Legislature(2003 - 2004)
02/12/2003 01:33 PM Senate HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 25-AHFC LOANS TO EDUCATORS CHAIR FRED DYSON announced SB 25 to be up for consideration. SENATOR GARY WILKEN, sponsor of SB 25, introduced Sheila Peterson, his staff who was working on this issue. He said it's a simple bill and puts a loan program in place that allows Alaska Housing Finance Corporation (AHFC) to loan 100 percent of value. It requires no down payment and can only be used for owner-occupied housing. This will supply Alaska school districts a tool to attract and keep qualified public school teachers. Recruitment and retention of a qualified workforce is paramount to the operation of a successful K-12 educational program. In addition, SB 25 addresses one of the concerns highlighted in the October 2001 Committee Report on the Statewide Teacher Shortage by the House Special Committee on Education. It states that education professionals testified that the number one reason for the statewide teacher shortage is because housing is too expensive or non-existent. There is a $0 fiscal note. For backup he referred the committee to their copy of "Teacher Housing - Current Issues and Challenges" issued last year by AHFC and the statements of support from different areas of the state. He said it is helpful to see what other states are doing. California gives $15,000 to $30,000 grants to attract and retain teachers and Santa Fe, New Mexico, has a loan program like this one. The Alaska Bankers Association also supports SB 25. SENATOR GRETCHEN GUESS asked if speech therapists are included. SENATOR GARY WILKEN said he would find out, but he doesn't want this bill to turn into a Christmas tree bill. Other occupations are worthy, but it would "sink under its own weight" if they are all added. He wants to stick with the realm of education. SENATOR GUESS said she is talking about other occupations that fall in the counseling realm, which isn't defined in the bill. SENATOR LYDA GREEN asked if the bill the Legislature passed a couple of years ago that reduced the interest rate by 1 percent for teachers in small communities had any effect. TAPE 03-01, SIDE B SENATOR WILKEN said he remembers that to be negotiated for rural Alaska where you could have up to a 4-plex, one of which had to be owner occupied. He doesn't remember if it had a teacher qualification. MR. DAN FAUSKE, Executive Director, Alaska Housing Finance Corporation, said there is a provision under SB 181 that covers that. MR. PAUL KAPANSKY, Mortgage Operations Director, explained that SB 181 became effective October 3 and it isn't limited to 1 - 4 units, but one of the provisions is that every unit has to be occupied by a teacher year-round. The units could not be subleased. There has been no activity under that program to date. CHAIR DYSON asked if lending institutions want to take the risk for a 100 percent loan-to-value ratio. MR. FAUSKE said there are similar provisions under federal law as well and the risk exposure is increased, but is somewhat offset by the fact that mortgage insurance is required for anything over an 80 to 85 percent loan-to-value ratio. He said they are attempting to increase their exposure in rural areas and thinks there would be some movement. CHAIR DYSON asked if the mortgage industry put a high rate for mortgage insurance on 100 percent loan-to-value loans. MR. KAPANSKY responded it's common practice in the mortgage insurance industry to insure loans up to 100 percent, so it's not unique to Alaska. His department requires mortgage insurance on all loans that are 80 to 85 percent loan-to-value. Now the maximum loan they can make is 95 percent loan-to-value. "If you go to 100 percent, the incremental cost of the mortgage insurance from covering a loan at 95 percent loan-to-value to 100 percent loan-to-value would not be very significant." CHAIR DYSON said this legislation does not require the teacher who is getting the loan to actually occupy the house. He asked whether the loans are for single family only. MR. KAPANSKY replied yes. CHAIR DYSON asked Senator Wilken if he intends this for single- family units. SENATOR WILKEN answered yes, with owner occupied housing. "If it was a duplex, when I read that sentence, the owner would have to live in both." SENATOR GUESS suggested having the legal department look at the language to make sure it couldn't be interpreted any other way. She asked if he intends this to apply to first time homeowners or could they upgrade and could a teacher buy a home and then quit. SENATOR WILKEN answered that if you're a teacher and buy a home, you're somewhat stable. He doubts that one would quit being a teacher just to have this kind of loan. He doesn't know how to get away from people manipulating the system. He said he would ask professionals to help with that language. SENATOR GUESS asked whether this is limited to first time homebuyers and would it apply to people who currently own a home, but need a larger one. SENATOR WILKEN replied that he doesn't intend it to be a first time teacher home loan program. MR. FAUSKE pointed out that line 7 of the bill says for purchase only, not refinance. CHAIR DYSON asked what happens if a person quits mid-term and moves out of town or moves because of health reasons. MR. FAUSKE answered, under the rural program, if someone violates the covenants that the unit must be occupied by a teacher and is financed with tax-exempt financing, the loan would revert back to taxable status. They wouldn't necessarily be found in default. 2:45 p.m. SENATOR GREEN asked if the same would apply if the person doesn't move, but just quits teaching. SENATOR WILKEN responded that the interest would stay the same and the loan would continue at 100 percent. MR. FAUSKE said that was correct. SENATOR GREEN asked if the difference between her and Senator Dyson's question is that they move out. SENATOR WILKEN said yes. MR. FAUSKE said it would be hard to police the issue. SENATOR GREEN said she doesn't see any geographic limitation. SENATOR WILKEN said it is statewide. SENATOR GREEN asked what the harm is to provide 100 percent loans for any profession in the state. SENATOR WILKEN responded the harm is that there is a bill at the end of the process that has 30 different professions and he doesn't think the Bankers Association would want that or that it would be good public policy. He said Alaska needs all the help it can get to hire and keep good teachers and that is the purpose for this. If there is a crying need for another profession, that discussion should take place at a different time. CHAIR DYSON said he thinks this bill is justifiable because teachers very obviously serve the public good. "The entire population and community benefits from having well educated and thoughtful people..." He thinks that idea might extend to nurses, as well. SENATOR GREEN asked who is picking up the down payment differential and is it all covered by mortgage insurance. MR. FAUSKE answered that the 10 percent is reflected in the size of the payment and he envisions this bill helping the young folks who are just out of college and just don't have the down payment. CHAIR DYSON said he thought about inserting "single-family" after "owner-occupied", but decided not to. Allowing a teacher- family to build a duplex and perhaps make affordable housing available to someone else deepens their involvement in the community and their propensity to stay and adds to their ability to make the payments. He asked Senator Wilken to comment. SENATOR WILKEN responded that if it's a duplex, it would cost approximately twice as much and he wonders if the exposure would bother Mr. Fauske. Also, if a duplex is good, would a 4-plex be better? He simply envisions a teacher family buying a house. MR. FAUSKE said that discussion takes them from a single-family owner occupied to an investment grade, especially beyond a duplex. Their underwriting criteria views investments entirely differently. He believes the single-family approach is safe, although he deals with a lot of multifamily loans. Affordability would be a consideration. SENATOR WILKEN commented that nothing would prevent the Legislature from expanding the coverage to a duplex or bigger. MR. FAUSKE agreed that could be done. SENATOR GREEN said she thinks that this bill could pertain to a 4-plex, since it doesn't preclude it so the drafters should check that out. CHAIR DYSON said they would work on a committee substitute that would include wording making this program available to other schools that are doing state school testing. He said there is significant interest in reviving Covenant High School and other private schools and they may not fit into the present definition of public school. SENATOR WILKEN added that the balance in his mind is does it expand the exposure for abuse versus the good it's doing. He noted that this was originally Representative Rokeberg's idea last year. CHAIR DYSON held SB 25 for further discussion and adjourned the meeting at 2:53 p.m.
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