Legislature(2009 - 2010)CAPITOL 106
02/17/2009 05:15 PM House ECON. DEV., TRADE & TOURISM
| Audio | Topic |
|---|---|
| Start | |
| Alaska Housing Finance Corporation: Federal Funding for Distressed Mortgages and the Future Strength of the Alaska Real Estate Market | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, INTERNATIONAL
TRADE AND TOURISM
February 17, 2009
5:17 p.m.
MEMBERS PRESENT
Representative Jay Ramras, Chair
Representative Mike Chenault
Representative Kyle Johansen
Representative Chris Tuck
MEMBERS ABSENT
Representative Nancy Dahlstrom
Representative Mark Neuman
Representative Mike Doogan
OTHER MEMBERS PRESENT
Senator Hollis French
COMMITTEE CALENDAR
ALASKA HOUSING FINANCE CORPORATION: FEDERAL FUNDING FOR
DISTRESSED MORTGAGES AND THE FUTURE STRENGTH OF THE ALASKA REAL
ESTATE MARKET
PREVIOUS COMMITTEE ACTION
No previous action to report
WITNESS REGISTER
DAN FAUSKE, Chief Executive Officer/Executive Director
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Introduced a PowerPoint presentation -
Alaska's Housing Market 2009.
PAUL KAPANSKY, Director
Mortgage Operations
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
by Alaska Housing Finance Corporation.
BRYAN BUTCHER, Director
Governmental Relations & Public Affairs
Executive Office
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
by Alaska Housing Finance Corporation.
JOE DUBLER, Chief Financial Officer/Finance Director
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
by Alaska Housing Finance Corporation.
ACTION NARRATIVE
5:17:50 PM
CHAIR JAY RAMRAS called the House Special Committee on Economic
Development, International Trade and Tourism meeting to order at
5:17 p.m. Present at the call to order were Representatives
Chenault, Johansen, and Ramras. Representative Tuck arrived as
the meeting was in progress. Also in attendance was Senator
French.
5:18:00 PM
^ALASKA HOUSING FINANCE CORPORATION: FEDERAL FUNDING FOR
DISTRESSED MORTGAGES AND THE FUTURE STRENGTH OF THE ALASKA REAL
ESTATE MARKET
CHAIR RAMRAS announced that the only order of business would be
a presentation by Alaska Housing Finance Corporation: Federal
Funding for Distressed Mortgages and the Future Strength of the
Alaska Real Estate Market.
5:18:13 PM
CHAIR RAMRAS invited the representatives of Alaska Housing
Finance Corporation (AHFC) to begin their presentation on
Alaska's real estate market.
5:19:14 PM
DAN FAUSKE, Chief Executive Officer/Executive Director, Alaska
Housing Finance Corporation, informed the committee that the
presentation would include issues with the housing market in
Alaska and national issues affecting the state. Slide 2
indicated that interest rates are historically low, prices are
stable, new construction is extremely low, and contractors are
busy with remodeling. He spoke of the real estate market
problems in the Lower 48 such as the collapse of the housing
market, loss of jobs, excessive speculation, and neighborhoods
devastated by foreclosures.
5:21:14 PM
CHAIR RAMRAS welcomed Senator French.
5:21:48 PM
MR. FAUST recalled in the early '90s warnings about loans sold
to the Federal Home Loan Mortgage Corp. (FHLMC) and the Federal
National Mortgage Association (FNMA) were ignored.
Unfortunately, the market ran amok with speculative mortgage
backed securities. Some in the state encouraged AHFC to
speculate, but it did not. Mr. Faust explained that Alaska has
a small proportion of adjustable rate mortgages (ARMS), a small
lending community that did not participate in riskier loans, and
there was minimal speculative development or buying; thus a
continued moderate growth in the economy is expected. Slide 5
indicated that in the third quarter of 2008, Alaska's
delinquency rate was 2.66 percent - the lowest in the nation -
and AHFC's delinquency rate was 2.29 percent. Historically,
Alaska's highest delinquency rate of 5.9 percent was reached in
2000 and 2001. Furthermore, Alaska ranks 47th in foreclosures
at 1.64 percent, nearly 1/3 the national average of 5.17
percent. Slide 7 indicated that the market is cooling; the 2008
end-of-year number of homes for sale in Anchorage is much lower
than in the '90s and after the hot period from 1999 to 2005.
