit  
            Certificate (MCC) Tax Credit program.  The MCC Tax Credit is a  
            federal credit which can reduce potential federal income tax  
            liability, creating additional net spendable income which  
            borrowers may use toward their monthly mortgage payment.  This  
            MCC Tax Credit program may enable first-time homebuyers to  








          AB 2280 (Ridley-Thomas)                           Page 3 of ?
          
          
            convert a portion of their annual mortgage interest into a  
            direct dollar-for-dollar tax credit on their U.S. individual  
            income tax returns. 

          3)  Current practice for changing eligibility requirements.  Due  
            to variable market conditions and bondholder requirements,  
            CalHFA is required to modify aspects of its housing programs,  
            such as income eligibility criteria.  In some cases, this  
            occurs with little warning.  It is CalHFA policy that  
            "whenever possible, to provide its lenders a five-day notice  
            through a CalHFA Program Bulletin or Enews announcement  
            regarding program and policy changes."  It goes on to state  
            that "[s]ome exceptions may apply to the notification policy,  
            such as daily interest rate announcements and changes directed  
            by other state (e.g., State Treasurer's Office), federal  
            (e.g., GSEs, FHA) or private (e.g., Master Servicer and  
            Mortgage Insurance provider) partners who have not allowed  
            sufficient time for a five-day notification."

            Any changes to CalHFA's policies or eligibility requirements  
            are announced via Program Bulletins which are sent directly to  
            lending partners/loan officers, prominently posted on the  
            Agency's website, and broadcast through Enews Announcements to  
            anyone who has signed up to receive them.  Also, when  
            eligibility requirements change, general program information  
            is immediately updated in CalHFA's Lender Program Manual,  
            located on CalHFA's website.

            It should be noted that CalHFA does not work directly with  
            prospective homebuyers, but rather with lending institutions.   
            Therefore, lending institutions are the primary audience for  
            program change notifications and are responsible for working  
            with a potential homebuyer to determine if the homebuyer meets  
            eligibility requirements.  

            Furthermore, CalHFA's products are contingent upon available  
            resources, and many of the rules are dictated by Master  
            Servicers (this is a bank or entity that is responsible for  
            underwriting and purchasing the first mortgage loan and acts  
            on behalf of CalHFA and in the event the borrower is  
            delinquent or defaults), investors, and in some instances, the  
            State Treasurer's Office.  When changes are imposed on CalHFA  
            programs and products, lenders and consumers with an existing  
            reservation (meaning the loan has been submitted to CalHFA for  
            review and approval) are always honored under the rules in  








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            force at the time that reservation is made.  

            Presently, on the MCC Tax Credit Program web page, CalHFA  
            advises:  "Since CalHFA is not a direct lender, our mortgage  
            products are offered through private loan officers who have  
            been approved & trained by our Agency.  These loan officers  
            can help you find out more about CalHFA's programs and guide  
            you through the homebuying process."  It then provides a link  
            to contact an MCC-participating loan officer. 

            This bill would codify the current CalHFA practice of  
            requiring CalHFA, within five business days of making a change  
            to the eligibility requirements for a housing or lending  
            program that the agency administers, to provide a lender or  
            other party participating in the program with notice of the  
            change, unless providing notice within five days would impose  
            an undue burden on the agency.

          5)  Is there a problem to solve?  According to the author, a  
            member of the author's staff was in the market to buy a house  
            and assumed that he qualified for the MCC Tax Credit.  The  
            staff member was about to put an offer on a house with the  
            assumption, after working with his broker, that the offer  
            would include financing under the MCC tax credit program.   
            When the program changed, he was left scrambling for another  
            financing option.  The author's office asserts that the issue  
            of informing the public of program changes of the CALHFA  
            programs is broader than this one incident.

            When buying a home, financing options and rates often change  
            dramatically from day to day.  Even if the lender had received  
            the five days' notice as required under this bill, it is not  
            clear if that notice would have changed the staffers'  
            assumption as he searched for a house.     

          Assembly Votes:
            Floor:    74-4
            Appr:   18-2
            H&CD:     6-1
          
          FISCAL EFFECT:  Appropriation:  No    Fiscal Com.:  Yes     
          Local:  No


            POSITIONS:  (Communicated to the committee before noon on  








          AB 2280 (Ridley-Thomas)                           Page 5 of ?
          
          
          Wednesday,
                          June 22, 2016.)
          
            SUPPORT:  

          None received

          OPPOSITION:

          None received

                                      -- END --