Legislature(1999 - 2000)

04/22/1999 09:07 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 150                                                                                                             
"An Act relating to interest rates for small community                                                                          
housing mortgage loans under the housing assistance                                                                             
program of the Alaska Housing Finance Corporation."                                                                             
This was the first hearing for this bill.                                                                                       
DAN FAUSKY, CEO/Executive Director, Alaska Housing Finance                                                                      
Corporation, Department of Revenue, came to the table at                                                                        
the request of Senator Al Adams. Senator Al Adams wanted to                                                                     
know how much money would be made in rural Alaska using the                                                                     
one-percent proposal. In looking at the rural versus urban                                                                      
situation, he wondered how much money had been spent on                                                                         
this program in Anchorage.                                                                                                      
Senator Al Adams knew it was required that a portion of the                                                                     
earnings of this program be spent on certain housing                                                                            
programs. He asked where the proceeds of the one-percent                                                                        
interest rate went. Did they really go to rural Alaska or                                                                       
were they spread among communities across the state?                                                                            
Dan Fauske responded that the majority of the subsidized                                                                        
loans or enhancement programs went to Anchorage. That was a                                                                     
condition of the population base. He listed figures showing                                                                     
Regarding the consideration of removing the one-percent                                                                         
interest rate provision for rural Alaska, he noted the                                                                          
corporation could make more money if the percentage was                                                                         
increased. He anticipated however, that if it were                                                                              
eliminated there would be about a 16 percent drop in loan                                                                       
portfolio activity. Therefore, the program would break even                                                                     
and there would be no gain. He pointed out that in rural                                                                        
areas, and even less rural areas by Alaska standards,                                                                           
mortgage insurance could not be obtained.  Therefore, if                                                                        
there were not a subsidy of some sort more down payment                                                                         
money would have to be required from residents.                                                                                 
He explained that the rate established in statutes was one-                                                                     
percent of the taxable rate would have been had bonds been                                                                      
issued. This was a revolving fund and bonds were not sold                                                                       
to fund it. Generally, once the one-percent was removed,                                                                        
compared to a tax of the program, the rate was the same on                                                                      
a thirty-year mortgage. The rural program would exceed the                                                                      
tax-exempt program by an eight of a point for a fifteen-                                                                        
year mortgage.                                                                                                                  
Senator Al Adams asked if the rural communities along the                                                                       
road system would be affected by this legislation. Dan                                                                          
Fauske answered that the current program required the                                                                           
population of communities along the road system had to be                                                                       
1600 residents or less to qualify. Off the road system, the                                                                     
population requirement was 6500. The corporation had                                                                            
discussions with some realtors who would like to see those                                                                      
limits raised. He noted the program had tripled over the                                                                        
last three years. He listed the number of loans done in                                                                         
various rural communities during that period. Another                                                                           
concern raised was with communities that were annexed into                                                                      
a borough.  Those residents would no longer qualify for the                                                                     
program. This had happened for areas in the Kodiak Island                                                                       
Borough and the Haines Borough.                                                                                                 
Dan Fauske believed it was a program that was necessary.                                                                        
Whether it stood up to strict economic standards was                                                                            
another issue. Charging a higher interest rate could always                                                                     
make more money. His concern was with the mortgage                                                                              
Senator Randy Phillips asked if the criteria for the                                                                            
program were the same for every person in Alaska regardless                                                                     
of where they lived. He noted the different number of loans                                                                     
given in various communities Dan Fauske said it was the                                                                         
same. Senator Randy Phillips asked if this applied to all                                                                       
of the programs the corporation offered. If the criteria                                                                        
were different, he felt it should be examined. Dan Fauske                                                                       
agreed. The only differences were found in the urban areas                                                                      
because of access to amenities such as ease of access or                                                                        
the quality of the property.                                                                                                    
Senator Randy Phillips asked about the mortgage insurance.                                                                      
Dan Fauske said that under the program, the borrower would                                                                      
still have to pay a ten-percent down payment. AHFC then                                                                         