Mr. Faust opined today's more moderate pace is a little below
normal. He listed average sales prices for homes in Anchorage,
Mat-Su, Fairbanks, Kenai, and Kodiak, and noted that there has
been a steady and predictable increase in prices.
5:26:19 PM
CHAIR RAMRAS related comments from an appraiser who said that a
home in Anchorage cost $100,000 more than in Fairbanks, but that
the cost of living in both cities was close. He asked what an
additional $100,000 in mortgage costs represents.
5:27:32 PM
PAUL KAPANSKY, Director, Mortgage Operations, Alaska Housing
Finance Corporation, estimated principal and interest on
$100,000 at 5 percent interest would cost approximately $600 per
month.
5:27:57 PM
CHAIR RAMRAS compared the cost of living in several regions.
5:28:11 PM
MR. FAUST clarified that the numbers presented are from
September 2008, and do not reflect some recent events, such as
the increase in rates by ENSTAR Natural Gas Company. Also,
there is some alarm about the Fairbanks area and the high energy
costs there this winter. Slide 10 indicated sales activity in
the statewide housing market was down in Anchorage, Mat-Su,
Fairbanks, Kenai, and Kodiak.
5:30:17 PM
CHAIR RAMRAS asked about the Juneau market.
5:30:33 PM
MR. FAUST advised that the market in Juneau is always different,
partly because much of the land is owned by the City and Borough
of Juneau (CBJ), and there is a limited amount of affordable
housing. Vacancy numbers are also low.
MR. KAPANSKY added that the overall trend has been an
appreciation in properties.
5:32:04 PM
CHAIR RAMRAS asked about the market in Ketchikan.
5:32:15 PM
MR. KAPANSKY offered it is a stable market, with some good buys
available.
5:32:42 PM
MR. FAUST observed Ketchikan has survived some tough times.
Alaska Housing Finance Corporation has properties there and the
housing market has remained stable. Slide 11 indicated the
annual residential sales activity in Anchorage is down from the
peak in 2003; furthermore, he cautioned that normal trends still
send a call to keep economic indicators in mind, such as
unemployment, new construction, heavy construction, residential
construction, consumer confidence, and consumer savings. Mr.
Faust expressed his concern over the lack of consumer confidence
and noted that AHFC launched a statewide advertising campaign to
combat negative housing market news from the Lower 48.
5:36:58 PM
BRYAN BUTCHER, Director, Governmental Relations & Public
Affairs, Executive Office, Alaska Housing Finance Corporation,
in response to Representative Ramras, said that the "Built to
Last" ad campaign ran for six months in the major markets of the
state.
5:37:34 PM
CHAIR RAMRAS spoke of the AHFC "first-time homebuyer" courses
through which participants can earn a credit against their
closing costs.
5:37:38 PM
MR. FAUST affirmed that knowledge about mortgages makes people
better borrowers. Slide 12 indicated the number of homes for
sale in Anchorage is "cooling" back to more historical norms.
Slide 13 indicated the average number of market days to sell a
home in Anchorage, Mat-Su, Fairbanks, Kenai, and Kodiak is
increasing and is a cause for some concern. Slide 15 indicated
a decline in annual residential building permit activity from a
high of 1,039 permits issued in 2002 to 225 permits issued in
2008. Mr. Faust stated the cause for this decline is due to the
tightening of credit from banks; in fact, builders must own the
land to qualify for a speculative construction loan.
5:41:29 PM
CHAIR RAMRAS asked for a comparison of Alaska's current
foreclosure rate with the rate one or two years ago.
