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SB-707 Housing loan conversions.(2007-2008)

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SB707:v93#DOCUMENT

Senate Bill No. 707
CHAPTER 658

An act to add Section 50515.2 to the Health and Safety Code, relating to housing.

[ Approved by Governor  October 13, 2007. Filed with Secretary of State  October 13, 2007. ]

LEGISLATIVE COUNSEL'S DIGEST


SB 707, Ducheny. Housing loan conversions.
Existing law authorizes the Department of Housing and Community Development to provide technical assistance to groups and persons with various housing needs and to administer various housing loan programs.
This bill, on and after July 1, 2008, would authorize the department, or the California Housing Finance Agency, as applicable, to extend the term of existing multifamily housing loans made under specified programs upon the request of any borrower, subject to certain conditions, as provided, and would make related legislative findings and declarations.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) Over the last 25 years the Legislature has authorized and funded a variety of multifamily rental programs, each designed to serve low- and very low income households having a different target group of at-risk individuals and households.
(b) Of these programs, three in particular are approaching the maximum loan term as provided in the respective authorizing legislation. There are currently 38 projects, with 1,167 units assisted through the Deferred Payment Rehabilitation Loan Program; 60 projects, with 1,904 units assisted through the Special User Housing Rehabilitation Loan Program; and 49 projects, with 1,344 units assisted through the original Rental Housing Construction Program. An additional 26 projects, with 1208 units, are assisted through the original Rental Housing Construction Program, with funds administered by the California Housing Finance Agency. Upon the end of the authorized loan terms, the project sponsor that has served as the borrower will be obligated to repay the outstanding loan amounts to the department, or to the agency, as applicable.
(c) While each of these programs has successfully achieved the public goal of providing decent, safe, and affordable housing for the periods specified in law, the repayment of these loan amounts will in a majority of cases require the sale of the property and the loss of the affordable housing asset. Many of the project sponsors are desirous of continuing the use of these projects for the purpose of providing housing to persons and families of low and very low incomes.
(d) In 1998, the Legislature consolidated all multifamily rental housing programs administered by the department into a single omnibus rental program known as the Multifamily Housing Program. The proceeds from any and all loan repayments from any of the department’s multifamily rental housing programs are to be loaned to future projects pursuant to the terms of the Multifamily Housing Program. All funds received by the California Housing Finance Agency with respect to projects assisted through the original Rental Housing Construction Program with funds administered by the agency shall be used to provide assistance to existing or future projects financed by or through the agency pursuant to terms consistent with the agency’s affordable multifamily housing lending programs.
(e) It is in the public interest to maintain these existing units and the state’s affordable housing stock.
(f) It would be far more efficient for the public funds already invested in these projects to remain in the projects, rather than to have the moneys returned to the respective program’s fund and be reloaned to the same projects and borrowers through the multifamily Housing Program.
(g) It is in the public’s interest to protect the low and extremely low income residents of these older projects.

SEC. 2.

 Section 50515.2 is added to the Health and Safety Code, to read:

