Today's Law As Amended


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AB-561 Help Homeowners Add New Housing Program: accessory dwelling unit financing.(2021-2022)



As Amends the Law Today


SECTION 1.
 The Legislature finds and declares all of the following:
(a) Over the last few years, the state has lowered the regulatory barriers that have historically prevented homeowners from developing additional housing units, such as accessory dwelling units and junior accessory dwelling units, on their single-family home properties. As a result, construction of these units has increased by 50 percent and added much needed housing. In the City of Los Angeles, the number of permits for accessory dwelling unit construction has soared by nearly 3,500 percent from 2016 to 2018, inclusive.
(b) However, the construction of these additional units remains limited in many areas of the state due to a lack of financing options for the cost of construction if a homeowner lacks significant appreciated equity within their residence to refinance or sufficient income to increase their loan balances.
(c) Far too many homeowners, even those with strong credit scores, documented income, and favorable loan-to-value ratios, cannot readily access federal government-backed mortgages to finance the costs of building additional units because mortgage products currently require tenants in place and a year or more of documented rental income.
(d) Addressing this gap in the marketplace and allowing existing mortgage lenders to offer construction bridge loans would enable homeowners to take advantage of historically low mortgage interest rates that will likely be available during the next several years.
(e) It is the intent of the Legislature to establish a state-backed lending mechanism to encourage banks, credit unions, and other mortgage originators to make construction loans to homeowners to bridge existing federally backed loans.

SEC. 2.

 Chapter 12 (commencing with Section 51515) is added to Part 3 of Division 31 of the Health and Safety Code, to read:

