Legislature(1997 - 1998)
02/07/1997 08:06 AM House CRA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 70 - AHFC HOUSING FUNDS & PROGRAMS Number 1528 JOHN BITNEY, Alaska Housing Finance Authority, came forward to testify on HB 70. This bill passed the house last year 37 to 1, moved through some senate committees and didn't pass for some lack of time, along with other considerations. In summary, this legislation is an attempt to try and improve some of their loan programs to enhance efforts in rural Alaska to provide loans there for housing. MR. BITNEY provided a short summary of this legislation's main features. It designates the Regional Housing Authorities to be a servicing agency and an offerer for some of their loan programs. They want to use some of the Housing Authorities' expertise in making some of these loans in these communities. This is also an attempt to improve and modify a building materials loan program in order to meet the needs and conditions in the rural areas. They also hope to provide the re-financing of loans. MR. BITNEY stated that there were other technical changes in the bill. He believed there was a sectional summary analysis, as well as some backup provided to show some of the needs in these communities. This legislation also has a zero fiscal note. Number 1670 REPRESENTATIVE OGAN referred to page 2, line 3 and asked about the language, "...in a small community," where the word "make" was the original language and he noted the addition of the words "originate and service loans." He noticed that along with this change the legislation had a fiscal note attached to it. He stated there should be costs associated with this legislation and that it must come out of Alaska Housing funds which is an off budgeted item. He asked if this was correct. MR. BITNEY stated that this part of the section allows Regional Housing Authorities to begin offering their mortgage programs. Presently, Alaska Housing gets authorization to operate their mortgage programs annually. In the operating budget, they have become an on-budget item in the last year. This current fiscal year is the first year that their mortgage programs are subject to legislative review in appropriations. These programs are now on- budget items. They estimate an overall yearly aggregate amount to bring before the legislature for their mortgage activity. Section 1 provides the opportunity for Regional Housing Authorities to be more active in promoting, serving and originating Alaska Housing programs in these communities. Number 1753 REPRESENTATIVE OGAN asked if the Regional Housing Authorities were state agencies. MR. BITNEY responded that these were not state agencies, but they are established in state law and recognized statewide by boundary lines designating Regional Housing Authorities. Not only will they originate and service mortgage loans, but they will also be administrators and a pass-through agency for federal Indian Housing funds. Number 1785 REPRESENTATIVE OGAN asked who pays their salaries. MR. BITNEY stated that he believed there were Housing Authority representatives on line and that they would be better prepared to answer this question. He didn't believe that Alaska Housing paid their salaries and noted there might be some administrative allowances in the grant funds and such. Number 1804 REPRESENTATIVE OGAN said he was looking at a zero fiscal note with a loan program that essentially creates a bunch of work for a bunch of loan officers and he was trying to figure out who would pay for this. CHAIRMAN IVAN said he could make some general comments to this issue. His understanding is that the Regional Housing Authorities exist throughout the state which was a federal program established between the Regional Corporation boundaries and negotiated through the Housing and Urban Development (HUD) program and Indian Housing. These systems are already established and their support is negotiated by indirect costs. He also shared his perspective as an individual from the small community of Akiak. He stated stated that in the past, AHFC funds were targeted to already built up communities such as Anchorage with its already surveyed lots. With communities such as Akiak without subdivisions, the banks would be hesitant to deal with them. He understood and appreciated the intent of this legislation which is to spread this same opportunity to rural Alaska. He noted that not all of the villagers are on welfare and, given the opportunity, they could take advantage of the Housing Finance Corporation services. Number 1934 REPRESENTATIVE KOOKESH said that he was familiar with the Tlingit and Haida Housing Authority in Juneau and knew that a lot of the money they receive is from HUD. As he understood it, there is no money that will be used to service this plan other than the federal monies received which is already budgeted. Number 1960 REPRESENTATIVE RYAN said that he understood the purpose of this legislation, but hoped there weren't different state programs working at cross purposes. He noted within this legislation exemptions from energy standards and the existence of a program that gives people funds to help meet these energy standards