BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 1699
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: torres
VERSION: 6/26/12
Analysis by: Mark Stivers FISCAL: yes
Hearing date: July 3, 2012
SUBJECT:
Department of Housing and Community Development: loan
restructuring
DESCRIPTION:
This bill allows the Department of Housing and Community
Development to restructure existing loans under various older
rental housing and homeownership programs.
ANALYSIS:
Over the past 30 years, the Legislature has authorized and
funded a variety of affordable rental and homeownership housing
development finance programs administered by the Department of
Housing and Community Development (HCD), each with its own
unique requirements for ongoing operation.
SB 707 (Ducheny), Chapter 658, Statutes of 2007, allows HCD to
extend the term of an existing multifamily housing loan under
the original Rental Housing Construction Program, the Special
User Housing Rehabilitation Program, and the Deferred Payment
Rehabilitation Loan Program if the project, after
rehabilitation, will have a remaining useful life of at least 30
years and is financially feasible. Extensions are subject to a
number of conditions, including the following:
The borrower must agree to an extension of the term of the
loan by an additional 55 years or for the remaining useful
life of the project, but not less than 30 years.
The interest rate on the extended term is 3 percent simple
interest, and HCD may defer all payments of principal and
interest except for an annual interest amount necessary to
cover HCD's on-going monitoring responsibilities.
The borrower must agree to amend or replace the existing
regulatory agreement to include terms generally equivalent to
those used in HCD's Multifamily Housing Program.
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The borrower must agree to a rent schedule that ensures that
all assisted units are affordable to households earning no
more than 60 percent of the area median income and that at
least 35 percent of all assisted units are affordable to
households earning less than the midlevel target used by the
Multifamily Housing Program, unless HCD makes specified
findings relating to project infeasibility.
The changes in rents shall not displace any tenant, and rents
may not increase above the amounts specified in the former
regulatory agreement for the first year. In later years,
rents may adjust to the levels allowed in the new regulatory
agreement, provided that a tenant's total annual increase does
not exceed 10 percent.
This bill replaces the SB 707 provisions and allows HCD to
restructure existing loans under various older rental housing
and homeownership programs.
Rental Housing Programs
This bill allows HCD to extend a loan, subordinate a loan to new
debt, or approve an investment of tax credit equity (restructure
a project) under one or more of the following rental housing
finance programs:
Rental Housing Construction Program
Special User Housing Rehabilitation Program
Deferred Payment Rehabilitation Loan Program
Rental component of the California Natural Disaster Assistance
Program
State Earthquake Rehabilitation Assistance Program
Rental component of the California Housing Rehabilitation
Program
Family Housing Demonstration Program
Families Moving to Work Program
To qualify for a restructuring, the development must:
Currently be operated in a manner consistent with the
regulatory agreement and require a restructuring in order to
continue to operate.
Have a remaining useful life, after rehabilitation, equal to
or greater than the term of the restructured loan.
The bill establishes the following requirements on the
restructuring:
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The extension shall be for a period of at least 10 years and
not exceed 55 years.
The interest rate shall be 3 percent simple interest, and HCD
may defer all payments of principal and interest except for an
annual interest amount necessary to cover HCD's on-going
monitoring responsibilities. In addition, HCD may defer the
annual monitoring amount if the restructured project does not
include additional debt service.
The loan shall be subject to requirements HCD shall establish
in guidelines, as opposed to the terms of the original loan,
and a new regulatory agreement including specified provisions
must be recorded.
HCD may allow a capitalized loan payment reserve.
HCD may subordinate its loan to refinance existing senior debt
only as necessary for project feasibility.
HCD may subordinate its loan to new senior debt only as
necessary to finance rehabilitation that is modest in size,
scope, and cost and, if the restructuring will result in a
rent increase for tenants, to increase the feasibility of the
project and to fund reasonable rehabilitation costs supported
by a third-party analysis.
HCD may adjust rents upwards to the minimum extent needed to
support new debt to pay for substantial rehabilitation costs
deemed necessary by a third-party assessment and HCD's own
inspection as follows:
For developments originally financed under the
bond-funded component of the Rental Housing Construction
Program, rents may be increased up to a maximum of 30
percent of 60 percent of area median income for
lower-income units and up to a maximum of 30 percent of 35
percent of area median income for very low-income units.