50515.2.
 (a) Notwithstanding any other law, the department may extend the term of an existing multifamily housing loan made by the department under the original Rental Housing Construction Program established by Chapter 9 (commencing with Section 50735); the Special User Housing Rehabilitation Program established by Section 50670; or the Deferred Payment Rehabilitation Loan Program established by Chapter 6.5 (commencing with Section 50660) upon the request of any borrower subject to the following conditions:
(1) The borrower shall provide to the department a complete report showing all existing tenants, their incomes, as reported in the most recent annual income certification, and the rents currently charged to each tenant.
(2) The borrower shall agree to an extension of the term of the loan by an additional 55 years from the date of departmental approval. If the department determines that the remaining useful life of a project is less than 55 years, the loan may be extended for the remaining useful life of the project, but not less than 30 years. The department may convert the existing outstanding principal and any accrued interest into the new loan amount. The interest rate on the extended term shall be 3 percent simple interest. All future payments of principal and interest may be deferred except for a percentage of interest equal to the percentage charged in the Multifamily Housing Program (Chapter 6.7 (commencing with Section 50675)) for the department’s ongoing monitoring and management responsibilities.
(3) The borrower shall agree to amend or replace the existing regulatory agreement to include terms generally equivalent to those used in the Multifamily Housing Program. In addition, the borrower shall agree to replace, amend, or revise any other loan documents as necessary to accomplish the purposes of this section.
(4) (A) The borrower shall agree to a rent schedule that ensures that all assisted units are affordable to households earning no more than 60 percent of the area median income and that at least 35 percent of all assisted units shall be reserved for, affordable to, and occupied by, households earning less than or equal to the midlevel target used by the Multifamily Housing Program, unless the department finds both of the following:
(i) That the project income is insufficient to maintain fiscal integrity, as that term is used in the Multifamily Housing Program, and is insufficient to maintain the rents required under this subparagraph pursuant to the terms of the Uniform Multifamily Regulations, or any successor regulations, except that commercial vacancy loss shall be projected based on the operating history of the project, commercial vacancy rates in the neighborhood, and similar factors typically used by commercial lenders.
(ii) That the borrower has exhausted all available potential sources of rental subsidies, including, but not limited to, federal, state, and local funds.
(B) If the department finds that a reduction in the percentage of assisted units to less than 35 percent of assisted units is justified, it shall ensure that the largest possible percentage is reserved for the targeted households.
(C) For the purposes of this paragraph, “midlevel target used by the Multifamily Housing Program” shall mean the following:
(i) For counties with an area median income of 110 percent or less of the state median income, it shall mean households earning 30 percent of state median income, expressed as a percentage of area median income.
(ii) For counties with an area median income that exceeds 110 percent of the state median income, it shall mean households earning less than 35 percent of state median income, expressed as a percentage of area median income.
(5) No tenant residing in a project at the time of an extension authorized by this section may be displaced as a result of the regulatory revisions authorized by this section, and, for the initial operating year after approval of the extension, that tenant may not have his or her rent increased above the amounts specified in his or her preexisting regulatory agreements, except that no tenant may pay less than 30 percent of his or her income, calculated pursuant to the Multifamily Housing Program criteria. If a rent increase authorized under this section would exceed a 10 percent increase in payment for a lower income tenant, the project owner shall phase in the increase so that it does not exceed 10 percent per year. After the initial operating year after the extension authorized under this section, the rents for all regulated units that are subject to the new agreement may be adjusted in the percentage calculated pursuant to the Multifamily Housing Program criteria, plus the amount necessary to bring an individual tenant up to the 30-percent-of-income standard, provided that the total annual increase does not exceed 10 percent. Rent adjustments for all tenants occupying assisted units at the time of the extension shall be based on the tenant’s initial rent established under this paragraph. Upon vacancy of an assisted unit occupied at the time of the extension, the new base rent for that unit shall be established consistent with the standards used in the Multifamily Housing Program for the regulated income band, subject to the reservation of units required under paragraph (4).
(b) The department may approve an extension of a loan made by the department if it determines that the project has, or will have after rehabilitation or repairs, a potential remaining useful life of at least 30 years and that the project is deemed financially feasible pursuant to the terms of its Uniform Multifamily Regulations or successor regulations.
(c) The department may subordinate its loan or loans to refinance existing senior debt and to additional permanent financing if that additional senior debt is used only for rehabilitation, repairs, or improvements, or both, including related soft costs, that are modest in size, scope, and cost, as determined by the department and necessary to maintain and extend the useful life of the project.
(d) (1) For the purposes of this subdivision, the “agency projects” are the 26 projects assisted through the original Rental Housing Construction Program with funds administered by the California Housing Finance Agency.
(2) Upon the request of a borrower the agency may extend the term of an existing loan for an agency project by a period that is equal to the remaining useful life of the project, as determined by the agency, but not more than 55 years and not less than 30 years from the date of agency approval, under terms that are substantially consistent with the purposes of this section, if all of the following conditions are met:
(A) The borrower shall provide to the agency the report described in paragraph (1) of subdivision (a).
(B) The extension shall be subject to the conditions set forth in paragraph (2) of subdivision (a).
(C) The rent levels and tenant protections described in paragraphs (4) and (5) of subdivision (a) shall be satisfied, except that the agency, not the department, shall make the determination required under clause (i) of subparagraph (A) of paragraph (4) of subdivision (a) that the project income is insufficient to meet the agency’s affordable multifamily lending program requirements.
(3) Any determination or approval under this section regarding the agency projects shall be by the agency rather than the department.
(4) The borrower and the agency shall amend, replace, or revise any other loan documents or agreements governing the loans for the agency projects as necessary to accomplish the purposes of this section.
(5) All funds received by the agency for the agency projects, whether by loan repayment, foreclosure, accrued interest, or otherwise, shall be used to provide assistance to existing or future projects financed by or through the agency pursuant to terms consistent with the agency’s affordable multifamily lending programs.
(e) It is the intent of the Legislature in enacting this section that the department should manage its reserves for the original Rental Housing Construction Program in a manner that will allow for the continuation of current benefits to current low-income tenants for the longest period of time possible. Accordingly, rent subsidies shall be continued only for units occupied by lower income tenants who were in residence at the time of the extension authorized under this section.
(f) It is the intent of the Legislature in enacting this section to provide to the department the flexibility necessary to preserve the affordable rental units for which the state has already made a significant public investment. Accordingly, the department may implement this section through guidelines that shall not be subject to Chapter 2.5 (commencing with Section 11340) of Part 1 of Title 2 of the Government Code.
(g) This section shall become operative on July 1, 2008.