BILL ANALYSIS �
AB 2161
Page 1
ASSEMBLY THIRD READING
AB 2161 (Chau)
As Amended April 23, 2014
Majority vote
HOUSING 5-2 APPROPRIATIONS 12-5
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|Ayes:|Chau, Gordon, Brown, |Ayes:|Gatto, Bocanegra, |
| |Quirk-Silva, Yamada | |Bradford, |
| | | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Holden, |
| | | |Pan, Quirk, |
| | | |Ridley-Thomas, Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
|Nays:|Beth Gaines, Maienschein |Nays:|Bigelow, Donnelly, Jones, |
| | | |Linder, Wagner |
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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 HCD 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), Chapter 780, Statutes of 2012.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor and absorbable costs to HCD.
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
AB 2161
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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.
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 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.
This bill is a follow up to AB 1699. 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.
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It is unclear if HCD has discretion to modify a loan that's term
has ended. This bill 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
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 cannot be waived, it's also true that every
solution is a one-off, with no predictability and no rules.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
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