Legislature(2009 - 2010)BARNES 124
02/02/2010 01:00 PM House MILITARY & VETERANS' AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB291 | |
| HB292 | |
| HB274 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 274 | TELECONFERENCED | |
| *+ | HB 291 | TELECONFERENCED | |
| *+ | HB 292 | TELECONFERENCED | |
HB 291-GUARANTEED REVENUE BONDS FOR VETERANS
1:07:48 PM
CHAIR GATTO announced that the first order of business would be
HOUSE BILL NO. 291, "An Act relating to the issuance of state-
guaranteed revenue bonds by the Alaska Housing Finance
Corporation to finance mortgages for qualifying veterans; and
providing for an effective date."
1:08:38 PM
DAN FAUSKE, CEO/Executive Director, Alaska Housing Finance
Corporation (AHFC), Department of Revenue (DOR), informed the
committee that HB 291 is an act allowing the issuance of state
guaranteed revenue bonds by AHFC. The sale of these bonds is
mandated by federal law and requires a vote of the people and
unconditional backing by the state. In addition, the bonds are
exempt from federal income taxation. To date, the state has
issued $2.6 billion of veteran's bonds of which $338 million are
outstanding. He reminded the committee that the authorization
in 2002 was for $500 million and $95 million remains. Of the
amount issued, loans are $341 million and delinquencies are at
3.ll percent. In response to Chair Gatto, Mr. Fauske clarified
that 3.11 percent is a low delinquency rate and well below the
national average. He pointed out that there is no cost or cash
requirement for these bonds, simply state backing, and AHFC is
requesting a $600 million authorization to issue bonds after the
program is approved by the voters. The last time the program
was on the ballot, it was approved by about 72 percent of the
voters. In further response to Chair Gatto, he confirmed that
approval of the bonds is by a simple majority of voters. Mr.
Fauske stated that AHFC "has had to fight long and hard" to keep
these bonds and he expressed surprise that the bonds are not
accepted nationwide. Alaska is one of five states that continue
to issue veteran's bonds: Alaska, Oregon, California, Texas,
and Wisconsin. He opined that every state should issue these
bonds as "it's good for the state, it's good for our veterans,
it's a program that Alaska Housing Finance Corporation really
enjoys administering, and it just does a lot of good."
1:12:34 PM
MR. FAUSKE, in further response to Chair Gatto, said that the
abovementioned five states are the only states that have ever
participated in the program.
CHAIR GATTO remarked on the foreclosure market in other states.
MR. FAUSKE indicated that the foreclosure rates in California,
Michigan, Florida, and Nevada ware in double-digits.
1:13:48 PM
REPRESENTATIVE BUCH observed that these are exciting times in
many ways. He congratulated AHFC on its ability to use monies
to make monies. He then asked whether the federal bond market
is a healthy market.
MR. FAUSKE relayed that AHFC re-entered the market about six
months ago utilizing the national New Issue Bond Program (NIBP),
which has the Federal National Mortgage Association (Fannie Mae)
and the Federal Home Mortgage Corporation (Freddie Mac) buy
bonds. Through the NIBP, AHFC participated in the amount of
$193 million. He noted that another new program, the Tax Credit
Loan Program (TCLP) was disliked due to its limiting provisions
regarding the pre-payment of variable rate debt. He explained
AHFC's policy on variable rate debt. Returning to the bond
market, he said liquidity in the market has improved; in fact,
AHFC is now very competitive again, and its rate today is about
4.65 percent for first-time, tax-exempt, homebuyers. Mr. Fauske
assured the committee that AHFC is "back in play" and is looking
forward to increased activity. Actually, in the first ten
months of the calendar year 2009, AHFC purchased 240 loans with
a total principal balance of approximately $47 million.
Furthermore, AHFC interest rates became competitive around
September 2009, and loan activity increased with activity for
the last two months of 2009 being 189 loans purchased with a
total principal balance of approximately $40 million.
Additionally, 106 loan commitments were made in January 2010,
for approximately $23 million. Mr. Fauske anticipated a very
good year for AHFC if the Alaska economy stays healthy.
1:20:18 PM
REPRESENTATIVE BUCH asked if, during past difficult economic
times, the state required a vote of the people to approve bonds
issued by AHFC.
MR. FAUSKE responded that this is the only bond issued by AHFC
that requires a vote of the people. Other bonds are based on
the credit of the corporation or revenue bond activity. He
acknowledged that in the 1980's there was a state budget crisis
and shortfalls were internalized in the state. Only the
financial strength of the corporation let it recover from
14,000-15,000 [units] of "real estate owned (REO)" on its books.
However, he opined that the present situation was induced by
greed, the lack of oversight, and improperly secured loans. In
truth, the mortgage-back security market collapsed and because
AHFC was not participating in interest-only loans and adjustable
rate mortgages (ARMS), it currently sits in a premium position:
Alaska, with North Dakota and Wyoming, are last in the country
in the amount of foreclosures and delinquencies. Although
activity has slowed, there is not a drastic decline in the value
of homes and there is nothing forecast that is alarming to AHFC.
