HOUSE BILL NO. 325 "An Act relating to the teachers' and nurses' housing loan program in the Alaska Housing Finance Corporation; and providing for an effective date." BRYAN BUTCHER, LEGISLATIVE LIAISON, ALASKA HOUSING FINANCE CORPORATION (AHFC), gave an overview of HB 325. In 2003, SB 25 established a teachers and registered nurses housing loan program. Buying a home, particularly the cash down payment, had been an obstacle for young teachers and nurses in many communities across the state. The idea was to set up a zero- down payment program to remedy the problem. A five year sunset was put on SB 25 due to concerns that if consumers didn't invest money initially they would be more likely to walk away from the loan. The program has been successful. House Bill 325 would lift the sunset and would expand "nurses" to "health care professionals." Mr. Butcher said that since the program was initiated in 2003, 373 teachers and nurses have mortgaged homes in 34 communities across the state. To date there has been only one foreclosure. Alaska Housing Finance Corporation foreclosure rates are low and rates of this program are even lower. He emphasized that the program is not a subsidy program; there is no interest break. Applicants have to pass AHFC's normal guidelines for getting a mortgage. 2:08:51 PM Representative Crawford asked for a definition of "health care professionals." He wondered if doctors were included. Mr. Butcher replied that there had been discussions with the Governor's office about the definition. They realized it would be easy to miss an occupation. Mr. Butcher referred to a different program in the capital budget that funds housing for rural teachers and health care professionals. The definition of who is qualified in that program is: any person who is licensed or board-certified by the State of Alaska in a health profession, holds a State certification in a health occupation, or is an administrator of a hospital or clinic or employed as an aide, assistant, counselor, or technician in a health field. Occupancy in the household is limited to health professionals and family members. Representative Crawford asked if dental assistants and hygienists were included. He reiterated concerns about doctors using the program. Mr. Butcher said AHFC discussed whether there should be an income cap on the program. They questioned having a zero- down program for someone making $500,000 a year. However, after talking with mortgage experts, the conclusion was reached that a doctor making $500,000 would not use the program. Most of AHFC's portfolio consists of rural, veterans, and first-time homebuyer loans, making AHFC a lender of "last resort." A person making more money could get a better interest rate by shopping around, so it would not make sense for someone with a large income buying a large home to skip a down payment in exchange for having to pay a lot more money. In addition, AHFC's experience over the past five years has been that fears regarding a cap were unfounded. The house cannot be used as investment property since users of the program must live in it. 2:12:05 PM Representative Hawker asked for specifics relating to both delinquency and foreclosure. Mr. Butcher did not have the delinquency numbers, although he knew they were low. Until very recently the foreclosure rates were at zero. Representative Hawker wondered about defaults. DAN FAUSKE, CEO/EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE, said that people occasionally get behind on their payments. However, AHFC has tracked this and found that the delinquency rate goes down around the time the permanent fund checks come out. rd Delinquency rates through AHFC are 43 in the nation, with 50 being the best. He said there is not a significant problem in Alaska. Foreclosures are well within historical norms and well below national average. Regarding the concern of someone making a great deal of money using this program, Mr. Fauske pointed out that zero-down buyers must have mortgage insurance. If an investor was going to be paying more, they would rather put the money down and free up the cash. 2:15:27 PM Representative Hawker asked, regarding the removal of the sunset date, how open-ended AHFC wanted the program to be. Mr. Fauske pointed out that the program evolved because of recognized need. The sunset provision was added in order to test the program. Across the country, housing finance agencies are trying to come up with solutions for the same challenges that AHFC has been dealing with successfully. Teachers everywhere have difficulty affording a home. He thought the program was doing exactly what it was designed to do and hoped to see it continue. Representative Hawker reiterated his desire for specific information regarding delinquency rates and credit experience with the consumers of the program. PAUL KAPANSKY, DIRECTOR, MORTGAGE OPERATIONS, ALASKA HOUSING FINANCE CORPORATION (TESTIFIED VIA TELECONFERENCE), spoke to the issue of foreclosures and delinquencies. He said that over the four year period that the program has been in place, there have been 378 loans, with one foreclosure. He said AHFC doesn't specifically track delinquency in the program, but delinquency rates are around 3.5%, which is historically low. He said the program has performed very well. 2:19:02 PM Representative Hawker was surprised to hear the State doesn't track delinquency rates by program, as those rates are a benchmark measure of performance. Mr. Kapansky said historically