BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 2161
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: chau
VERSION: 4/23/14
Analysis by: Mark Stivers FISCAL: yes
Hearing date: June 17, 2014
SUBJECT:
Extension or restructuring of matured housing loans
DESCRIPTION:
This bill allows the Department of Housing and Community
Development to restructure or extend rental or homeownership
loans that already have reached maturity.
ANALYSIS:
Over the past 30 years, the Legislature has authorized and
funded a variety of affordable rental and homeownership housing
development finance programs that the Department of Housing and
Community Development (HCD) administers, each with its own
unique requirements for ongoing operation.
SB 1699 (Torres), Chapter 780, Statutes of 2012, allows HCD to
restructure existing loans under various older rental housing
and homeownership programs.
Rental Housing Programs
With respect to older rental housing loans, HCD may extend a
loan, subordinate a loan to new debt, or approve an investment
of tax credit equity. 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 restructuring is subject to the following requirements:
The extension shall be for a period of at least 10 years and
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not in excess of 55 years.
The interest rate shall be 3 percent simple interest, and all
loan payments are deferred for the full term of the loan,
except for residual receipts payments. HCD may also waive or
defer some or all processing and monitoring fees if it
determines that a particular development or class of
developments does not have the ability to make these payments.
The loan shall be subject to HCD-developed guidelines, as
opposed to the terms of the original loan, and a new
regulatory agreement including specified provisions must be
recorded.
HCD may subordinate its loan to refinance existing senior debt
only as necessary for project feasibility and to reimburse
borrower advances for predevelopment costs, recent capital
improvements, and recent operating deficits.
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 on units upwards to the minimum extent
necessary to support new debt to pay for substantial
rehabilitation costs deemed necessary by a third-party
assessment and HCD's own inspection, provided that the
adjusted rents do not exceed specified caps.
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, provided that tenants are not required
to pay more than 50 percent of income in rent.
The owner shall provide tenants with a 6-month notice of any
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.
Homeownership Programs
HCD also may extend a loan at the time it is due to an owner who
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occupies his or her home. To be eligible for an extension, the
owner's household income must be no greater 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.
This bill additionally allows HCD to restructure or extend
rental or homeownership loans that already have reached
maturity. At the borrower's option, HCD may either 1) reloan
the original amount of the matured loan plus accrued interest on
the same terms and conditions as the original loan, or 2)
restructure the loan under the AB 1699 provisions described
above.
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.
Because HCD has not finished adopting guidelines for the AB
1699 restructuring program, the loans for some projects that
want to restructure have reached maturity. It is unclear if
HCD has discretion to extend or restructure a matured loan.
This bill explicitly gives HCD that authority. Otherwise, a
project owner who has fulfilled all the obligations of their
original loan and would like to continue providing affordable
housing would only be eligible for a restructuring through a
default loan workout, which subjects the owner to negative
consequences when seeking funding for future projects.
Alternatively, the owner would need to convert the development
to market-rate rents in order to repay the original loan or
surrender the property to HCD.
2.Restructuring is a cost-effective strategy . If HCD is not
able to restructure loans, project sponsors may be forced to
default on their HCD loans. This results in high transaction
costs for HCD and HCD owning properties that may need
significant investment. Like a loan modification for an
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individual family, restructuring a project loan keeps the
property affordable while reducing costs to the lender, in
this case HCD.
Assembly Votes:
Floor: 54-23
Appr: 12-5
H&CD: 5-2
POSITIONS: (Communicated to the committee before noon on
Wednesday, June 11,
2014.)
SUPPORT: Bridge Housing
Community Housing Partnership
Community Economics
EAH Housing
Non-Profit Housing Association of Northern
California
Rubicon Programs
OPPOSED: None received.