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 ----------------------------------------------------------------- |Author: |Ridley-Thomas | |----------+------------------------------------------------------| |Version: |4/21/2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Alison Dinmore | |: | | ----------------------------------------------------------------- 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 -- END --