CHAPTER  12. Help Homeowners Add New Housing Program
51515.
 This chapter shall be known, and may be cited, as the Help Homeowners Add New Housing Program.
51516.
 (a) “Accessory Dwelling Unit Access Fund” means the fund to be used for purposes of the program pursuant to Section 51517.
(b) “Loss reserve account” means an account in the State Treasury or any financial institution that is established and maintained by the office pursuant to Section 51519 for the benefit of a participating financial institution
(c) “Office” means the office of the Treasurer.
(d) “Participating financial institution” means a financial institution that has been approved by the office to enroll qualified loans in the program and has agreed to all terms and conditions set forth in this chapter.
(e) “Program” means the Help Homeowners Add New Housing Program established pursuant to subdivision (a) of Section 51517.
(f) “Qualified homeowner” means the owner of a single-family residential property that does not own more than three residential properties that consist of one to four units and satisfies any other requirements established by the office pursuant to this chapter.
(g)(1) “Qualified loan” means a loan or a portion of a loan made by a participating financial institution to a qualified homeowner for the purpose of constructing an accessory dwelling unit. A qualified loan may be made in the form of a line of credit, in which case the participating financial institution shall specify the amount of the line of credit to be covered under the program, which may be equal to the maximum commitment under the line of credit or an amount that is less than that maximum commitment. A qualified loan made under the program may be made with the interest rates, fees, and other terms and conditions agreed upon by the participating financial institution and the borrower.
(2) “Qualified loan” does not include any of the following:
(A) A loan for the construction or purchase of primary single-family housing associated with an accessory dwelling unit.
(B) A loan for costs related to the renovation of the primary single family dwelling of the accessory dwelling unit.
(C) A loan for the refinancing of an existing loan when and to the extent that the outstanding balance is not increased.
51517.
 (a) (1) The office shall establish and administer the Help Homeowners Add New Housing Program pursuant to this chapter.
(2) The purpose of the program is to protect participating financial institutions that elect to enroll qualified loans in the program from losses through default by establishing loss reserve accounts for each participating institution.
(3) The Accessory Dwelling Unit Access Fund is hereby established in the State Treasury for the purpose of funding loss reserve accounts under the program. Moneys in the fund shall be available upon appropriation by the Legislature.
(b) In developing the program, the office shall, consistent with the requirements of this chapter, establish all of the following:
(1) A minimum criteria for qualified loans that may be enrolled by a participating financial institution pursuant to Section 51519.
(2) A criteria for a financial institution to participate in the program based on the institution’s history of originating federally backed construction loans or loans for accessory dwelling units.
(3) The maximum percentage of the actual loss guaranteed by the office under the program.
(4) A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
(5) The maximum length of time a loan may be enrolled under the program pursuant to Section 51519, or requirements for a qualified homeowner to refinance or discharge a qualified loan enrolled in the program.
(c) The office may consult with the Department of Housing and Community Development, the California Housing Financing Agency, and private lenders to develop the program.
51518.
 (a) The office may contract with any financial institution for the purpose of allowing the financial institution to participate in the program.
(b) The office shall utilize a standard form of contract that is reviewed and approved by the Department of General Services. The standard form of contract shall provide for all of the following:
(1) The creation of a loss reserve account by the office for the benefit of the financial institution.
(2) The financial institution and the office will deposit moneys to the credit of the institution’s loss reserve account when the financial institution makes a qualified loan to a qualified homeowner.
(3) The liability of the state and the office to the financial institution under the contract is limited to the amount of money credited to the loss reserve account of the institution.
(4) The financial institution shall provide the information that the office may require, including financial information that is identifiable with, or identifiable from, the financial records of a particular customer who is the recipient of a qualified loan.
(5) The financial institution will file a report with the office setting out a full description of the board of directors, including its size and the race, ethnicity, and gender of its members.
(6) The participating financial institution will require each borrower, prior to receiving a loan under the program, to sign a written representation to the participating financial institution that the borrower has no legal, beneficial, or equitable interest in the nonrefundable premium charges or any other funds credited to the loss reserve account established by the office for the participating financial institution.
(7) Other terms that the office may require for purposes of this chapter.
(c) Notwithstanding any other law, a financial institution shall not be subject to laws restricting the disclosure of financial information when the financial institution provides information to the office as required by paragraph (4) of subdivision (b).
(d) A credit union operating pursuant to a certificate issued under the California Credit Union Law (Division 5 (commencing with Section 14000) of the Financial Code) may participate in the program only to the extent participation is in compliance with the California Credit Union Law. Nothing in this chapter shall be construed to limit the authority of the Commissioner of Financial Institutions to regulate credit unions subject to the commissioner’s jurisdiction under the California Credit Union Law.
(e) Any individual, company, corporation, institution, utility, government agency, or other entity, including any consortium of these persons or entities, whether public or private, may participate in the program by depositing funds in the Accessory Dwelling Unit Access Fund under those terms and conditions as may be deemed appropriate by the office.
51519.
 (a) The office shall establish a loss reserve account for each participating financial institution for the following purposes:
(1) Depositing all required fees paid by the participating financial institution and the qualified homeowner.
(2) Depositing contributions made by the state and, if applicable, the federal government or other sources.
(3) Covering losses for enrolled qualified loans sustained by the participating financial institution by disbursing funds accumulated in the loss reserve account.
(b) The loss reserve account for a participating financial institution shall consist of moneys paid as fees by borrowers and the financial institution, any matching federal moneys, and any other moneys provided by the office or other source.