while upgrading their homes. He also offered that many people cannot get financing on their houses because of their non-standard construction characteristics. Then, when they do get financing, the rates are very high since they don't meet code criteria. He asked if they were encouraging this same sort of thing through this program. Number 2011 MR. BITNEY responded that the exemption in this bill only applies to the building materials loan which is a loan program for someone to get building materials for up-grades. The maximum limit on this program is $20,000. They don't look to exempt any kind of finance program for the construction of an entire home. In order to meet energy standards, building standards, etc., it is necessary to fly an inspector or a rater out to a village or remote site in order to make sure that this work meets all these standards. With such a small loan amount this inspection would create a large cost within it. Number 2062 REPRESENTATIVE OGAN asked if this program would apply to communities, possibly in his district, of 1600 people or less. He referenced language in the bill about a small community and wondered what the limit was. He was concerned about a possible disparity and fairness in this legislation. He asked what the definition of community would be. Number 2108 MR. BITNEY responded that the definition of a community is tied to the second class boundaries. For example, the population center of Palmer would be considered for this area and would not qualify. A small community is defined as 1600 if it's connected on the road system. Palmer exceeds the 1600 limit within it's municipal boundaries. For those communities which meet this definition, the statute allows the Rural Mortgage Program to charge up to one percent lower than the taxable rate for those loans. This rate is set monthly. Number 2158 REPRESENTATIVE KOOKESH noted that this legislation made no reference to native or non-native. He assumed that if someone is in a rural area, whether they are native or not, they are eligible to participate. MR. BITNEY responded that this was correct. This legislation is driven by the population definitions. Number 2184 BRUCE KOVARIK, Executive Director, Bering Straits Regional Housing Authority, testified by teleconference from Nome on HB 70. He is a member and he chairs the legislative committee for the Association of Alaska Housing Authorities. The Housing Authorities also represent the Alaska Housing Finance Corporation. They too support HB 70. MR. KOVARIK stated that they support this bill because it helps them do their job by supplying additional tools. It allows them to more fully participate in the AHFC loan program. These are traditions that are not well established in their villages, yet they know how difficult it is to get funding whether federal or state matching. These funds are scarce and they have over 300 families on waiting lists for housing. MR. KOVARIK noted that "one real small change that this bill provides for is with the supplemental housing grant long enough to use grant funds, not just for on-site sewer and water, but also off-site sewer and water." Despite the good intentions and the desire they have for improving their sanitation facilities throughout the state, it's still a struggle. The expectations or cooperation they have with public health service or village safe water the (indisc.) are not always there. Any barrier they can break down to help them achieve these improvements for sanitation facilities is helpful. To allow the supplemental housing grant funds to be used for off-site as well as on-site water services will be a big benefit. MR. KOVARIK responded to Representative Ogan's question about the salaries and administrative costs for this portion. The majority of his salary for these costs come from the home buyers, people from their region who participate in the housing program, buy their homes and pay for them with their required monthly payments. Part of these payments go into the operation and administration of the housing authority. For the overall operations, they get very little HUD money. This money usually goes into the development, the hardware, the houses, etc. for families. Likewise with the origination fees or the servicing of AHFC loans. The administrative cost of the program comes from the borrower through a percentage any where from a quarter to a half percent of the payment as a servicing fee. Number 2358 REPRESENTATIVE SANDERS asked if Mr. KovARIK was working on commission. MR. KOVARIK stated that, no, he was not. He outlined the regional program there which has 441 houses under management. The Regional Housing Authority has a contract with HUD who owns these houses, along with the individual home buyer families. Part of the required monthly payments in their region goes to fire insurance, part of it goes to the operation of the Housing Authority, and part of it goes into equities for the house. This is a home ownership program and in addition to paying the operating costs, including the housing authorities to administer these programs, it also provides to the extent that the families are able to pay based on family income. This