For developments originally financed under other
programs, rents for at least 35 percent of the assisted
units, or as specified in the original regulatory agreement
if greater, shall be restricted to the midlevel target used
by the Multifamily Housing Program, and rents for the
balance of the assisted units may be increased up to a
maximum of 30 percent of 60 percent of area median income.
Rents may increase no more than 5 percent per year for
existing tenants with incomes less than or equal to 35 percent
of area median income and no more than 10 percent for all
other existing tenants.
The owner shall provide tenants with a 6-month notice of any
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estimated rent increase and a 90-day notice of any actual rent
increase.
Eligible households displaced as a result of rehabilitation
receive first priority in occupying comparable units in the
rehabilitated development, and tenants who are temporarily or
permanently displaced as a result of rehabilitation are
entitled to relocation benefits.
The restructured project must comply with affirmative
marketing and language accessibility requirements of current
law.
The bill allows HCD to administer the restructuring program
under the following terms:
HCD may administer the program through guidelines developed
pursuant to a specified process, exempt from the
Administrative Procedures Act.
The guidelines must generally follow the guidelines for the
Multifamily Housing Program.
HCD may charge loan processing and monitoring fees as
necessary to generate sufficient revenue to cover the cost of
processing loan transactions and long-term monitoring of
program requirements.
The bill allows HCD to grant an extension of a loan originally
made to a group home under the programs specified above with
slightly different criteria. These loan extensions shall be no
less than 10 years and no more than 30 years, the regulatory
agreement shall terminate upon prepayment of the loan, and rents
for existing tenants with income greater than 30 percent of the
area median income may increase up to 10 percent per year. In
addition, HCD may simplify the requirements in its guidelines as
appropriate to group homes.
Homeownership Programs
This bill also allows HCD, at the time a loan is due, to extend
a loan to an owner who occupies his or her home under any of the
following homeownership programs:
Owner component of the California Natural Disaster Assistance
Program
California Homeownership Assistance Program
Owner component of the California Housing Rehabilitation
Program
Owner component of the Deferred Payment Rehabilitation Loan
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Program
Owner component of the State Earthquake Rehabilitation
Assistance Program
Owner component of the Mobilehome Park Resident Ownership
Program
To be eligible for an extension, the owner's household income
must be no greater than 50 percent of area median income, or HCD
must determine that it is not in its interest to call the loan
due.
The extension is for a period of ten years. The loan terms
contained in the existing promissory note continue to apply
during the extension, but if the borrower repays the loan prior
to the end of the extension, the program restrictions terminate.
The bill further allows HCD to administer this program subject
to guidelines exempt from the Administrative Procedures Act and
allows HCD to charge a fee to cover its processing and
monitoring costs.
COMMENTS:
1.Purpose of the bill . Over the decades, HCD has financed a
variety of affordable multifamily housing projects and
homeowner loans under different programs that are now
inactive. According to the author, many of these housing
developments are 20 to 30 years old and need capital
improvements or an infusion of operating capital to allow them
to continue to operate. HCD needs additional statutory
authority to restructure and subordinate these loans to new
tax credit equity or private debt to make these projects
viable for the long term. This bill provides that authority
while also establishing the general requirements for the new
financing and protecting existing tenants from excessive rent
increases.
2.Restructuring is a cost-effective strategy . If HCD is not
able to restructure loans and projects deteriorate due to lack
of investment, project sponsors may be forced to default on
their HCD loans. This results in high transaction costs for
HCD and HCD owning deteriorated properties. Like a loan
modification for an individual family, restructuring a project
loan keeps the property affordable while reducing costs to the
lender, in this case HCD.
3.Technical amendment : In 50560(d) after "loan" insert "the
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subordination of a department loan to new debt, or an
investment of tax credit equity"
Assembly Votes:
Floor: 50-27
Appr: 12-5
H&CD: 4-2
POSITIONS: (Communicated to the committee before noon on
Wednesday,
June 27, 2012)
SUPPORT: Abode Communities
A Community of Friends
BRIDGE Housing Corporation
Community Economics
Eden Housing
Enterprise Community Partners
Hollywood Community Housing Corporation
Mercy Housing California
National Equity Fund
Non-Profit Housing Association of Northern
California
OPPOSED: None received.