Legislature(1999 - 2000)
04/22/1999 09:07 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 150
"An Act relating to interest rates for small community
housing mortgage loans under the housing assistance
program of the Alaska Housing Finance Corporation."
This was the first hearing for this bill.
DAN FAUSKY, CEO/Executive Director, Alaska Housing Finance
Corporation, Department of Revenue, came to the table at
the request of Senator Al Adams. Senator Al Adams wanted to
know how much money would be made in rural Alaska using the
one-percent proposal. In looking at the rural versus urban
situation, he wondered how much money had been spent on
this program in Anchorage.
Senator Al Adams knew it was required that a portion of the
earnings of this program be spent on certain housing
programs. He asked where the proceeds of the one-percent
interest rate went. Did they really go to rural Alaska or
were they spread among communities across the state?
Dan Fauske responded that the majority of the subsidized
loans or enhancement programs went to Anchorage. That was a
condition of the population base. He listed figures showing
that.
Regarding the consideration of removing the one-percent
interest rate provision for rural Alaska, he noted the
corporation could make more money if the percentage was
increased. He anticipated however, that if it were
eliminated there would be about a 16 percent drop in loan
portfolio activity. Therefore, the program would break even
and there would be no gain. He pointed out that in rural
areas, and even less rural areas by Alaska standards,
mortgage insurance could not be obtained. Therefore, if
there were not a subsidy of some sort more down payment
money would have to be required from residents.
He explained that the rate established in statutes was one-
percent of the taxable rate would have been had bonds been
issued. This was a revolving fund and bonds were not sold
to fund it. Generally, once the one-percent was removed,
compared to a tax of the program, the rate was the same on
a thirty-year mortgage. The rural program would exceed the
tax-exempt program by an eight of a point for a fifteen-
year mortgage.
Senator Al Adams asked if the rural communities along the
road system would be affected by this legislation. Dan
Fauske answered that the current program required the
population of communities along the road system had to be
1600 residents or less to qualify. Off the road system, the
population requirement was 6500. The corporation had
discussions with some realtors who would like to see those
limits raised. He noted the program had tripled over the
last three years. He listed the number of loans done in
various rural communities during that period. Another
concern raised was with communities that were annexed into
a borough. Those residents would no longer qualify for the
program. This had happened for areas in the Kodiak Island
Borough and the Haines Borough.
Dan Fauske believed it was a program that was necessary.
Whether it stood up to strict economic standards was
another issue. Charging a higher interest rate could always
make more money. His concern was with the mortgage
insurance.
Senator Randy Phillips asked if the criteria for the
program were the same for every person in Alaska regardless
of where they lived. He noted the different number of loans
given in various communities Dan Fauske said it was the
same. Senator Randy Phillips asked if this applied to all
of the programs the corporation offered. If the criteria
were different, he felt it should be examined. Dan Fauske
agreed. The only differences were found in the urban areas
because of access to amenities such as ease of access or
the quality of the property.
Senator Randy Phillips asked about the mortgage insurance.
Dan Fauske said that under the program, the borrower would
still have to pay a ten-percent down payment. AHFC then
assumed a part of the risk that would normally be covered
under mortgage insurance. Under most programs, more than
ten-percent would be required to obtain mortgage insurance.
That was just the way the industry operated, he stressed.
Senator Dave Donley was entertained by the witness
testimony that if the subsidy was removed, fewer people
would borrow money and the corporation would make the same
amount of money. That seemed to argue for extension of the
one-percent program to all Alaskans. Dan Fauske did not
disagree. He was only trying to make an analogy and he
didn't know how much business would be lost with the
elimination of the one-percent provision.
Senator Dave Donley referred to the comments that the rural
loans were more difficult to make, which was the reason the
AHFC was involved. For that reason, he doubted the private
sector would choose to pick up the estimated sixteen-
percent drop.
Senator Dave Donley then noted the Boundary Commission's
latest report that specifically identified this program as
one of the most problematic and biggest inhibitors of the
formation of local governments. This was because
communities would not qualify for the program if they
joined or formed boroughs. In his opinion, the lack of
formation of local governments was one of the biggest
problems facing the state today. He asked if the witness
could propose a solution. Dan Fauske responded that the
corporation was not trying to advocate a program that was
based on these problems. He hoped to alleviate the problems
associated with the qualifications of some properties based
on which side of the road they were located. He had heard
this concern from realtors.
Senator Dave Donley made further comments on the formation
of local boroughs.
Senator Dave Donley then pointed out that other programs
operated by AHFC applied to all Alaska's regardless of
where they lived. He used veteran, disabled and first time
homebuyer programs. This program was only available to
those people who met a particular discriminatory category,
in his opinion.
