BILL ANALYSIS
SB 813
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Date of Hearing: August 19, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
SB 813 (Kehoe) - As Amended: August 17, 2009
Policy Committee: Housing and
Community Development Vote: 4-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the Department of Housing and Community
Development (HCD) to offer a second mortgage secured only by
expected future home price appreciation to homebuyers qualifying
for several low- and moderate income housing programs in
specified counties. The loan would support above-market-price
home acquisitions, enabling developers to recoup losses
resulting from the real estate downturn. Specifically, the bill:
1)Requires this "deferred payment loan" to be included in every
loan package for a house in a mutual self-help development
that already has received funding assistance through the
CalHOME, BEGIN, HOME, and Joe Serna Grant programs.
2)Specifies such a loan would be due and payable only when the
house is sold and then only to the extent the appraised value
of the house at the time of sale exceeds the appraised value
of the house at the time of recordation of the original loan.
3)Specifies that the deferred payment loan provisions only apply
to the counties of Butte, Merced, Riverside, Santa Clara,
Sonoma, and Yuba, but allows HCD to include other counties in
the program.
FISCAL EFFECT
1)Unknown, potentially significant loss (potentially exceeding
$1 million) in state housing bond funds, to the extent that
the appreciation in home prices needed to ensure repayment of
deferred payment loans does not materialize.
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2)One-time costs of about $120,000 to HCD to develop regulations
and guidelines for the program. Ongoing costs of about
$150,000 annually to monitor new loan and grant programs.
COMMENTS
1)Background . HCD administers several programs aimed at
providing homeowner assistance to low and moderate income
families, including CalHOME, BEGIN, HOME, and Joe Serna Grant
programs. These programs provide grants and loans to local
public agencies and nonprofit corporations for programs that
enable low- income individuals to become or remain homeowners.
One component of these programs is a mutual self help housing
program, whereby individual families, or in some cases groups
of families, contribute "sweat equity," to the construction of
their homes. The sweat equity serves as their down payment
for the home, which is provided in the form of a deferred
payment loan. Under such an arrangement, the buyer is provided
with a low interest loan that is due only on the sale or
transfer of the home. In some cases, the loan is partly or
completely forgiven for owners that stay in their homes for
more than 10 years. These loans are secured by the equity in
the home, but are subordinate to the first loan.
The real estate downturn has had a major impact on companies
that purchased property for affordable housing projects prior
to the downturn. In these cases, the property's acquisition
and construction costs may have significantly exceeded its
current market price. This leaves developers with an inventory
of properties that they cannot sell without incurring a loss.
This bill would require HDC to cover the loss with state bond
funds, by providing unsecured loans buyers to bridge the gap
between current market prices and the developer's costs. .
2)Rationale . The purpose of this bill is to provide relief to
non-profit companies that have been caught in the real estate
downturn, and help facilitate financing for self-help housing
programs.
3)Key issue. This bill provides a direct subsidy from taxpayers
and homebuyers to developers of self-help housing projects
caught in the real estate downturn. As an example, consider a
home that cost $100,000 to build but is only worth $75,000 in
the current market. Under the bill, HCD would provide a second
loan for $25,000 so that the homebuyer could purchase a
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$75,000 home for $100,000.
In the case where the homebuyer sells the house before its
market price appreciates, taxpayers would lose up to $25,000
since HCD would not be able to collect repayment of the
unsecured loan. In the case where the market does recover, the
homebuyer would lose $25,000 equity the home, since he or she
was required to pay $100,000 for a home that was only worth
$75,000 at the time of purchase. In both cases, the developer
would be fully compensated, and share none of the losses
associated with downturn.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081