BILL ANALYSIS �
AB 2161
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2161 (Chau)
As Amended August 5, 2014
Majority vote
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|ASSEMBLY: |54-23|(May 27, 2014) |SENATE: |24-9 |(August 13, |
| | | | | |2014) |
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Original Committee Reference: H. & C.D.
SUMMARY : Authorizes the Department of Housing and Community
Development (HCD), at the request of a borrower, to modify a
"qualifying unpaid matured loan" issued by the department.
The Senate amendments define "qualifying unpaid matured loan" to
be either:
1)A loan that is in material compliance, as determined by HCD,
with all loan terms and conditions; or
2)A loan that is not in compliance and is being transferred to a
new sponsor approved by HCD.
FISCAL EFFECT : According to the Senate Appropriations
Committee:
1)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.
2)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.
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COMMENTS : 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.
HCD's current program to finance affordable rental housing is
the Multifamily Housing Program (MHP). Created in 1999, this
program is HCD'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 area median
income, 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), Chapter 780, 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
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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. 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 is 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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