5:41:55 PM
MR. KAPANSKY observed for the last year or two, there has been a
gradual upswing in foreclosures, but not to an alarming degree.
He explained that the rate is gauged on the number of loans
outstanding, or about 93,000 loans. The third quarter
foreclosure rate was 0.88 percent; one year ago it was around
0.5 percent.
5:43:20 PM
MR. FAUST spoke of misleading headlines and the need for
consumers to examine the true meaning of percentages that are
reported in the news. He then noted that Alaska will benefit
from $19.8 million of [federal] stimulus money for blighted or
foreclosed areas.
5:44:55 PM
REPRESENTATIVE CHENAULT asked for what purpose the stimulus
money will be used.
5:45:22 PM
MR. BUTCHER advised there are strict limitations on the use of
the money; for instance, it can not be used to pay down a loan
or to help someone avoid foreclosure. The money is designated
to help foreclosed and blighted neighborhoods that bring down
home values in adjacent areas. Fortunately, this is not a
problem in Alaska; however, the limitations and short deadline
may make it difficult for properties in the state to qualify for
the money. He described the limitations on the use of the money
and other possible uses by non-profit organizations.
5:48:17 PM
MR. FAUST offered to keep the legislature informed as to the
projects AHFC submits for funding.
5:48:49 PM
REPRESENTATIVE TUCK asked how the public finds information on
mortgage assistance and safe mortgage lending.
5:49:09 PM
MR. FAUST suggested the classes offered by AHFC, or contact with
a mortgage banker and realtor can provide guidance. Information
is also on the AHFC website; however, the new restrictions on
loans are working as checks and balances, he opined.
5:50:18 PM
MR. BUTCHER added that AHFC encourages troubled homeowners to
talk to their bank for options. Also, it was just announced
J.P. Morgan and Bank of America Corporation are freezing
foreclosures at this time.
5:51:19 PM
MR. FAUST advised that AHFC has a home and credit counseling
service available. Furthermore, if there is a unique situation,
AHFC will work with the homeowner of a distressed property.
5:53:11 PM
MR. FAUST continued his presentation with Slide 16 that
indicated a decline in the number of residential building
permits for Fairbanks and Juneau. Regarding apartment
vacancies, the national average is 10 percent; Anchorage,
Juneau, and Wasilla/Palmer were in the healthy range at 5
percent and under, while Kenai/Wasilla was at 8.6 percent and
Fairbanks was high at 21.2 percent. Mr. Faust pointed out that
mortgage interest rates are projected to go down well below the
average seen over the last 20 years.
5:57:22 PM
JOE DUBLER, Chief Financial Officer/Finance Director, Alaska
Housing Finance Corporation, presented Slide 23 that was an
index of highly rated municipal securities. He explained the
slide describes the difference in interest rates for the London
Interbank Offered Rate (LIBOR), the U.S. Treasury (UST) rate,
and the Municipal Market Data (MMD) rate. He pointed out that
the UST and LIBOR rates are currently far below the tax exempt
MMD rate that is available to AHFC. Interestingly, the LIBOR
rate has been lower than it is now 2.08 percent of the last 10
years; the UST has been lower 2 percent of the last 10 years;
and the MMD has been lower 47.02 percent of the last 10 years.
6:00:07 PM
MR. DUBLER, in response to Representative Ramras, said that the
borrowing cost to AHFC is currently about 6 percent. Slide 24
indicated AHFC's tax exempt rate is about 6.25 percent and the
conventional market rate is about 5 percent.
6:00:32 PM
MR. FAUST, in further response to Representative Ramras, noted
that the federal government is pumping money in the market at
4.25 percent and acknowledged that there is no tax exempt market
at this time and AHFC is "priced out." However, AHFC is not
shutting programs down and has the capital to continue its
lending practices. He assured the committee if the situation
does not improve AHFC will be making adjustments. Mr. Faust
stressed that there must be a market for AHFC to act; in fact,
subsidies do not make economic sense at this time either. He
suggested that bank re-finances are up and Alaskans are taking
advantage of low rates; however, his frustration is for owners
that are "below water," and are unable to re-finance due to the
reduction in the market value of their homes.