program also maintains equity revolving funds that revolve into new housing for the future. The little bit of extra money that the family pays every month, over and above the administrative costs, goes into an equity account. The Housing Authority holds it in trust for a 25 year cycle and after this time, this fund is available for new housing in this community. He noted that this is how they work this program in their region. Number 2443 REPRESENTATIVE RYAN stated that he was interested in what kind of a financing structure they have invested in these homes and what the interest would be on the money with all these other charges added in. He asked what the total interest package would be and how would it break out. Number 2466 MR. BITNEY said that by originating and servicing the loans, the Housing Authorities would have the same opportunity to charge a fee on the loans, which is the same rate, same method that a bank in the state does. This is the way their mortgages function. TAPE 97-5, SIDE B Number 000 KAY MURPHY, Mortgage Operations Director, Alaska Housing Finance Corporation, testified on HB 70. In response to the issue about how the Housing Authorities would be involved in originating Alaska Housing Loans, Mr. Bitney correctly responded by stating that they would act in the same capacity as existing lenders. Alaska Housing Finance Corporation sets the interest rates based on what their cost of funds would be. They change these rates on a monthly basis. Their current cost of funds for taxable financing is 8 3/8 percent. Under their rural loan program, the borrowers get a 1 percent interest rate reduction from this. Today they're being charged 7 3/8 percent. MS. MURPHY responded to the issue regarding service expenses. The servicing expenses of the corporation are an off-budget item, so this does not impact the fiscal note for this particular bill. As for a service fee paid to lenders, if it's a rural loan they pay 1/2 percent service fee, if it's an urban loan they take 3/8 percent service fee. The reason for the difference is because it is more difficult and more costly to service loans in some of the more remote, rural areas of the state. The way they account for this is their income from the interest on the loan payments which they would receive, the service fee is netted out of this income. The way lending institutions, whether the Housing Authority or a bank, earns money to offset the expense associated with origination is in addition to that service fee they receive, they charge the borrower an origination fee. This fee will vary depending on the loan amount. As for the housing which Mr. Kovarik spoke about, she believed that the financing, the cost and the rates charged on these is related to their funding which they receive from HUD for various types of housing. They are not necessarily related to loan programs that this bill would allow them to be involved in. Number 094 REPRESENTATIVE RYAN asked if these loans were being offered with a variable interest rate to the borrower. MS. MURPHY clarified that this was not a variable interest rate. Once the borrower is committed to an interest rate, this rate is fixed for the term of the loan, but their cost of funds is based on what's happening in the bond market. They establish these rates on a monthly basis depending on what's happening in various bond markets, whether tax exempt, taxable or veteran. The borrower's interest rate is fixed for the life of the loan. REPRESENTATIVE RYAN said he understood the time value of money and noted that seven and 3/8 was a very favorable rate. He asked if the state of Alaska has a triple A rating or a double A? MS. MURPHY said that there are some rating agencies where they have a double A and she wasn't sure about the triple A. Number 140 REPRESENTATIVE RYAN stated that they would be very close to the marginal rate. He asked what the margin was and stated that it couldn't be more than a 1/2 of a percent. MS. MURPHY responded that he was absolutely right. They don't add onto their cost of funds a high basis point for the administrative cost or margin. REPRESENTATIVE RYAN asked if this origination fee was a percentage of the loan or if it was a flat fee? Number 157 MS. MURPHY said that typically the lenders will charge a 1 percent origination fee or a minimum of $750.00. Currently, in statute, for the rural loan program, the origination fee is capped at 1 percent of the loan. REPRESENTATIVE RYAN noted that the reason he wondered is because he knew there was not a lot of money in the rural areas. It is difficult at best for people with the expenses as high as they are, it is difficult for people to put together long term financing. Number 190 REPRESENTATIVE OGAN asked about the statement which Mr. Kovarik made about his salary being paid by the people who get these loans. He also referred to the testimony presented about the lack of a high administrative fee. He expressed his concern that if they expand this program they'd be expanding the cost to the federal government. He said he was skeptical that they were not adding costs to someone, somewhere, for this program. He asked what the default rate was for