assumed a part of the risk that would normally be covered                                                                       
under mortgage insurance.  Under most programs, more than                                                                       
ten-percent would be required to obtain mortgage insurance.                                                                     
That was just the way the industry operated, he stressed.                                                                       
Senator Dave Donley was entertained by the witness                                                                              
testimony that if the subsidy was removed, fewer people                                                                         
would borrow money and the corporation would make the same                                                                      
amount of money. That seemed to argue for extension of the                                                                      
one-percent program to all Alaskans. Dan Fauske did not                                                                         
disagree. He was only trying to make an analogy and he                                                                          
didn't know how much business would be lost with the                                                                            
elimination of the one-percent provision.                                                                                       
Senator Dave Donley referred to the comments that the rural                                                                     
loans were more difficult to make, which was the reason the                                                                     
AHFC was involved. For that reason, he doubted the private                                                                      
sector would choose to pick up the estimated sixteen-                                                                           
percent drop.                                                                                                                   
Senator Dave Donley then noted the Boundary Commission's                                                                        
latest report that specifically identified this program as                                                                      
one of the most problematic and biggest inhibitors of the                                                                       
formation of local governments. This was because                                                                                
communities would not qualify for the program if they                                                                           
joined or formed boroughs. In his opinion, the lack of                                                                          
formation of local governments was one of the biggest                                                                           
problems facing the state today. He asked if the witness                                                                        
could propose a solution. Dan Fauske responded that the                                                                         
corporation was not trying to advocate a program that was                                                                       
based on these problems. He hoped to alleviate the problems                                                                     
associated with the qualifications of some properties based                                                                     
on which side of the road they were located. He had heard                                                                       
this concern from realtors.                                                                                                     
Senator Dave Donley made further comments on the formation                                                                      
of local boroughs.                                                                                                              
Senator Dave Donley then pointed out that other programs                                                                        
operated by AHFC applied to all Alaska's regardless of                                                                          
where they lived.  He used veteran, disabled and first time                                                                     
homebuyer programs.  This program was only available to                                                                         
those people who met a particular discriminatory category,                                                                      
in his opinion.                                                                                                                 
Senator Randy Phillips noted he had potential conflict of                                                                       
interest because he works for a mortgage company. He                                                                            
offered a motion to be allowed to abstain from voting on                                                                        
the bill. Senator Dave Donley objected and the motion was                                                                       
Senator Loren Leman asked if the intent was to increase the                                                                     
rate in the rural area market using the one-percent                                                                             
provision. He wanted to know why the corporation didn't                                                                         
reduce the rate charged in the rest of the state instead.                                                                       
Dan Fauske responded that the other programs were bonded                                                                        
programs that were driven by the rate the bonds could be                                                                        
sold. This program was established as a revolving fund so                                                                       
the rates were calculated. The corporation was exploring                                                                        
other options with regard to universal statewide programs.                                                                      
He noted that there were limitations under the tax-exempt                                                                       
programs for income limits that were established by the                                                                         
federal government.                                                                                                             
Co-Chair John Torgerson introduced Alex Grundmann, age 13,                                                                      
who was visiting the committee as a participant of Take                                                                         
Your Child to Work Day. He was serving in the capacity of                                                                       
Senator Al Adams asked if of the money earned from by the                                                                       
corporation how much was spent on this program. He also                                                                         
wanted to know if this money could be used to match the                                                                         
supplemental housing project in the capital budget. Dan                                                                         
Fauske answered that in terms what was spent on the total                                                                       
program, he only knew of only $200,000 that was spent on                                                                        
this subprogram. He would find out the actual figures and                                                                       
supply them to the committee.                                                                                                   
To answer the question on whether the arbitrage could be                                                                        
used for the CIP, he told Senator Al Adams that the                                                                             
arbitrage could only be used for a loan that met the same                                                                       
perimeters of what the bond was issued for. It had to be                                                                        