6:04:11 PM
MR. DUBLER added that AHFC has the same structure it has had for
thirty years, but it is affected by the housing market and the
government's efforts to fix the housing market by an influx of
money that is driving the cost of funds. He predicted that AHFC
will experience many re-finances in the next six to eight
months.
6:05:12 PM
MR. FAUST provided the example if AHFC gets many pre-pays, there
is the question of re-investing the cash. Also, the possibility
that AHFC may be interested in participation-loan programs with
banks. These possibilities are under discussion if credit is
needed to sustain the real estate market in Alaska. He advised
that nationwide banks are influenced by national problems and
this can also influence local banks.
6:06:43 PM
MR. DUBLER predicted that the market will come back eventually
and that AHFC will ride out the present conditions.
6:07:59 PM
MR. FAUST turned to the subject of changes in lending practices
and pointed out that eligible borrowers have diminished 30 to 40
percent and loan investors and mortgage insurance companies have
tightened credit standards. Higher standards include; higher
down payments required; higher Fair Isaac Corporation (FICO)
scores required; jumbo loan financing limited; no more exotic
loans; and increased fees and no seller-financed down payment
assistance on Federal Housing Authority (FHA) loans.
6:08:54 PM
REPRESENTATIVE CHENAULT asked about the federal government's
plan on re-finances and whether loans will be dropped, terms
lengthened, or interest rates lowered.
6:10:33 PM
MR. FAUST explained the problem with the economy started with
the housing industry. The collapse of Wall Street was based on
mortgage-backed securities and other non-collateralized
investments. He opined that the housing market must be fixed
before going forward. Furthermore, the destruction of
neighborhoods must be stopped to save the value of neighboring
homes and the homeowners' investments.
6:12:36 PM
REPRESENTATIVE CHENAULT pointed out speculation also inflated
the market.
6:13:06 PM
MR. FAUST stated that he does not see speculation much in
Alaska.
6:13:31 PM
REPRESENTATIVE CHENAULT congratulated Mr. Faust on his prudent
lending practices.
6:13:42 PM
MR. BUTCHER informed the committee that AHFC has emphasized to
the Alaska congressional delegation that the federal government
must be very careful in its attempts to fix the problems of the
troubled states with "out there ideas."
6:14:49 PM
MR. FAUST displayed Slide 27 and read, "one percent decrease in
interest rates roughly translates into a 10 percent increase in
homebuyer purchasing power." Slide 28 indicated state
demographers forecast population growth in Alaska will mean an
increased demand for housing; in fact, the fastest growing
segment of Alaska's population is seniors. Slide 20 indicated
1.6 jobs are needed to afford a single family home. Turning to
the subject of loan volume, Mr. Faust said that in FY 07 AHFC'S
loan volume was 2,808 loans totaling $565.7 million. In FY 08,
AHFC's loan volume was 2,012 loans totaling $493.5 million.
Projected through FY 09 are 1,500 loans totaling $368 million,
which is a reduction of 25 percent. Slide 31 indicated that
private-sector construction spending was down 12 percent and
public-sector spending was up 16 percent. He then compared home
values and home sales nationwide.
6:18:26 PM
MR. FAUST began a description of the AHFC energy programs and
said that the agency has funded $200 million for weatherization;
$100 million for rebates; an additional $60 million for rebates;
and [funds for] training components for both programs. The
previous weatherization program weatherized 600 homes; this year
that number will triple to 1,800 homes and projections are for
the weatherization of 4,000 homes in the second year of the
program and 7,500 homes in the third year. The Home Energy
Rebate Program has processed 6,212 ratings and approximately
$58.9 million is committed. There are 150 to 200 applications
received per day; 200 inquiries received per day; 349 post-
improvement rebates have been paid at an average reimbursement
of $5,941; and 162 new "5 Star Plus" rebates have been paid
totaling $1.2 million.