Senator Randy Phillips noted he had potential conflict of
interest because he works for a mortgage company. He
offered a motion to be allowed to abstain from voting on
the bill. Senator Dave Donley objected and the motion was
denied.
Senator Loren Leman asked if the intent was to increase the
rate in the rural area market using the one-percent
provision. He wanted to know why the corporation didn't
reduce the rate charged in the rest of the state instead.
Dan Fauske responded that the other programs were bonded
programs that were driven by the rate the bonds could be
sold. This program was established as a revolving fund so
the rates were calculated. The corporation was exploring
other options with regard to universal statewide programs.
He noted that there were limitations under the tax-exempt
programs for income limits that were established by the
federal government.
Co-Chair John Torgerson introduced Alex Grundmann, age 13,
who was visiting the committee as a participant of Take
Your Child to Work Day. He was serving in the capacity of
co-chair.
Senator Al Adams asked if of the money earned from by the
corporation how much was spent on this program. He also
wanted to know if this money could be used to match the
supplemental housing project in the capital budget. Dan
Fauske answered that in terms what was spent on the total
program, he only knew of only $200,000 that was spent on
this subprogram. He would find out the actual figures and
supply them to the committee.
To answer the question on whether the arbitrage could be
used for the CIP, he told Senator Al Adams that the
arbitrage could only be used for a loan that met the same
perimeters of what the bond was issued for. It had to be
used for a loan with a reasonable expectation of repayment.
Co-Chair John Torgerson noted the bill would not be
reported out of committee this meeting.
Tape: SFC - 99 #105, Side A
BRUCE KOVARIK, Executive Director, Association of Alaska
Housing Authorities, testified via teleconference from
Anchorage. He had submitted written testimony. The
association opposed the bill. It was clear to them that it
would focus significant and adverse impact on the
availability of affordable mortgage loans in rural Alaska.
The bill would not save money and would further discourage
private lending activities in rural Alaska. It would
increase the cost of housing and lessen the economic
development in areas of the state that needed it the most.
He disagreed with Senator Dave Donley's assumption that
this program was a special discriminatory subsidy.
SUE BENEDETTE, Vice President, First National Bank of
Anchorage and Co-Chair, Alaska Mortgage Bankers
Association, testified via teleconference from Anchorage.
FNBA lends on a statewide basis and found this program to
be very successful in allowing it to lend to rural Alaska.
It helped offset the higher cost of housing in rural areas.
ROBIN WARD testified via teleconference from Anchorage. She
stated that the bankers associations, the homebuilders and
affiliated businesses viewed the AHFC as their own
permanent fund. She would submit further testimony in
writing.
DAVE MCCLURE, Executive Director, Bristol Bay Housing
Authority, and Board Member, AHFC, testified via
teleconference from Dillingham. He had submitted a policy
brief from HUD to the committee. It stated that home equity
was the largest single source of household wealth for most
Americans. A decrease in the interest rate exemption would
have a negative affect on the number of loans made. He
urged the committee to maintain the current program as a
method of maintaining economic stability in rural areas.
ANNE WHITNEY, President-elect, Katchemak Board of Realtors,
testified via teleconference from Homer. The cost of
living and the cost of construction was much higher in
rural areas and that was one reason the one-percent
provision was put into place. It did not cost AHFC any
money. First-time homebuyers in urban areas were able to
take advantage of other interest rate reduction programs.
Therefore, this was not a fairness issue.
ANGIE NEWBY, President, Katchemak Board of Realtors,
testified via teleconference from Homer. This program had
made home ownership possible for many people on the Kenai
Peninsula. She listed the figures.
BOB BRODIE, Assoc. Realty, testified via teleconference
from Kodiak. He felt the committee missed the point. The
object of AHFC was to make housing affordable for all
Alaskans. When the interest rate was raised only one point
many people were eliminated from qualification for home
ownership. Instead of taking the program from rural Alaska,
he supported Senator Dave Donley's suggestion to make all
the AHFC loans one-percent lower than the market rate.
That would pick up the revenue from those loans that
typically went to FHA and Fanny Mae programs.
BONNIE AULABAUGH, Broker, Chelsea Realty, testified via
teleconference from Kodiak in opposition to the bill. She
believed the program was set up to allow for loan programs
in rural areas. She attested to the higher cost of home
ownership in rural Alaska.
ED MAHONEY, President, Kodiak Building Industry
Association, testified via teleconference from Kodiak. The
association opposed the legislation. The impact to the
community would be substantial.
Co-Chair John Torgerson ordered the bill held in committee.
ADJOURNED
Senator Torgerson with the assistance of Alex Grundmann
recessed the meeting at 10:52 AM.
SFC-99 (18) 4/22/99
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