this program. Number 255 MS. MURPHY said she could speak for Alaska Housing and their rural loan program. It is funded from a revolving loan fund that's been established for years. The interest rates are set based on that one percentage point less than their taxable cost of funds. The revolving loan fund puts money out into the market at a particular interest rate. All the payments received come back to the corporation and are deposited back into this revolving loan fund. From a business standpoint, the way they pay for their expenses is the income that they earn from those mortgages which they make. Number 301 REPRESENTATIVE OGAN asked if the interest pays for the cost of doing business. MS. MURPHY responded that they certainly believe so. Their earnings received are either financial investments with liquid assets or the interest income received from loans is probably the major portion of the income producing assets of the corporation which pays all of their expenses. REPRESENTATIVE OGAN asked specifically if this particular program pays for itself. MR. BITNEY stated that yes it does. Number 338 REPRESENTATIVE RYAN asked Mr. Bitney if his organization was engaged in any form of arbitrage with their liquid assets? MR. BITNEY stated that they do generate arbitrage, this is a budget item included in the operating budget annually. They try to establish low interest loan programs. They are required to set up programs to loan this money out at low interest rates in order to avoid paying a penalty back to the federal government. Number 400 DON FANCHER, Executive Director, Association of Village Council Presidents, Bethel, testified by teleconference from Anchorage. They operate a mutual help program in their region. In this area there are about 1200 home buyers. Their operating costs are covered by these home buyer's monthly payments. This is important legislation, not only because it helps provide matching grants that leverage, say in their case, 10's of millions of dollars a year in new development, in addition, it does help provide money in rural areas where there is a desperate need to improve their water and sewer needs, as well as utilities. The entitlement programs through the federal government are being cut drastically and they're being forced to operate like private businesses much akin to what this legislation provides. MR. FANCHER continued that their housing authority is entering into private agreements with school districts, health corporations, etc., to raise their own revenues to try and leverage more money in order to pay their own way. There are no dollars spent on administration even in the development of projects. It is true that the users basically pay for this and that will become even a greater requirement. At present, there are not very many housing authorities which charge interest on this mutual help program. In privatizing, they will have to leverage these federal and state dollars with dollars they can raise on their own. Every little bit helps. MR. FANCHER added, "If we can service these loans, generate these loans and raise a little bit, our own revenues and combining this with creative programs, for example, and numerous other -- agencies provide, for example, low income housing tax credit programs and basically have to combine all of these various sources of revenues to do what we can to try and meet the housing needs and it is very desperate, not just in rural Alaska, but there are probably roughly 18,000 units needed in Alaska and the majority of those are needed in rural Alaska. Because, as you know, lending institutions have been very reluctant to allow any loans out in rural areas because it is hard to go collect or evict and then get rid of the house." Number 626 REPRESENTATIVE OGAN said that he had some basic problems with this bill. Section 5 exempts the projects under the building loan program from energy standards. "We have a program in place that you can't be a general contractor unless you go through extensive training on energy standards and then we're exempting loans under this program from those." Section 6 exempts projects constructed from construction standards. He then quoted part of this section as well. Section 9 allows unsecured loans for borrowers with either restrictive deed lands or with no title at all. He seriously questioned whether the state should be in the business of making loans on buildings with no title or with restrictive deeds. He suspected under these provisions that they would see an increase in defaults because of a lack of collateral, a lack of building standards, and a lack of standards for energy. He stated that he won't be supportive of the passage of this bill. Number 700 MR. BITNEY noted that the exemptions of this legislation are in place just for the building materials loan program. This program is only for loans up to $20,000 to cover materials. Any kind of construction or financing for a regular home and for any of their other programs, these homes will still have to meet the standards which Representative Ogan outlined. With this program, these exemptions are included because the loan for materials is small. Once someone does work