02/07/2024 01:30 PM Senate LABOR & COMMERCE

            SB 191-AHFC MAKE/PURCHASE MORTGAGE LOANS                                                                        
                                                                                                                                
1:33:37 PM                                                                                                                    
CHAIR  BJORKMAN announced  the consideration  of  SENATE BILL  NO.                                                              
191, "An Act relating  to the power of the Alaska  Housing Finance                                                              
Corporation to make or purchase mortgage loans."                                                                                
                                                                                                                                
1:33:52 PM                                                                                                                    
AKIS  GIALOPSOS,   Deputy  Executive   Director,  Alaska   Housing                                                              
Finance Corporation,  Anchorage,  Alaska, testified by  invitation                                                              
on  SB 191.  He noted  the presence  of Mr.  Fadil Limani,  Deputy                                                              
Commissioner of  the Department of  Revenue and requested  that he                                                              
be given a moment to present an overview of SB 191.                                                                             
                                                                                                                                
1:34:34 PM                                                                                                                    
FADIL LIMANI,  Deputy Commissioner,  Department of Revenue  (DOR),                                                              
Anchorage, Alaska, read from the following statement:                                                                           
                                                                                                                                
[Original punctuation provided.]                                                                                                
                                                                                                                                
     I  am  the  Deputy Commissioner  of  the  Department  of                                                                   
     Revenue.  I am also  a sitting  Board Member for  Alaska                                                                   
     Housing Finance Corporation.                                                                                               
                                                                                                                                
     The  proposed legislation  Mr. Chair  would enable  AHFC                                                                   
     to  modify the  residential lending  programs that  will                                                                   
     provide   additional  loan   opportunities  to   Alaskan                                                                   
     families.                                                                                                                  
                                                                                                                                
     Currently, with  the high interest rate  environment and                                                                   
     the  downpayment  requirements,  it makes  it  difficult                                                                   
     for homebuyers,  particularly first-time home  buyers to                                                                   
     secure a loan for their home purchase.                                                                                     
                                                                                                                                
     This legislation  Mr. Chair increases  the Loan-to-Value                                                                   
     ratio   from   95   percent    to   97   percent   which                                                                   
     significantly  reduces the  downpayment requirements  to                                                                   
     homebuyers  and   enables  AHFC  to  compete   with  the                                                                   
     government sponsored loan programs that are offered by                                                                     
     Fannie Mae and Freddie Mac.                                                                                                
                                                                                                                                
     This is a  GOV mission critical legislative  priority as                                                                   
     it  addresses   the  livability   aspect  and   provides                                                                   
     Alaskans  with access  to housing  and keeping  families                                                                   
     in Alaska  and attracting more  people to come  and live                                                                   
     in Alaska.                                                                                                                 
                                                                                                                                
1:36:15 PM                                                                                                                    
MR. GIALOPSOS  said that  the Alaska  Housing Finance  Corporation                                                              
(AHFC) was  founded in 1971 with  the mission to  provide Alaskans                                                              
with  safe, quality,  and affordable  housing.  He explained  that                                                              
this is done  by three prongs. First, it increases  housing stock,                                                              
primarily  through the  low-income  housing tax  credit and  rural                                                              
professional  housing  grant  programs. Second,  it  augments  and                                                              
improves   housing  stock   through   weatherization  and   rebate                                                              
programs.  He  noted  that  one   in  five  residences  in  Alaska                                                              
receiving funding  through the corporation to improve  energy uses                                                              
by decreasing energy  consumption by an average  of one-third over                                                              
the past 20 years.  He went on to explain that  the third prong is                                                              
being  able to  provide access  to housing  stock through  various                                                              
financial instruments.  He noted that SB 191 would  be included in                                                              
the latter category.                                                                                                            
                                                                                                                                
