HOUSE BILL NO. 93 "An Act relating to the Alaska Housing Finance Corporation's rural assistance loan program and to the definition of 'housing' for purposes of the corporation's housing assistance loan program; and providing for an effective date." REPRESENTATIVE CARL MORGAN explained that the proposed legislation would modify AHFC's Rural Mortgage program to allow two changes: ? The Rural Mortgage program would allow for refinancing of home loans in the same manner any conventional mortgage allows. While many people around the nation have taken advantage of low interest rates to refinance their home mortgages, state law simply does not provide the option under the rural lending program. ? The current definition in state law limits the term "housing" to either single family or owner occupied duplexes. The proposed legislation would bring the term into compliance with current industry standards for lending by allowing owner- occupied housing up to four units. The Rural Mortgage program would be allowed to finance up to a four-plex. Representative Morgan asked members to note that the bill would not allow the program to make loans that are not allowed under conventional lending practices or industry standards. The bill attempts to allow the loan program to make the same kind of loans allowed for any conventional urban loan program. The Rural Mortgage loan program is a revolving fund. Alaska Housing Finance Corporation (AHFC) has reported that default rates in the program are the same or less than the rate of defaults on conventional urban loans. The legislation would attempt to make changes that would allow a lending program to make the same kind of loans considered standard practice under conventional lending. Representative Morgan stressed that this is an issue of "fairness" for rural borrowers and would be good business for AHFC. JOHN BITNEY, LEGISLATIVE LIASON, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE, ANCHORAGE, stated that Alaska Housing Finance Corporation (AHFC) supports the proposed legislation which will assist rural borrowers to take advantage of the better interest rates currently available. The original statutes were not written to include the concept of "refinancing" or to address that the rates would decline to what they currently are. Co-Chair Therriault restated that current statute does not allow for refinancing; the language would be inclusive of up to a four-plex. He asked if this would be a subsidized loan program. KAY MURPHY, MORTGAGE OPERATIONS DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE, explained that the program was funded from a revolving loan fund by corporate receipts of AHFC. The interest rate is set by statute at 1% less than the Corporation's taxable loan program. Co-Chair Therriault questioned if additional staffing would be needed to implement the program. Ms. Murphy responded that AHFC was not anticipating any additional staffing. She added, because rural borrowers can not refinance their loans, AHFC has refinanced them under other programs within the Corporation. A volume of loans has already been addressed. Representative Grussendorf asked if an owner would be required to live on the property. Ms. Murphy replied that it would need to be owner occupied housing and having four or fewer units. Mr. Bitney pointed out that there is a non- owner occupied program, which would not be addressed, in the proposed legislation. Representative Foster commented that he had proposed an identical bill six years ago. He voiced strong support for the legislation. Representative Bunde suggested that a subsidy needs to be fair and that to date, rural communities have not had the same opportunity to take advantage of loan programs available to the urban communities. Representative Kohring questioned the level of risk with loans offered to rural Alaska. He suggested that risk factor be reflected in the default rate. Ms. Murphy replied that the delinquency rate in the rural loan program was slightly less than the overall portfolio, which is a little over 3%, with a good payment history. Representative Kohring inquired if it would be a streamlined refinance. Ms. Murphy explained that there is a streamline refinance program, which is a continual program without a cut off date. With the passage of HB 93, AHFC would be able to offer streamline refinancing to rural loan borrowers within the rural loan program. Representative Kohring questioned how many loans would be eligible for the program. Ms. Murphy replied that in the rural loan program, there are over 500 loans which are over 8% at this time. Representative Kohring asked what definition of "rural" was used. Ms. Murphy replied that if a community was not connected on a road system, it would consist of a population of 6500 or less; if it was connected on a road system, it would have a population of 1600 or less. Representative G. Davis questioned the definition of "community". Ms. Murphy replied that for the higher populated areas around Anchorage and Fairbanks, a community would be within 50 miles of the Anchorage City center, which would be considered urban, and within 25 miles of Fairbanks City center would also be considered urban. She noted this was an attempt by AHFC to define community. Representative Kohring MOVED to report HB 93 out of Committee with individual recommendations and with the accompanying zero fiscal note. There being NO OBJECTION, it was so ordered. HB 93 was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Revenue dated 2/24/99.