He re-stated the importance of jobs to the strength of the
housing industry. One oversight of the current recovery effort
is that the state housing corporations are refused federal
assistance because of their inability to access capital markets.
1:25:42 PM
REPRESENTATIVE BUCH reminded the committee that the state has
one diminishing pot of money impacting the state's revenue. He
expressed his concern that, over the long-term, the state [may
fail to] follow-through with the kind of vision that AHFC has
proven to be effective and profitable. Representative Buch said
he would like "to get some reports about how much money you have
made, you guys have done a phenomenal job [in the] last two
years." However, AHFC policies need to be substantiated in
order to get "buy-in" from the public.
1:27:11 PM
REPRESENTATIVE KAWASAKI asked whether there are other bonding
mechanisms that AHFC uses for the same purpose, and if so, what
they are.
MR. FAUSKE answered that, in addition to the bonds authorized by
the bill, AHFC has guaranteed bonds through two other programs.
All of these bonds are monies used to fund the various programs,
whether it is the tax-exempt program for the first-time
homebuyer, the taxable program for the first-time homebuyer,
conventional loans, or the rural loan portfolio. He further
explained that in a good year, AHFC is in the market for $400
million to $800 million annually. AHFC's task is to access
capital and buy mortgages from banks that are "paid off, through
people paying of their mortgage payment." Although a huge
responsibility, this business model is heavily scrutinized and,
with good fiduciary and fiscal oversight, AHFC successfully
serves as the secondary market. Furthermore, after the normal
programs, it is sometimes necessary to find additional funding
through grant programs administered through AHFC's planning
department such as federal HOME monies, Community Development
Block Grants (CDBG), the Special Needs Housing Grant Program
(SNHG), and a good mix of corporate dollars and federal monies
for disabled Alaskans, disabled veterans, and seniors. On this
subject, he warned that Alaska has a fast growing population of
seniors and there is a need to keep pace. He then pointed out
the positive impact of the energy rebate and weatherization
program that reduces energy costs and makes home ownership more
affordable for young citizens and seniors. Mr. Fauske observed,
"That [program] is having an amazing impact on [this] very
issue."
1:31:27 PM
REPRESENTATIVE KAWASAKI asked for the size of the first-time
homebuyer program at its inception. He also questioned whether
there was a time limit on the bond authorization.
MR. FAUSKE deferred the question to Mr. Dubler.
1:33:04 PM
JOE DUBLER, Chief Financial Officer/Finance Director, Alaska
Housing Finance Corporation (AHFC), Department of Revenue (DOR),
in response to Representative Kawasaki, opined that there is not
a time limit on the bond authorization. In the case of the
veteran's bond, there is a monetary limit on the federal
legislation of $100 million per year; thus the most the state
could fund is $100 million each year. Mr. Dubler anticipated
the authorization would last between four and five years.
1:34:03 PM
CHAIR GATTO opined there is confusion when the government bonds
for a bridge, a building, or a public project. The committee's
questions to the presenters are realistic for public
understanding that this is an authorization to bond on an "as
needed basis."
MR. FAUSKE agreed that most people may misunderstand;
furthermore, because the bill will be on an election ballot,
AHFC cannot promote its passage. Explaining "how the process
would work" will be limited to public service announcements.
MR. DUBLER recalled the voting history of veteran's bonds. In
1982, the voters authorized $400 million in bonds and in 1983,
$400 million were sold. He noted that there was a lot of
activity then, and many veterans qualified for the program.
Furthermore, veteran's programs have always been one of the best
performing programs in terms of low rates of delinquencies and
foreclosures. In 1983, the voters approved $500 million in
bonds and those were all issued that year. In 1984, the voters
approved $700 million in bonds, and in 1986 the voters approved
$600 million in bonds for a total of $1.7 billion in those four
years. He re-stated that AHFC has [$94.6] million remaining
from the 2002 authorization. In response to Chair Gatto, he
said the vote is typically 70 percent in support.
1:36:33 PM
MR. DUBLER, in response to Representative Kawasaki, indicated
that the current amount of veteran's mortgage program bonds
outstanding is $338 million and that amount represents four or
five different transactions. In further response, he confirmed
that [$94.6] million is left from 2002.
1:37:18 PM
CHAIR GATTO posed a scenario in which a veteran obtains a loan
and five years later wants to sell his house and "carry the
mortgage himself."
MR. DUBLER responded that some loans are assumable, with the
qualification that the new buyer would also have to be a
veteran.
MR. FAUSKE added that there is no requirement that the veteran
remain living in the home.
MR. DUBLER clarified that the veteran cannot rent the home and
then apply for another veteran's loan, but can get a second loan
if he sells the first home.
