Legislature(2009 - 2010)BELTZ 105 (TSBldg)
02/04/2010 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB216 | |
| SB217 | |
| SB63 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 217 | TELECONFERENCED | |
| *+ | SB 216 | TELECONFERENCED | |
| *+ | SB 63 | TELECONFERENCED | |
SB 217-GUARANTEED REVENUE BONDS FOR VETERANS
9:14:06 AM
CHAIR MENARD stated that SB 217 would be the next order of
business to come before the committee.
DAN FAUSKE, CEO, Alaska Housing Finance Corporation (AHFC,) said
Alaska is one of five states authorized to issue veteran's
mortgage bonds. These bonds are the only type that must be
guaranteed by the state of Alaska, meaning the state would stand
behind the bonds if any problems arose. These bonds must also be
approved by the voters. The last vote, in 2002, passed by 70 or
72 percent and resulted in a $500 million authorization, of
which $95 million is remaining. The veteran's mortgage bonds are
some of AHFC's highest performing bonds; one of the indentures
has a delinquency rate of 1.2 percent which is the lowest in the
United States. He pointed out that Alaska has the highest per
capita rate of veterans in the US. The bonds are federally tax
exempt meaning about 100 basis points difference or 1 percent of
interest. As of December, the veterans bonds were trading at
about three-eighths of a point of interest below the
conventional market. Bonds issued to date total $2.6 billion and
bonds outstanding equal $338 million and loans. All indentures
included, delinquency is at 3.11 percent, which is very good.
The veterans bonds have been very popular and very well
performing and AHFC needs the legislature's permission to ask
for voter approval, via the general election ballot in November,
of an additional $600 million of state guaranteed bonds to be
issued by AHFC for the purchase of mortgage loans made to
qualifying veterans.
9:17:32 AM
JOE DUBLER, CFO and Finance Director, AHFC, pointed out that SB
217 authorizes AHFC to go to the voters to obtain authorization;
it does not authorize AHFC to issue the bonds.
SENATOR MEYER asked if this would go into the general election
or the primary.
MR. FAUSKE replied the issue would go into the general election.
SENATOR PASKVAN asked if AHFC had done any analysis or had any
problems with upside-down mortgages, particularly with the
veterans program.
MR. FAUSKE said AHFC intentionally stayed out of mortgage-backed
securities, zero interest loans and adjustable rate arms. Alaska
did not experience a lot of spec buying and currently ranks 50th
or 49th in delinquencies. The state has seen a slight increase
in delinquencies and foreclosures but nothing causing great
alarm. He said he has seen a slowdown in the industry during the
last 14 months during the national financial crisis and
attributed this to the federal government's bolstering of Fannie
Mae and Freddy Mac, making money available for 1 and 2 percent
which inhibited AHFC from entering the market. AHFC has seen a
recovery and has been back in the market with one issuance
several months ago of $160 million, and now has an agreement on
a new issue bond program with Fannie Mae guaranteeing AHFC $193
million.
9:20:03 AM
MR. FAUSKE said the market in Alaska is very healthy; sales
values have stayed level. He explained that some other states
experienced worse financial crises followed by unemployment. The
people that use these veterans bonds are employed and are in the
military or retired with a pension. The delinquency and
foreclosure rates are below national and statewide averages.
MR. DUBLER said that analyzing an existing loan is difficult
because the current market value for every property in their
portfolio would have to be determined and compared with the loan
balance. Instead, AHFC keeps an eye on trends in the economy. He
explained that the Alaskan economy has not seen a rapid decline
in property values, which led to most of the lower 48 problems.
He said AHFC doesn't allow people to take a second out on a
mortgage loan where AHFC has the first, which would dilute it
and cause problems.
9:22:41 AM
SENATOR PASKVAN said he understood that they were not doing an
individual market analysis of a home.
SENATOR FRENCH asked if they loan 90 percent of the value of the
house, not 100 percent.
MR. DUBLER said it depends on the type of loan. For a
conventional loan it would be 80 percent. If a person has
Veteran's Affairs (VA) insurance, AHFC will go up to the VA
insurance limit of 95 percent. AHFC can go up to 97 percent on
Federal Housing Association (FHA) loans that have loan
guarantees that mitigate any loss AHFC could have on that
property.
