BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2161|
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THIRD READING
Bill No: AB 2161
Author: Chau (D)
Amended: 8/5/14 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 9-1, 6/17/14
AYES: DeSaulnier, Beall, Cannella, Galgiani, Hueso, Lara, Liu,
Pavley, Roth
NOES: Wyland
NO VOTE RECORDED: Gaines
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/11/14
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
ASSEMBLY FLOOR : 54-23, 5/27/14 - See last page for vote
SUBJECT : Affordable housing
SOURCE : Author
DIGEST : This bill authorizes 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.
ANALYSIS : Over the past 30 years, the Legislature has
authorized and funded a variety of affordable rental and
homeownership housing development finance programs that HCD
administers, each with its own unique requirements for ongoing
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operation.
AB 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
not in excess of 55 years.
The interest rate shall be 3% 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,
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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% per year for existing
tenants with incomes less than or equal to 35% of area median
income and no more than 10% for all other existing tenants,
provided that tenants are not required to pay more than 50% of
income in rent.
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.
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 existing
law.
Homeownership Programs
HCD also may extend a loan at the time it is due to an owner who
occupies his/her home. To be eligible for an extension, the
owner's household income must be no greater 50% 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 10 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.
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This bill:
1.Authorizes 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.
2.Authorizes a matured loan that is not in full compliance to be
transferred to another borrower approved by HCD.
3.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.
Comments
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's office, 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
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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.
SUPPORT : (Verified 8/11/14)
Bridge Housing
Community Economics
Community Housing Partnership
EAH Housing
Non-Profit Housing Association of Northern California
Rubicon Programs
ASSEMBLY FLOOR : 54-23, 5/27/14
AYES: Alejo, Ammiano, Bloom, Bocanegra, Bonilla, Bonta,
Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau,
Chesbro, Cooley, Dababneh, Daly, Dickinson, Eggman, Fong, Fox,
Frazier, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gray, Hall,
Roger Hern�ndez, Holden, Jones-Sawyer, Levine, Lowenthal,
Medina, Mullin, Muratsuchi, Nazarian, Pan, Perea, John A.
P�rez, V. Manuel P�rez, Quirk, Rendon, Ridley-Thomas,
Rodriguez, Salas, Skinner, Stone, Ting, Weber, Wieckowski,
Williams, Yamada, Atkins
NOES: Achadjian, Allen, Bigelow, Ch�vez, Conway, Dahle,
Donnelly, Beth Gaines, Gorell, Grove, Hagman, Harkey, Jones,
Linder, Logue, Maienschein, Mansoor, Melendez, Nestande,
Olsen, Wagner, Waldron, Wilk
NO VOTE RECORDED: Patterson, Quirk-Silva, Vacancy
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JA:k 8/12/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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