BILL ANALYSIS �
AB 2161
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Ed Chau, Chair
AB 2161 (Chau) - As Amended: April 23, 2014
SUBJECT : Affordable housing.
SUMMARY : Authorizes the Department of Housing and Community
Development (HCD) at the request of a borrower of any loan
issued by the department, that has reached maturity, to modify
the loan. Specifically, this bill :
1)Authorizes HCD at the request of a borrower of any loan issued
by the department that has reached maturity to do either of
the following:
a)Reloan the original amount of the matured loan plus any
accrued interest on the same terms and conditions as the
original loan; or
b)Restructure the loan pursuant to a streamlined process
authorized by AB 1699 (Torres) (2012), Chapter 780.
EXISTING LAW
1)Allows HCD to approve an extension or subordination of a loan
or an investment of tax credit equity for affordable housing
developments financed through Rental Housing Construction
Program (RHCP), Family Housing Demonstration Program (FHDP),
California Housing Rehab Program (CHRP), and Deferred Payment
Rehabilitation Loan Program (DPRLP).
2)Allows HCD to extend the term of an existing rental housing
development loan with the following conditions:
a) The development is being operated consistent with the
regulatory agreement;
b) The development requires an extension in order to
continue to operate; and,
c) The interest rate of the new loan is 3%.
1)Provides that the extension of terms for an existing rental
AB 2161
Page 2
housing development loan must be for a period of not less than
10 years and the total term shall not exceed 55 years or not
more than 58 years if necessary to match tax credit
restrictions.
2)Provides that, for developments financed through RHCP, the
rent for low-income units may be increased up to a maximum of
30% of 60% of area median income (AMI) and for very-low income
units up to a maximum of 30% of 35% of AMI.
3)Provides that for developments financed under DPRLP, CHRP, and
FHDP rents may be increased as follows:
a) In counties with an AMI of 110% or less of state AMI,
rents for at least 35% of assisted units must be restricted
to no more than 30% of 30% of state median income; and,
b) In counties with an AMI of more than 110% of state AMI
rents for at least 35% of assisted units shall be
restricted to no more than 30% of 35% of state median
income and rents for the balance of assisted units may be
increased to up to a maximum of 30% of 60% of AMI.
4)Provides that for existing tenants in a development financed
by any program, rents may be increased as follows:
a) For existing tenants with incomes that are not more than
35% of AMI, increases must be limited to 5% per year until
the rents reach the levels described above;
b) For existing tenants with incomes more than 35% of AMI,
increases are limited to 10% per year until they reach the
rent levels described above; and,
c) For existing tenants who move, rents may be increased
immediately to the rent levels described above.
1)Provides that once rents reach their new ultimate level, any
future increase will be in response to increases in the AMI.
2)Provides that when a tenant vacates a unit, the new tenant's
income level must correspond to the new income limits
described above.
3)Provides that when a development is refinanced or
AB 2161
Page 3
restructured, the income levels and rent limits will be
calculated consistent with the methodology used for the
Low-Income Housing Tax Credit Program and the Multifamily
Housing Program.
4)Provides that when a loan is extended or subordinated or when
a new tax credit investment occurs, the regulatory agreement
must include provisions that do the following:
a) Include standards for tenant selection to ensure
eligible households;
b) Restrict rents for assisted units;
c) Provide for periodic inspection, occupancy, and
financial reports and financial audits of the development;
d) Govern the use of operating income and reserves for the
development; and,
e) Have a term that is not less than the term of the loan,
including extensions.
1)Provides that a new or amended regulatory agreement is binding
on the development's owner and successor regardless of
pre-payment of the loan.
2)Requires the new or amended regulatory agreement to be
recorded in the county recorder's office in which the
development is located.
FISCAL EFFECT : Unknown.
COMMENTS :
HCD has financed a variety of affordable multi-family housing
projects under different state-funded programs. From 1980 to
1995, HCD operated multiple programs that provided low-interest
loans for affordable multifamily housing. The programs provided
3% interest rate, deferred payment loans for rehabilitation or
new construction of housing for low-income families, single-room
occupancy hotels, and other special needs populations. Many of
these housing developments are 20 to 30 years old and are in
need of capital improvements or have significant operating
deficits.
AB 2161
Page 4
HCD's current program to finance affordable rental housing is
the Multifamily Housing Program (MHP). Created in 1999, this
program is the department's omnibus rental housing program, able
to finance different types of rental housing for various
populations under a uniform structure. This program funds the
new construction, rehabilitation, and preservation of affordable
rental housing through loans to local governments, non-profit
developers, and for-profit developers. Affordable units are
those affordable to households earning no more than 60% of the
county AMI, but HCD gives heavy priority to projects that serve
households at even lower income levels. Loans are for a term of
55 years at a rate of 3% simple interest. All payments are
deferred except for a standard annual interest payment
(currently .42%) to cover HCD's ongoing monitoring and
management duties.
In 2012, AB 1699 (Torres) gave HCD the authority to extend and
modernize the loans in its older portfolio through conversion to
MHP. As noted above, many of these loans were awarded in the
late 1990s and are coming close to their term. Once the loan is
paid off, the regulatory agreement which requires the units to
remain affordable is extinguished. Many affordable housing
providers would like to keep their projects affordable but need
to take on additional debt financed with a low interest rate.
AB 1699 set up the framework for a streamlined process for
sponsors to restructure their HCD loans or extend the term of
loans without new debt. The terms of the process will be
spelled out in guidelines so that both an affordable housing
sponsor and HCD can anticipate the process.
AB 2161 is a follow up to AB 1699 (Torres). Although AB 1699
was passed in 2012, the guidelines have not been adopted. Some
of the loans for projects that want to use the AB 1699
guidelines to restructure have reached maturity. These projects
are in limbo and would like to extend the term of their loan and
the accompanying affordability covenants, to continue to provide
affordable housing to their tenants, using the AB 1699 process.
It is unclear if HCD has discretion to modify a loan that's term
has ended. AB 2161 would explicitly give HCD two options for
loans that have reached maturity: reloan the original loan
amount plus the accrued interest with the same terms and
conditions as the original loan or restructure the loan.
Without this bill project owners who are in good standing and
did not default on their loans would have to go through a
AB 2161
Page 5
workout process.
Projects that go into workout risk receiving a notice of default
from HCD. Sponsors typically have to disclose in HCD funding
competitions whether they have ever experienced a default or
have gone through "workout." These experiences can make
sponsors and a project less competitive. The stigma of being in
workout, which suggests non-compliance and default, can impact a
sponsor's critical and longstanding relationships with local
public and/or philanthropic funders. While a workout can be
helpful in some instances because HCD can waive some provisions
which are otherwise unwaivable, it's also true that every
solution is a one-off, with no predictability and no rules.
Arguments in support : According to supporters, owners of
affordable housing properties who are complying with HCD
requirements and renting to lowincome and, in many cases,
special needs tenants are sometimes not aware when their
existing HCD loan matures. In most of these cases, owners are
willing to enter into extended regulatory agreements with the
State in exchange for extended loan terms. They typically have
no means to repay an HCD loan other than selling the property.
The public benefits by extending these loans since the
affordable housing is preserved at no additional out of pocket
cost to the state. If the loans were to be repaid, the proceeds
are generally so small that they could not meaningfully
contribute to the cost of creating new replacement units.
REGISTERED SUPPORT / OPPOSITION :
Support
Bridge Housing
Community Housing Partnership
Community Economics
EAH Housing
Non-Profit Housing Association of Northern California
Rubicon Programs
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
AB 2161
Page 6