MR. FAUSKE said the only loan that AHFC offers at 100 percent is
the Teacher Housing loan which has proven to be successful at
recruiting and retaining teachers.
SENATOR FRENCH confirmed that in 2002 AHFC started out with $500
million worth of bonds and has issued $400 million worth of
bonds. He asked how the bonds are parsed out in accordance with
the value of a home.
MR. DUBLER replied that if a person comes in to borrow money,
AHFC purchases that money from a bank, holds it in their
portfolio until enough is accrued to fund into a bond deal. When
AHFC runs out of bond funds, they would sell another bond and
get, for example, another $50 million and peck away at it until
it is all gone, then return to the market for another $50
million.
9:24:42 AM
SENATOR FRENCH asked if $500 million would be loaned for 500 $1
million dollar homes.
MR. DUBLER responded that is correct.
SENATOR FRENCH said a layman's understanding of this program
might be that the legislature gives AHFC the authority to issue
bonds and as the loans are made, the bonds are pledged or sold
and are slowly wrapped up or tied up in homes that veterans are
living in.
MR. DUBLER said that is correct.
MR. FAUSKE said AHFC will not go out the day after gaining voter
approval and issue $600 million worth of bonds. AHFC is capped
on an annual basis, but would get the authorization to move
freely within that market for the next four to six years and
then seek approval again, through the legislature and voters, to
continue the program. Depending on volume and activity within
the loan portfolio, AHFC will determine when to sell and how
much to sell.
9:26:22 AM
SENATOR FRENCH said it seems AHFC has been careful and judicial
about issuing the bonds. He asked what happens to the debt and
how it comes back to the state of Alaska if a person defaults on
a loan and walks away from a house he or she owes $200,000 on.
MR. DUBLER replied that if a loan goes bad, the State would only
be responsible if all the corporation's reserves and the other
assets in the indenture were gone. He explained that once the
property is foreclosed, AHFC owns it, puts it back on the market
and sells it. AHFC would then go against VA, FHA or the Private
Mortgage Insurance (PMI) provider for any incurred losses. He
reported that in the late 1980's and early 1990's, AHFC had over
5,000 Real Estate Owned (REO) properties. To slow mortgage
decline, AHFC did not dump them back on the market but rather
held onto some properties which helped the market recover. That
is one of advantage of the corporation foreclosing as opposed to
a bank.
9:28:30 AM
SENATOR PASKVAN asked if acquired equity is available for
additional loans as a revolving loan fund.
MR. DUBLER said that is correct; it is called recycling and AHFC
does a lot of recycling in their programs. For example, a person
has borrowed money from AHFC and then moves, that person pays
off that loan and AHFC takes those proceeds and loans it out to
the next person. Because there is a cost associated with selling
bonds, this saves the corporation money.
SENATOR PASKVAN asked if the amount of cumulative loans is $3.1
million.
MR. DUBLER replied "not necessarily" because bonds that AHFC has
refunded are also included in the $2.6 million. For example, if
a $50 million bond deal is outstanding at 8 percent and current
rates drop to 6 percent, AHFC will pay those bonds off and
reissue at 6 percent to save additional money.
SENATOR PASKVAN asked what current cumulative monies are in the
market for veterans and for the program.
MR.DUBLER said $341 million in mortgage loans are currently
outstanding in the veterans program, in all of the indentures.
Currently $338 million in bonds, of the $2.6 billion, are
outstanding.
MR. FAUSKE stated that AHFC has issued $2.6 billion in veterans
bonds since 1982.
9:31:11 AM
SENATOR PASKVAN said if a veteran gets a loan, buys a home,
sells it 10 years later, AHFC gets the money back... He said he
thinks he understands the process.
MR. FAUSKE said the money could then be recycled for another
qualifying veteran. Mr. Fauske said AHFC cannot transfer the
money around and use it for other things; the money is
specifically for bond indentures for veterans. The money will
reside within qualifying veterans.
SENATOR MEYER asked if the loans are transferrable to someone
outside the family and if the family members assume the loan if
the borrower dies.