1:37:51 PM                                                                                                                    
MR. GIALOPSOS  stated that  Alaska statute 18.56.096(a)(4)  limits                                                              
the  corporation   to  the  ability  to  purchase   single  family                                                              
residences on  a first convention  loan to  a loan to  value ratio                                                              
(LTV) of  no more than 95  percent. He explained that  lenders use                                                              
LTV to  determine what proportion  of a  loan would need  to cover                                                              
an  appraised asset  for  purchase.  Thus, LTV  of  95  on a  $100                                                              
thousand  loan  would  require  a  $5  thousand  down  payment  in                                                              
addition to  closing costs - which  can be up to three  percent of                                                              
the appraised  value. He  said that  LTV is  one of several  tools                                                              
lenders use  to determine the risk  factors a borrower  may have -                                                              
including  default  or payment  issues.  He explained  that  loans                                                              
with LTV  of 80  or higher  require private  mortgage insurance  -                                                              
this is true for  both private lenders and AHFC.  He said that two                                                              
key factors  have changed, leading to  the creation of  SB 191. He                                                              
explained that,  ten years ago, the government  sponsored entities                                                              
Fannie  Mae and Freddie  Mac -  which are  the federal  government                                                              
counterparts to  AHFC - began  offering products that  allowed LTV                                                              
of 97 percent.  This lowered the buyer's down  payment requirement                                                              
from  5 percent  to 3  percent.  He went  on to  explain that  the                                                              
second key change  has been the increase in the  average appraised                                                              
value  of homes  throughout  the  state of  Alaska.  He said  this                                                              
increase  has been  particularly notable  in the  past five  years                                                              
and  pointed out  that as  the appraised  value has  gone up,  the                                                              
cost to credit-worthy borrowers has likewise increased.                                                                         
                                                                                                                                
1:40:11 PM                                                                                                                    
MR. GIALOPSOS  referred to  a handout  titled "Impact  of Proposed                                                              
Loan-to-Value (LTV)  Legislation - SB 191." He  explained that the                                                              
three  charts show  the average  sale prices  for a  single-family                                                              
home  between  2019   and  2023  in  the  Kenai,   Fairbanks,  and                                                              
Anchorage  areas. He  commented  that the  numbers vary  slightly;                                                              
however,  the trend  is  the same  for  all three  locations.  For                                                              
example,  in [Kenai]  the  cost has  increased  from roughly  $250                                                              
thousand  to  nearly $400  thousand.  He  pointed out  that  under                                                              
current  AHFC  rules,  the  required  down  payment  has  likewise                                                              
increased  from   $12.5  thousand  to  nearly  $20   thousand.  He                                                              
explained that  AHFC does not  believe that the  credit worthiness                                                              
of  borrowers  has deteriorated,  though  their  purchasing  power                                                              
has. He said  that AHFC is requesting that the  legislature remove                                                              
the  95 percent  LTV  restriction, thereby  allowing  AHFC to  set                                                              
products that  would be competitive  when compared to  its federal                                                              
counterparts.  He acknowledged  that  a higher  LTV would  require                                                              
qualified  borrowers  to make  a  smaller down  payment;  however,                                                              
AHFC already  requires private  mortgage  insurance and must  move                                                              
through  its due-diligence  process. He  pointed out  that AHFC  -                                                              
and  the state  as a  whole -  leads the  nation in  terms of  low                                                              
default  and foreclosure  numbers  and shared  AHFC's belief  that                                                              
any incremental risk  is offset by these provisions.  He suggested                                                              
that  this  would give  more  Alaskans  access to  home  ownership                                                              
without  the "debilitating  additional cost  that would  otherwise                                                              
disincentivize  them from being  able to put  down roots  in their                                                              
community." He went  on to explain that SB 191  includes "clean up                                                              
language"  that  removes  duplicative   language  in  the  current                                                              
statute.                                                                                                                        
                                                                                                                                
1:42:55 PM                                                                                                                    
SENATOR  GRAY-JACKSON asked  if the  date included  in the  charts                                                              
also applies to duplexes and condos.                                                                                            
                                                                                                                                
1:43:08 PM                                                                                                                    
MR. GIALOPSOS replied  that the information in  the charts applies                                                              
to single-family homes.                                                                                                         
                                                                                                                                
1:43:14 PM                                                                                                                    
SENATOR  GRAY-JACKSON stated  that she  would like  to see  condos                                                              
and duplexes  included, as they  are less expensive. She  asked if                                                              
6.5 percent is the current interest rate.                                                                                       
                                                                                                                                
1:43:41 PM                                                                                                                    
MR. GIALOPSOS replied yes.                                                                                                      
                                                                                                                                