AHFC hasn't tracked delinquency rates because the foreclosure rate is so low. There didn't seem to be a need. Representative Gara had previously thought the program got teachers lower interest rate loans. He wondered if a person could still shop around for the best bank rate or if they had to accept a higher interest rate through AHFC in exchange for the zero-down. Mr. Kapansky answered that the loan option is only good with an Alaska Housing Finance loan. The loan could be processed under the veterans' program or the tax-exempt first-time home-buyer program. Those interest rates are currently approximately 5.5%, which is a very attractive interest rate. Representative Gara wondered if someone would be able to find a lower interest mortgage than they could get through the AHFC program if they shopped around. Mr. Kapansky answered that if the person were a first time home-buyer or a veteran he did not think they could find a more attractive interest rate. 2:21:46 PM Representative Kelly asked how the mortgage insurance worked. Mr. Butcher said in most cases a person pays mortgage insurance until the mortgage is 20% paid, but in the teachers and health professionals program the mortgage insurance is paid until 35% of the mortgage is paid, as AHFC is taking an increased risk. Representative Kelly wondered if the house went to another teacher when the teacher who bought the house through the program left. Mr. Butcher replied that the house returns to an all-new loan. Anyone could buy the house with the normal requirements. 2:24:33 PM Representative Kelly wanted to know the differences between the program covered by HB 325 and the rural program Mr. Butcher had referred to earlier. Mr. Butcher said the two programs were often confused with one another as they were created at the same time. The program covered in HB 325 is not the rural program. The rural program helps rural communities recruit and retain teachers and health care professionals. Representative Kelly referred to the handout listing houses in Aniak that were purchased through the HB 325 program ("Cumulative Purchases for Teacher/Nurse Option by Location," On File). He thought Aniak was a rural community. Mr. Butcher explained that the HB 325 program can be utilized by any community in the state. Mr. Fauske interjected that AHFC learned that even though the HB 325 program could be used in rural communities, it rarely was. The HB 325 program is mainly used in urban communities. In many of rural situations, teachers and health care professionals are itinerant. The rural program specifically addresses grants and loans to regional housing authorities, village corporations and school districts. That program has been equally successful. Representative Kelly wondered about asset quality monitoring. He stated he supported a sunset, especially if the category of eligible participants was broadening to people with less income. He also wanted delinquencies tracked. 2:28:36 PM Vice-Chair Stoltze spoke regarding sunset length. Mr. Butcher thought longer would be more beneficial for AHFC but would understand if the Committee wanted a shorter sunset. Mr. Fauske agreed that longer would be better; in terms of market conditions he thought five to eight years would be optimal. Mr. Kapansky agreed that five to eight would work. Co-Chair Meyer anticipated an amendment on the subject of sunset dates. 2:30:45 PM Representative Crawford stated that he did not see a need for a cap on the salary level of a program participant. He had originally thought a cap was needed because of the shortage of teachers and nurses. He wondered if there were shortages in the expanded categories. Vice-Chair Stoltze said there were shortages. Representative Crawford said he supported the program continuing with a sunset so that progress could be evaluated. Mr. Fauske added that the current accelerated value in the real estate market makes it even more difficult for young workers to come up with a down payment. He thought the program has helped forestall the shortages of teachers and health professionals in the state. 2:33:41 PM Representative Joule commented on the situation of the upcoming generation that cannot afford to buy a home. The whole issue has become the down payment, often putting parents in the position of having to pay it. He thought the program would make a huge difference to many people and would affect how committed they would be to a community. He supported the bill and said he was excited it will be expanded. 2:35:30 PM Co-Chair Meyer opened public testimony. Seeing none, he closed public testimony. Representative Hawker MOVED Conceptual Amendment #1 to HB 325. Co-Chair Meyer OBJECTED for discussion purposes. Representative Hawker described the conceptual amendment as putting a five-year reauthorization sunset on the bill. He stated that in his view, the sunset is not a sunset on the program. He intended the sunset to be a check on the management and operations of the program. Co-Chair Meyer WITHDREW his OBJECTION. There being NO OBJECTION, Conceptual Amendment #1 was adopted. 2:38:09 PM Representative Hawker noted for the record that the fiscal note is zero and does not require General Fund or other expenditures. Co-Chair Chenault MOVED to report CSHB 325 (FIN) out of Committee with individual recommendations and with zero note #1. CSHB 325 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with zero note #1 by the Department of Revenue. 2:39:29 PM AT EASE 2:39:55 PM RECONVENE