6:19:53 PM
REPRESENTATIVE CHENAULT observed that the amount of the average
post-improvement rebate is one-half of what was originally
planned for each project.
6:20:09 PM
MR. BUTCHER explained that the original estimate was an average
of $7,000 per home and this is the average still expected.
6:20:55 PM
MR. FAUST gave the wait-lists for six sample communities and
anticipated that the next bottleneck for the programs will be
finding contractors to do the recommended improvements.
6:21:35 PM
MR. BUTCHER assured the committee AHFC has sufficient funds for
operations through FY 10.
6:21:47 PM
REPRESENTATIVE CHENAULT asked why there are few applicants
waiting for raters in Bethel and Dillingham.
6:22:12 PM
MR. BUTCHER explained a lot has to do with the shortage of
raters, although more roving raters are available now to serve
rural communities. Also, a higher percentage of rural residents
are interested in the weatherization program.
6:22:55 PM
MR. FAUST outlined the big picture for the near future. He said
that average home prices are stable; home sale activity is down;
time on the market is up; delinquencies are low; foreclosures
are low; interest rates are low; overall construction outlook is
good; new home construction is down; additional $1 billion is
estimated [from the federal] stimulus package; and population
growth is forecasted. He cautioned against Alaskans "getting
sucked into the vortex in the Lower 48" and encouraged residents
to have consumer confidence. Furthermore, the stimulus funding
will be analyzed for energy money and AHFC will be responsible
for a portion of this money.
6:24:32 PM
REPRESENTATIVE RAMRAS encouraged AHFC to present this material
on its website and in other forums because it is very helpful to
spread information so that all know about the general health of
the real estate market.
6:25:27 PM
REPRESENTATIVE TUCK appreciated the efforts to keep people in
their homes and to ensure poor lending practices do not return.
6:26:14 PM
CHAIR RAMRAS observed that bank stocks are down and construction
business is down. He asked what will act as a catalyst to
increase residential construction in the Alaska market.
6:27:40 PM
MR. FAUST opined that consumers must have confidence and banks
must also have confidence. Alaska Housing Finance Corporation
is looking at properties that are not performing adequately, and
at valuable properties that need rebuilt, with the idea of
offering some assistance to banks and keeping the market strong.
In addition, AHFC properties with older buildings are better off
replaced if they are on valuable land, such as the Loussac
public housing units in Anchorage. Alaska Housing Finance
Corporation has 900 homes in inventory, which is an acceptable
number. He reminded the committee that Alaska has pending
projects, such as the pipeline project, and will need housing
inventory in the future. Mr. Faust recommended AHFC reach out
to commercial banks for partnering opportunities and to continue
negotiating with local banks to help sustain lending activities.
6:32:21 PM
CHAIR RAMRAS surmised that AHFC is anticipating a portion of its
loans will be re-financed and create a surplus of capital that
can be directed to partnerships with local and commercial banks.
6:32:25 PM
MR. FAUST clarified, in that case, AHFC will approach the
governor and the legislature for direction of its role on the
housing side of the state's economy.
6:32:31 PM
CHAIR RAMRAS assumed that another avenue is re-gentrification of
properties in the AHFC portfolio throughout the state.
6:33:22 PM
MR. FAUST agreed, and added unless something dramatic changes,
the state is vibrant, has a growing population and a strong
economy and must continue to invest in the normal course.
6:34:33 PM
CHAIR RAMRAS thanked the presenters and noted that AHFC's
successful programs lead the nation by example.
6:35:25 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Economic Development, International Trade
and Tourism meeting was adjourned at 6:35 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AHF-022_Housing_Trends_'09.ppt |
HEDT 2/17/2009 5:15:00 PM |