MR. DUBLER said the loans are qualifying assumable loans. A
secondary party would be able to assume the loan, including
descendents, only if the person was a veteran qualified to get a
loan under this program.
MR. FAUSKE explained that if a veteran dies the family does not
have to leave the house.
SENATOR MEYER said he understood that if the borrower is alive
and wants to sell to someone else, that person would have to be
a veteran; if not, the loan is not assumable.
MR. DUBLER replied that is correct.
SENATOR MEYER said he saw a current rate of 4.25 for a 15 year
conventional loan. He asked if AHFC's rates are about three-
eighths below that, under 4 percent.
MR. DUBLER said AHFC does not do a lot of 15 year loans, but the
30 year rate is 4.625 and typically the 15 year is three-eighths
of a point below that at 4.25.
SENATOR MEYER asked about the general activity for real estate
in Alaska.
9:34:18 AM
MR. FAUSKE said AHFC purchased 240 loans with a total principle
balance of approximately $47 million in the first 10 months of
2009. AHFC's interest rates became more competitive in
September, 2009 and in the last two months of 2009 AHFC
purchased 189 loans for a total principle balance of $40
million. He noted these last two months of activity almost
equaled the previous 10 months in 2009. Loan commitments for
January 2010 equal $106 million already. AHFC's rates are below
market in some areas and good activity should come in the coming
year. He said Alaska's market is strong but has still
experienced a slowing. Alaska got spoiled a couple of years ago;
now the Alaska real estate market is sluggish and slower but is
healthy.
9:37:03 AM
SENATOR FRENCH pointed out that the sectional analysis does not
have an author and seems to pertain to a different bill. He
suggested that it be replaced before SB 217 goes to Senate
Finance.
MR. FAUSKE agreed that the sectional analysis is for a different
bill.
SENATOR FRENCH also noted that the fiscal note refers to a
statewide public vote on $800 million in revenue bonds but
should reflect SB 217 which is for $600 million.
MR. FAUSKE said there was previous confusion between $800
million or $600 million; $600 million was put forward.
SENATOR MEYER asked if the committee should amend or modify the
fiscal note or just make note of it for the record and ensure a
new fiscal note is made and passed up to finance.
9:39:05 AM
BRYAN BUTCHER, Public Affairs Director, AHFC, said when AHFC was
working with the Governor's office, the number was $800 million.
Federal law caps AHFC at selling a maximum of $100 million worth
of bonds a year, so the overall amount simply determines how
often the program has to go back to the legislature and before
the voters. He explained that the program is back before the
voters this year because the program will run out of funds
sometime in 2011. Everything AHFC had turned into the Governor's
office was at $800 million and when the Governor's office
released the bill to the Legislature it said $600 million. AHFC
is fine with either amount and it is up to the Legislature.
Instead of going back to the voters in 2016, $800 million would
mean the program would not have to go back before the voters
until 2018.
SENATOR FRENCH said the decision is better left to the finance
committee; the state affairs committee is endorsing the general
concept. He just wanted to make sure everyone was aware of the
anomaly. He did not propose an amendment.
SENATOR PASKVAN pointed out that the fiscal note is not about
distributing $600 million or $800 million; the fiscal note is
for $150,000 to put it before voters.
SENATOR MEYER said he did not think the $150,000 amount of the
fiscal note would change whether the authorization is for $600
or $800 million.
MR. BUTCHER said that is correct. The $150,000 is to make sure
Alaskans understand what they are voting on. In 2002, $200,000
was spent on educating voters through mailers explaining that
this is not spending $600 million but investing in veterans and
mortgages.
MR. DUBLER said AHFC has to be careful not to be seen as
promoting SB 217, but has to provide information.
9:42:03 AM
SENATOR MEYER expressed the opinion that it would be better to
fix SB 217 before it leaves committee, but the question of $600
or $800 million is a decision for the finance committee. The
state affairs committee should support the program at either
amount. He felt it was important for the record to reflect that
the analysis needed to be changed to reflect the amount that the
finance committee comes up with.
MR. BUTCHER said he would certainly do that.
9:43:00 AM
SENATOR MEYER moved to report SB 217 from committee with
individual recommendations and attached fiscal note(s). There
being no objection, the motion carried.
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