BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 697 (V. M. Perez)
Hearing Date: 8/25/2011 Amended: 5/4/2011
Consultant: Maureen Ortiz Policy Vote: VA: 7-0
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BILL SUMMARY: AB 697 authorizes the Department of Veterans
Affairs to refinance a mortgage loan that is not an existing
loan acquired under the Cal Vet Home Loan Program.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Expansion of home loan program ---unknown, potentially
significant--- Special*
Regulations ----------------minor,
absorbable---------------- General
*Cal Vet Home Loan Fund
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STAFF COMMENTS: SUSPENSE FILE.
The Department of Veterans Affairs indicates the costs of
implementing regulations will be absorbable within existing
resources. The Cal-Vet Home Loan Program is funded from general
obligation bonds that are repaid through monthly mortgage
payments. The program has no General Fund costs. While AB 697
will expand the use of the funds which will likely deplete the
account sooner and potentially require future bond sales, there
is currently about $1 billion available in the home loan fund.
Current law authorizes California veterans to purchase homes
through the use of the Cal-Vet Home Loan Program. AB 697 will
expand the program to authorize veterans who have existing
mortgage loans to refinance those loans with the Cal-Vet Home
Loan Program. The veteran must have a stable loan and will have
to meet all existing qualifications in order to participate such
as obtaining an appraisal showing a market value above the
amount of the loan. This bill will not allow for loan
AB 697 (V. M. Perez)
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modifications.
Voters have passed 23 veterans bonds since 1943, the last of
which was passed in 2008 as Proposition 12 and authorized $900
million in bonds for the Cal-Vet Home Loan program. The revenue
from these bond sales is used by the Department of Veterans
Affairs to purchase farms, homes and mobile homes which are then
resold to California veterans. Each participating veteran makes
monthly payments to the Department. These payments are set in
an amount sufficient to do all of the following: 1) reimburse
the department for its costs in purchasing the farm, home, or
mobile home, 2) cover all costs resulting from the sale of the
bonds, including interest on the bonds, and 3) cover the costs
of operating the program. The Cal-Vet home loan is advantageous
to veterans since it requires little down payment and offers
competitive market rates.
The Cal-Vet Program has historically been fully supported by
participating veterans. If, however, payments made by program
participants do not fully cover principal and interest payments
on the bonds, because general obligation bonds are backed by the
State, the difference would come from the General Fund. This,
however, has not been necessary since the inception of this
program. The default rate on the Cal-Vet home loans is very
little as compared to conventional home loans. These loans are
not sold on the secondary market, and because the DVA holds the
papers on the homes, if there is a foreclosure, they then sell
the home to recoup the loan proceeds. In the rare event that
there is a short sale, the DVA has a mechanism in place referred
to as "loan loss reserves" which is a set-aside that is required
by their independent auditors and can be used to further prevent
any costs to the General Fund.