(c) Notwithstanding any other law, the office may establish and maintain loss reserve accounts with any financial institution under any policies the office may adopt.
(d) All moneys in a loss reserve account established pursuant to this section are the exclusive property of, and solely controlled by, the office. Interest or income earned on moneys credited to the loss reserve account shall be deemed to be part of the loss reserve account. The office may withdraw from the loss reserve account all, or a portion of, the interest or other income that has been credited to the loss reserve account. Any withdrawal made pursuant to this subdivision may be made prior to paying any claim and shall be used for the sole purpose of offsetting costs associated with carrying out the program, including administrative costs and loss reserve account contributions.
(e) The combined amount to be deposited by the participating financial institution into any individual loss reserve account over a three-year period, in connection with any single borrower or any group of borrowers among which a common enterprise exists, shall be not more than ____ dollars ($____).
51520.
 (a) If a participating financial institution decides to enroll a qualified loan under the program in order to obtain the protection against loss provided by its loss reserve account, it shall notify the office in writing on a form prescribed by the office, within 15 days after the date on which the loan is made, of all of the following:
(1) The disbursement of the loan.
(2) The dollar amount of the loan enrolled.
(3) The interest rate applicable to, and the term of, the loan.
(4) The amount of the agreed upon premium.
(b) The office may authorize an additional five days for a financial institution to submit the written notification described in subdivision (a) on a loan-by-loan basis for a reason limited to conditions beyond the reasonable control of the financial institution.
(c) The participating financial institution may make a qualified loan to be enrolled under the program to an individual, or to a partnership or trust wholly owned or controlled by an individual, for the purpose of financing the construction of an accessory dwelling unit.
(d) When making a qualified loan that will be enrolled under the program, the participating financial institution shall require the qualified homeowner to which the loan is made to pay a fee of not less than 2 percent of the principal amount of the loan, but not more than 3½ percent of the principal amount. The financial institution shall also pay a fee in an amount equal to the fee paid by the borrower. The financial institution shall deliver the fees collected under this subdivision to the office for deposit in the loss reserve account for the institution. The financial institution may recover from the qualified homeowner the cost of its payments to the loss reserve account through the financing of the loan, upon the agreement of the financial institution and the homeowner. The financial institution may cover the cost of homeowner payments to the loan loss reserve account.
(e) When depositing fees collected under subdivision (d), the office shall transfer to the loss reserve account an amount that is not less than the amount of the fees paid by the participating financial institution. However, if the qualified homeowner is located within a severely affected community, as determined by the office, the office shall transfer to the loss reserve account an amount not less than 150 percent of the amount of the fees paid by the participating financial institution.
51521.
 (a) The office shall establish procedures under which a participating financial institution may submit claims for reimbursement for losses incurred as a result of qualified loan defaults. A participating financial institution that charges off all or part of an enrolled loan to the loss reserve account may file a claim for reimbursement with the office if both of the following conditions are met:
(1) The claim occurs contemporaneously with the action of the participating financial institution to charge off all or part of the loan.
(2) The charge off on an enrolled loan is made in a manner that is consistent with the participating financial institution’s usual method for making determinations on mortgage loans that are not enrolled loans.
(b) Costs for which a financial institution may be reimbursed from its loss reserve account include the amount of loan principal charged off, accrued interest on the principal, reasonable out-of-pocket expenses incurred in pursuing its collection efforts, including preservation of collateral, and any other related costs. Proper documentation of the expenses shall be presented at the time of the claim.
(c) If a participating financial institution files two or more claims contemporaneously, and there are insufficient funds in the reserve fund at that time to cover the entire amount of such claims, the participating financial institution may designate the order of priority in which the claims shall be paid.
(d) A participating financial institution may seek reimbursement of loan losses prior to the liquidation of collateral from defaulted loans. The financial institution shall repay its loss reserve account for any moneys received as reimbursement under this section if the financial institution recovers moneys from the borrower or from the liquidation of collateral for the defaulted loan, less any reasonable out-of-pocket expenses incurred in collection of such amount.
(e) If the payment of a claim under this section has fully covered a participating financial institution’s loss on an enrolled loan, the participating financial institution shall assign to the office, and to any applicable federal agency in the event federal matching funds are involved, any right, title, or interest to any collateral, security, or other right of recovery in connection with a loan made under the program.
51522.
 Notwithstanding any other provision of this chapter, the office may facilitate the development of a secondary market for a loan enrolled in the program by providing security for that loan, thereby increasing participation in the program by financial institutions and improving access to accessory dwelling units for qualified homeowners. For purposes of this section, the actions that the office may take include, but are not necessarily limited to, assigning all, or a portion of, any loss reserve account to any other entity in connection with providing security for a loan, including a trustee of a securitization trust, transferring an enrolled loan from a participating financial institution to a securitization trust, and assisting underwriters in marketing a loan to the secondary market.
51523.
 The office shall annually prepare a report to the Governor and the Legislature that describes the financial condition and programmatic results of the program. Programmatic results shall include, but not be limited to, all of the following:
(a) The total number of participating financial institutions.
(b) The total number of accessory dwelling units financed.
(c) The total number of accessory dwelling units constructed.
(d) The geographic distribution of the loans.
(e) The success of qualified homeowners in exiting the program through refinancing or complete payment of their loan.
51524.
 The office may adopt necessary rules for carrying out its duties, functions, and powers relating to the program.
51525.
 This chapter shall be operative upon appropriation by the Legislature for purposes of this chapter.