1:44:07 PM                                                                                                                    
BRYAN  BUTCHER,  CEO/Executive Director,  Alaska  Housing  Finance                                                              
Corporation, Anchorage,  Alaska, answered questions on  SB 191. He                                                              
explained that condos  and duplexes would be included,  as well as                                                              
triplexes  and  fourplexes.  He further  explained  that  anything                                                              
fourplex and  under would  be included, as  long as  the purchaser                                                              
was  living in  one of  the units.  He  stated that  it would  not                                                              
apply to anything larger.                                                                                                       
                                                                                                                                
1:44:43 PM                                                                                                                    
SENATOR DUNBAR  pointed out  that the letter  of support  from the                                                              
Alaska Bankers  Association states that relaxing  LTV requirements                                                              
can stimulate  demand for housing;  however, Alaska has a  lack of                                                              
housing, not a lack  of demand. He asked if the  loans can be used                                                              
for housing  construction  and if there  is a  chance that  SB 191                                                              
would increase housing costs in the state.                                                                                      
                                                                                                                                
1:45:48 PM                                                                                                                    
MR.  BUTCHER  answered  that  SB  191 is  intended  to  level  the                                                              
playing field between  AHFC and its competitors, which  it does by                                                              
allowing  more Alaskans  to  access  AHFC programs.  He  explained                                                              
that  the number  of qualifying  home buyers  would increase,  and                                                              
this increased  demand would  result in  more houses being  built.                                                              
He said that AHFC  has a number of programs that  are specifically                                                              
focused  on   housing  construction;   however,  SB  191   is  not                                                              
necessarily intended to increase housing construction.                                                                          
                                                                                                                                
1:46:35 PM                                                                                                                    
SENATOR  DUNBAR  offered his  understanding  that  Fannie Mae  and                                                              
Freddie Mac  already offer these  kinds of products and  that AHFC                                                              
offering this  type of  product would  give homebuyers  the chance                                                              
to choose  who they receive  their loan  through - which  would be                                                              
unlikely to increase the cost of existing housing.                                                                              
                                                                                                                                
1:47:09 PM                                                                                                                    
MR.  GIALOPSOS explained  that while  Fannie Mae  and Freddie  Mac                                                              
interest  rates  have  generally  been  lower,  AHFC  has  a  more                                                              
competitive  interest rate,  comparatively.  He  said that  prices                                                              
and  affordability  would change  in  favor  of the  borrower.  He                                                              
agreed  that  supply  and  demand  dynamics are  at  play  -  this                                                              
includes a  restricted amount of  supply. However, he  pointed out                                                              
that there  is an  outward migration  of people  from the  state -                                                              
and increased  access  to housing  stock is one  way to  encourage                                                              
people to  stay in Alaska. He  suggested that this  is potentially                                                              
less reflective of  a runup in home valuation and  more of finding                                                              
individuals  who  are currently  on  the sidelines  and  competing                                                              
against  cash  borrowers.  He said  that  this  stagnated  capital                                                              
would  be  liberated.  In  response to  an  earlier  question,  he                                                              
clarified that  "single family residence"  is defined  as anything                                                              
from one  to four units,  as long as  the borrower  resides within                                                              
the unit.                                                                                                                       
                                                                                                                                
1:49:02 PM                                                                                                                    
SENATOR  BISHOP asked  for clarification  that  Mr. Gialopsos  had                                                              
intended to say "cash buyers" rather than "cash borrowers".                                                                     
                                                                                                                                
1:49:16 PM                                                                                                                    
MR.  GIALOPSOS   replied  yes.   He  explained  that   a  historic                                                              
proportion  of  entrants  in  the   housing  market  are  outright                                                              
buyers. He  added that roughly 20  to 38 percent of  Americans own                                                              
a home outright.  He acknowledged the role of  realized equity and                                                              
explained that  an increased LTV  ratio would allow buyers  who do                                                              
not  own a  property with  realized  equity and  those who  cannot                                                              
purchase a  home outright  to be more  competitive players  in the                                                              
housing market. He  acknowledged that this would not  solve all of                                                              
the issues  that buyers face; however,  it is a small  step in the                                                              
right direction.                                                                                                                
                                                                                                                                
1:49:56 PM                                                                                                                    
CHAIR BJORKMAN held SB 191 in committee.