used for a loan with a reasonable expectation of repayment.                                                                     
Co-Chair John Torgerson noted the bill would not be                                                                             
reported out of committee this meeting.                                                                                         
Tape: SFC - 99 #105, Side A                                                                                                     
BRUCE KOVARIK, Executive Director, Association of Alaska                                                                        
Housing Authorities, testified via teleconference from                                                                          
Anchorage. He had submitted written testimony. The                                                                              
association opposed the bill. It was clear to them that it                                                                      
would focus significant and adverse impact on the                                                                               
availability of affordable mortgage loans in rural Alaska.                                                                      
The bill would not save money and would further discourage                                                                      
private lending activities in rural Alaska. It would                                                                            
increase the cost of housing and lessen the economic                                                                            
development in areas of the state that needed it the most.                                                                      
He disagreed with Senator Dave Donley's assumption that                                                                         
this program was a special discriminatory subsidy.                                                                              
SUE BENEDETTE, Vice President, First National Bank of                                                                           
Anchorage and Co-Chair, Alaska Mortgage Bankers                                                                                 
Association, testified via teleconference from Anchorage.                                                                       
FNBA lends on a statewide basis and found this program to                                                                       
be very successful in allowing it to lend to rural Alaska.                                                                      
It helped offset the higher cost of housing in rural areas.                                                                     
ROBIN WARD testified via teleconference from Anchorage. She                                                                     
stated that the bankers associations, the homebuilders and                                                                      
affiliated businesses viewed the AHFC as their own                                                                              
permanent fund. She would submit further testimony in                                                                           
DAVE MCCLURE, Executive Director, Bristol Bay Housing                                                                           
Authority, and Board Member, AHFC, testified via                                                                                
teleconference from Dillingham. He had submitted a policy                                                                       
brief from HUD to the committee. It stated that home equity                                                                     
was the largest single source of household wealth for most                                                                      
Americans. A decrease in the interest rate exemption would                                                                      
have a negative affect on the number of loans made. He                                                                          
urged the committee to maintain the current program as a                                                                        
method of maintaining economic stability in rural areas.                                                                        
ANNE WHITNEY, President-elect, Katchemak Board of Realtors,                                                                     
testified via teleconference from Homer.  The cost of                                                                           
living and the cost of construction was much higher in                                                                          
rural areas and that was one reason the one-percent                                                                             
provision was put into place. It did not cost AHFC any                                                                          
money. First-time homebuyers in urban areas were able to                                                                        
take advantage of other interest rate reduction programs.                                                                       
Therefore, this was not a fairness issue.                                                                                       
ANGIE NEWBY, President, Katchemak Board of Realtors,                                                                            
testified via teleconference from Homer.  This program had                                                                      
made home ownership possible for many people on the Kenai                                                                       
Peninsula. She listed the figures.                                                                                              
BOB BRODIE, Assoc. Realty, testified via teleconference                                                                         
from Kodiak. He felt the committee missed the point. The                                                                        
object of AHFC was to make housing affordable for all                                                                           
Alaskans. When the interest rate was raised only one point                                                                      
many people were eliminated from qualification for home                                                                         
ownership. Instead of taking the program from rural Alaska,                                                                     
he supported Senator Dave Donley's suggestion to make all                                                                       
the AHFC loans one-percent lower than the market rate.                                                                          
That would pick up the revenue from those loans that                                                                            
typically went to FHA and Fanny Mae programs.                                                                                   
BONNIE AULABAUGH, Broker, Chelsea Realty, testified via                                                                         
teleconference from Kodiak in opposition to the bill. She                                                                       
believed the program was set up to allow for loan programs                                                                      
in rural areas.  She attested to the higher cost of home                                                                        
ownership in rural Alaska.                                                                                                      
ED MAHONEY, President, Kodiak Building Industry                                                                                 
Association, testified via teleconference from Kodiak. The                                                                      
association opposed the legislation.  The impact to the                                                                         
community would be substantial.                                                                                                 
Co-Chair John Torgerson ordered the bill held in committee.                                                                     
Senator Torgerson with the assistance of Alex Grundmann                                                                         
recessed the meeting at 10:52 AM.                                                                                               
SFC-99 (18) 4/22/99                                                                                                             

Document Name Date/Time Subjects