1:38:49 PM
REPRESENTATIVE BUCH assumed that the state patterns its program
after federal compliance requirements.
MR. DUBLER pointed out that the veteran's program is a loan
guarantee program that can be added to any one of AHFC's loans
to allow the financing of closing costs and a loan of a higher
amount than what would be available with a conventional loan.
1:39:27 PM
REPRESENTATIVE KAWASAKI asked for the total amount of money that
AHFC currently has that is not out to bond.
MR. FAUSKE explained that this is the one time AHFC comes before
the legislature for authorization. However, AHFC reports
annually on activity that is anticipated for the upcoming year
to the Joint Legislative Committee on Budget and Audit (JBUD).
AHFC is also authorized to come to the Joint Legislative
Committee on Budget and Audit for additional funds, although, he
could not recall if this was ever necessary.
MR. DUBLER, in further response to Representative Kawasaki, said
AHFC currently has approximately $3.1 billion in debt
outstanding for all of its programs including state capital
projects, the Atwood Building, all of the first-time homebuyer
programs, the multi-family programs, and veteran's programs. He
explained that the majority of the debt was for the first-time
homebuyer programs that are through the federal government and
authorized through the private-activity bond cap and the state
bond committee allocates the money to whatever entities issue
the bonds.
1:41:53 PM
CHAIR GATTO observed that the Alaska Commission on Postsecondary
Education is another very successful organization, along with
AHFC and the Alaska Permanent Fund Corporation. He asked for
the percentage of AHFC's return on equity.
MR. DUBLER remarked:
To look at return on equity of AHFC like you look at a
bank, with all the social programs that we support
with our capital budget and operating budget, doesn't
really make a lot of sense and we ... don't keep those
numbers .... I can calculate it for you and I can get
it to your office ... we haven't done one in years.
MR. FAUSKE offered that AHFC returns a substantial amount of
cash to the state every year. In response to Chair Gatto, he
confirmed that the corporation was
front-loaded in the 1980s with $1.8 billion from the state.
MR. DUBLER assured the committee that AHFC looks closely at its
net interest spread-which is the difference between the rate at
which it borrows and the rate at which it lends-and that
difference has been over 1 percent for many years, and was about
1.4 percent at AHFC's last board meeting. He concluded that
this percentage tells AHFC how well it is managing its debt and
mortgage portfolios; typically, state housing finance
corporations earn less than 1 percent.
1:44:23 PM
REPRESENTATIVE TAMMIE WILSON inquired as to the number of
veterans that stay in the state because of this program.
MR. FAUSKE estimated that there are 76,000 veterans in Alaska;
in fact, Alaska has the highest per capita number of veterans in
the nation.
MR. DUBLER opined that AHFC does not have any knowledge as to
whether veterans stay in the state because of this program,
although it may one of the "top three reasons."
CHAIR GATTO observed that soldiers know that Alaska welcomes the
military.
1:45:44 PM
REPRESENTATIVE BUCH related that the VA has an accurate count of
the number of veterans living in the state. He said this
program, and others, influence veterans to return to Alaska to
retire.
1:46:22 PM
MR. FAUSKE stressed that from a business perspective, veteran's
loans "stand out" with low foreclosures and low delinquencies.
He then offered to provide committee members with further
answers to questions at any time.
1:47:34 PM
REPRESENTATIVE KAWASAKI asked for Mr. Fauske's opinion as to why
this loan program has a low delinquency rate.
MR. FAUSKE explained that these loans often involve people with
established careers and job security. In addition, the interest
rate reduction is a condition of federal law as is "the tax-
exempt issuance of debt [that] is controlled by the [Internal
Revenue Service (IRS)] in this country, and the federal
government." Historically, the taxable rate versus the tax-
exempt rate is a 100 basis points spread in difference, which is
1 percentage point of interest. Thus a conventional rate in
today's market might be 5 percent, but a tax-exempt rate might
be 4 percent, and this interest rate incentive helps drive down
the cost of the mortgage for the veteran. For this, and a
variety of other reasons, it is a "very high-performing, very
successful loan program."
1:49:59 PM
REPRESENTATIVE KAWASAKI inquired as to why more states do not
participate in this program.
MR. DUBLER recalled there was a very short window during which
states could enter the program. In the 1970s, AHFC and the
other [four] states had the foresight to get in the program.
MR. FAUSKE acknowledged that veteran's groups have had to defend
the program over the years. In response to Representative
Kawasaki, he indicated that the bonds for this program can only
be used for veterans.
1:52:57 PM
REPRESENTATIVE KAWASAKI then asked for confirmation that the
total number of loans issued since 1994 was 4,758.
MR. FAUSKE assumed that number may include some first-time
homebuyers. He re-stated that the total number was "$2.6
billion of bonds issued on the veteran's side, since inception."
In response to Representative Kawasaki, Mr. Fauske indicated
that more information will be provided.
1:53:45 PM
CHAIR GATTO announced that HB 291 was held.
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