Legislature(2003 - 2004)
02/12/2003 01:33 PM Senate HES
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* first hearing in first committee of referral
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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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