on their home, if the project is required to meet these standards, they are required to fly an inspector or a rater into a village to inspect the project. The cost of the flight and the fee for the inspector would constitute a fairly substantial percentage of this small loan. MR. BITNEY stated that the unsecured loans feature of this legislation is unique to the rural areas because of the land that is out there. The default rate for rural loans runs about equal to urban loans. Yesterday, the 30 day delinquency rate was 6.5 for rural and 6.2 for urban. Alaska Housing Finance is a profit making corporation. There is an expectation on the corporation to generate annual profits of net income of the corporation of approximately $100 million which they split between giving back money to the state and providing for capital expenditures. They look to continue this effort and to make good paying loans. Number 822 REPRESENTATIVE OGAN stated that he thought the intention of this legislation was honorable. He worried about authorization of $20,000 unsecured loans without inspections. He didn't see any mechanism to keep people from, "Well, you know, I got the 20 grand, you know, spend 5 on some materials to make it look like I'm doing something and spend another 15 to buy a skiff or snow machine or something. And, there's no collateral or -- it seems to me that we're lowering the standards quite a bit with some of these provisions." He said he would appreciate hearing anything to alleviate these concerns. Number 863 MS. MURPHY responded that the intent of the language to delete the requirement for compliance with those particular state statutes have come about as a result of the type of loans they have been requested to provide financing for. The statutes regarding energy standards and construction standards apply to any new construction that started after (indisc.) December 31, 1991, and for the construction inspections after June 30, 1992. They support, very strongly, energy standards and construction standards for anyone building a new house. It's in the borrowers best interest, as well as the corporation's best interest to comply with the minimum energy standards in the building inspection. The way the statutes are written for the construction inspection is there has to be five different inspections during construction. She gave a rundown of what these were. In a lot of cases, these various inspections don't apply to these small loans that are used to buy materials to repair a roof, install a new well, etc. MS. MURPHY continued in response to the scenario purchase of a boat with this loaned money. She stated that these are direct loans from the corporation. They disburse the funds based on percentages of completion of the project. They require evidence from the borrower to show the materials purchased. If it's in an area where they know an individual is available to look at the project for them, they require an inspection report. They don't make a $20,000 loan and write a check to the borrower. These funds are put in a controlled account and as the work proceeds, they disburse the funds, either to the borrower or to the borrower and the supplier who provided the materials. They require an estimate of costs, plans for what the improvements are, etc. They inspect the project when it's completed. Number 1025 REPRESENTATIVE JOULE commented that this legislation provides an opportunity for people to fix up their current situation by doing the work themselves while not worrying about high costs. This allows them to make these improvements at a rate they can afford. $20,000 for people in rural areas and the hub communities goes a long way to make the living conditions better. This also lessens the demand of further requests for federal housing and other things. Number 1086 REPRESENTATIVE KOOKESH stated that one of the nice things about being in urban Alaska is that there are banks available, along with available jobs and that needs are met when there are housing problems. He said it's good to take care of Alaska as a whole and to not just think of the sections of the state that they represent. Alaska will be a better place if they all make it a better place. Rural Alaska is as much a part of Alaska as urban Alaska. As small as this program is, it will benefit Alaskans. He felt they needed to encourage this type of development in Alaska because it makes Alaska a better place for everyone. Number 1132 CHAIRMAN IVAN made a closing remark concerning the legislation before them. He believed that this legislation will extend the opportunity for individuals to have pride and responsibility in taking care of themselves. They are there to stay. Everybody else in the community realizes that if an individual takes advantage of this program it extends opportunity and responsibility to individuals in the entire area of the state. Number 1177 REPRESENTATIVE RYAN moved and asked unanimous consent to move HB 70 out of committee with individual recommendations and accompanying zero fiscal note. Hearing no objection, HB 70 was moved out of the House Community and Regional Affairs committee.
| Document Name | Date/Time | Subjects |
|---|