BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1699|
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THIRD READING
Bill No: AB 1699
Author: Torres (D)
Amended: 8/14/12 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMM. : 6-2, 7/3/12
AYES: DeSaulnier, Kehoe, Lowenthal, Pavley, Rubio,
Simitian
NOES: Gaines, Wyland
NO VOTE RECORDED: Harman
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/6/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
ASSEMBLY FLOOR : 50-27, 5/29/12 - See last page for vote
SUBJECT : Department of Housing and Community
Development: loan
restructuring
SOURCE : Author
DIGEST : This bill allows the Department of Housing and
Community Development (HCD) 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
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homeownership housing development finance programs
administered by 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:
1.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.
2.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.
3.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.
4.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.
5.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.
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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:
1.Rental Housing Construction Program
2.Special User Housing Rehabilitation Program
3.Deferred Payment Rehabilitation Loan Program
4.Rental component of the California Natural Disaster
Assistance Program
5.State Earthquake Rehabilitation Assistance Program
6.Rental component of the California Housing Rehabilitation
Program
7.Family Housing Demonstration Program
8.Families Moving to Work Program
To qualify for a restructuring, the development must:
1.Currently be operated in a manner consistent with the
regulatory agreement and require a restructuring in order
to continue to operate.
2.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:
1.The extension shall be for a period of at least 10 years
and not exceed 55 years.
2.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
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service.
3.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.
4.HCD may allow a capitalized loan payment reserve.
5.HCD may subordinate its loan to refinance existing senior
debt only as necessary for project feasibility.
6.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.
7.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.
1. Rents may increase no more than five percent per year
for existing tenants with incomes less than or equal to
35 percent of area median income and no more than 10
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percent for all other existing tenants.
2. The owner shall provide tenants with a six-month notice
of any estimated rent increase and a 90-day notice of
any actual rent increase.
3. 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.
4. 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:
1.HCD may administer the program through guidelines
developed pursuant to a specified process, exempt from
the Administrative Procedures Act.
2.The guidelines must generally follow the guidelines for
the Multifamily Housing Program.
3.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
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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:
1.Owner component of the California Natural Disaster
Assistance Program
2.California Homeownership Assistance Program
3.Owner component of the California Housing Rehabilitation
Program
4.Owner component of the Deferred Payment Rehabilitation
Loan Program
5.Owner component of the State Earthquake Rehabilitation
Assistance Program
6.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
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
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bill provides that authority while also establishing the
general requirements for the new financing and protecting
existing tenants from excessive rent increases.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Extensions of loan terms would result in a deferral of an
unknown, potentially significant amount of loan repayment
revenue to HCD (various special funds). Absent this
bill, these loan repayments would most likely be used to
provide additional affordable housing. However, the
costs of funding new affordable housing stock is higher
than preserving and rehabilitating existing affordable
housing through loan extensions, as provided in this
bill. Therefore, absent the bill, there would be
increased costs to maintain the current level of
affordable housing.
All HCD costs to process loan restructuring transactions
and to conduct ongoing monitoring activities would be
fully covered by fees charged to applicants and payments
on restructured loans.
SUPPORT : (Verified 8/13/12)
A Community of Friends
Abode Communities
BRIDGE Housing Corporation
Community Economics
Eden Housing
Enterprise Community Partners
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Hollywood Community Housing Corporation
Mercy Housing California
National Equity Fund
Non-Profit Housing Association of Northern California
Tenderloin Neighborhood Development
Western Center on Law and Poverty
ASSEMBLY FLOOR : 50-27, 5/29/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, Hayashi, Roger Hern�ndez, Hill, Huber,
Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza,
Mitchell, Monning, Pan, Perea, V. Manuel P�rez,
Portantino, Skinner, Solorio, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. P�rez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth,
Valadao, Wagner
NO VOTE RECORDED: Cedillo, Fletcher, Hall
JJA:n 8/13/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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