BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 2161 (Chau) - Affordable housing.
Amended: August 5, 2014 Policy Vote: T&H 9-1
Urgency: No Mandate: No
Hearing Date: August 11, 2014
Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 2161 would explicitly authorize the Department
of Housing and Community Development (HCD) to reinstate a
matured loan that would otherwise be eligible for extension of
terms or restructuring under current law.
Fiscal Impact:
Reinstatement of loan terms for 5-10 matured loans could
result in a deferral of an unknown amount, potentially
several million dollars, of loan repayment revenue to HCD
(various special funds). Absent this bill, these loans
would either go into default, resulting in increased costs,
or loan repayments would 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 reinstatement transactions
and to conduct ongoing monitoring activities would be fully
covered by fees charged to applicants and minimum payments
on reinstated.
Background: Over the past 30 years, the Legislature and voters
have authorized and funded a variety of affordable rental and
homeownership housing development finance programs administered
by HCD, each with its own unique requirements for ongoing
operation. Established in 1999, the Multifamily Housing Program
(MHP) is HCD's current program used to finance affordable rental
housing projects. The MHP provides loans to local governments
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and both non-profit and for-profit developers to fund the
construction, rehabilitation, and preservation of affordable
housing. MHP loans are for a term of 55 years at a fixed 3
percent interest rate, but HCD is authorized to defer all
payments except a standard annual interest rate (currently .42
percent) to cover ongoing monitoring and administrative costs.
Existing law, enacted by AB 1699 (Torres), Chap 780/2012,
authorizes HCD to approve an extension of a department loan, the
subordination of a loan to new debt, or an investment in tax
credit equity under numerous housing finance programs
administered by the department. Loans may only be restructured
at HCD's discretion if a development is in compliance with the
existing regulatory agreement, the development requires a
restructuring in order to continue to operate, and HCD
determines that the project will have a useful life of at least
as long as the new loan term. An extension must be for a period
of at least 10 years and up to 55 years, at an interest rate of
3 percent. Rents may be adjusted upward to the minimum extent
necessary to support the new debt to pay for rehabilitation, and
subject to specified limits to maintain affordability. HCD may
defer all ongoing principal and interest payments, except for
the amount charged under the MHP. Existing law also authorizes
HCD to charge loan processing and monitoring fees to an
applicant to generate sufficient revenue to cover initial and
ongoing monitoring requirements. HCD is in the process of
adopting guidelines that govern the authority to extend and
restructure existing loans. It is unclear whether HCD has the
authority to extend or restructure a loan that has reached
maturity.
Proposed Law: AB 2161 would explicitly authorize HCD to extend
or restructure a "qualified unpaid matured loan" under the same
terms and conditions that apply in existing law regarding active
HCD rental or homeownership loans, pursuant to AB 1699.
Qualified loans must be in material compliance with all terms
and conditions, as determined by HCD, other than having reached
the due date of its promissory note without being paid. The
bill would authorize a matured loan that is not in full
compliance to be transferred to another borrower approved by
HCD. AB 2161 also requires that reinstatement of a qualified
unpaid matured loan be treated as if its terms have been
extended from the expired due date for purposes of calculating a
borrower's obligations.
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Staff Comments: This bill would only apply to 5-10 existing
loans that would otherwise be eligible for extension or
restructuring under current law if they had not already reached
maturity. Those matured loans currently support 223 units of
affordable housing. While this bill would result in a deferral
of loan repayments to HCD, which could be viewed as a loss of
revenue in the short term, the overall fiscal impacts of the
bill must also consider the likely outcomes absent the authority
provided in the bill. For example, for an affordable housing
project that has reached the end of its original loan term, the
developer could either repay the loan, which would likely result
in a conversion of the affordable housing to market rate, or
default on the loan, which would leave HCD with no choice but to
foreclose on the property. The latter scenario would leave HCD
responsible for maintaining or rehabilitating the aging
property, at significant expense, or liquidating the asset,
which would most likely result in conversion of the units to
market rate. If a loan is fully repaid, and the property
converts to market rate, HCD could use the funds to finance
additional affordable housing projects, but it is highly
unlikely that the revenues would be sufficient to replace an
equal amount of affordable housing stock. This bill provides a
third option of ensuring the long-term viability of the existing
affordable housing by providing a mechanism to rehabilitate the
property and maintain affordability for current residents, while
also providing a stable funding source for HCD's ongoing
monitoring and administrative costs.