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
AB 2280 (Ridley-Thomas) Page 4 of ?
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
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