Legislature(2009 - 2010)BARNES 124

02/02/2010 01:00 PM House MILITARY & VETERANS' AFFAIRS

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* first hearing in first committee of referral
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Moved Out of Committee
Heard & Held
Heard & Held
          HB 291-GUARANTEED REVENUE BONDS FOR VETERANS                                                                      
1:07:48 PM                                                                                                                    
CHAIR GATTO announced  that the first order of  business would be                                                               
HOUSE BILL  NO. 291, "An Act  relating to the issuance  of state-                                                               
guaranteed   revenue  bonds   by  the   Alaska  Housing   Finance                                                               
Corporation  to finance  mortgages for  qualifying veterans;  and                                                               
providing for an effective date."                                                                                               
1:08:38 PM                                                                                                                    
DAN  FAUSKE,  CEO/Executive   Director,  Alaska  Housing  Finance                                                               
Corporation  (AHFC), Department  of Revenue  (DOR), informed  the                                                               
committee that  HB 291 is an  act allowing the issuance  of state                                                               
guaranteed revenue  bonds by AHFC.   The  sale of these  bonds is                                                               
mandated by  federal law and  requires a  vote of the  people and                                                               
unconditional backing by  the state.  In addition,  the bonds are                                                               
exempt  from federal  income taxation.   To  date, the  state has                                                               
issued $2.6 billion of veteran's  bonds of which $338 million are                                                               
outstanding.   He reminded the  committee that  the authorization                                                               
in 2002  was for $500  million and $95  million remains.   Of the                                                               
amount issued,  loans are $341  million and delinquencies  are at                                                               
3.ll percent.   In response to Chair Gatto,  Mr. Fauske clarified                                                               
that 3.11  percent is a low  delinquency rate and well  below the                                                               
national average.   He pointed out that there is  no cost or cash                                                               
requirement for  these bonds, simply  state backing, and  AHFC is                                                               
requesting a $600 million authorization  to issue bonds after the                                                               
program is  approved by the  voters.   The last time  the program                                                               
was on  the ballot, it  was approved by  about 72 percent  of the                                                               
voters.   In further response  to Chair Gatto, he  confirmed that                                                               
approval of  the bonds is  by a simple  majority of voters.   Mr.                                                               
Fauske stated that AHFC "has had  to fight long and hard" to keep                                                               
these  bonds and  he expressed  surprise that  the bonds  are not                                                               
accepted nationwide.  Alaska is  one of five states that continue                                                               
to  issue veteran's  bonds:   Alaska, Oregon,  California, Texas,                                                               
and Wisconsin.   He  opined that every  state should  issue these                                                               
bonds as  "it's good for the  state, it's good for  our veterans,                                                               
it's  a program  that Alaska  Housing Finance  Corporation really                                                               
enjoys administering, and it just does a lot of good."                                                                          
1:12:34 PM                                                                                                                    
MR. FAUSKE,  in further  response to Chair  Gatto, said  that the                                                               
abovementioned five  states are  the only  states that  have ever                                                               
participated in the program.                                                                                                    
CHAIR GATTO remarked on the foreclosure market in other states.                                                                 
MR. FAUSKE  indicated that the  foreclosure rates  in California,                                                               
Michigan, Florida, and Nevada ware in double-digits.                                                                            
1:13:48 PM                                                                                                                    
REPRESENTATIVE  BUCH observed  that these  are exciting  times in                                                               
many ways.   He congratulated AHFC  on its ability to  use monies                                                               
to make  monies.  He then  asked whether the federal  bond market                                                               
is a healthy market.                                                                                                            
MR.  FAUSKE relayed  that AHFC  re-entered the  market about  six                                                               
months ago utilizing the national  New Issue Bond Program (NIBP),                                                               
which has the Federal National  Mortgage Association (Fannie Mae)                                                               
and  the  Federal Home  Mortgage  Corporation  (Freddie Mac)  buy                                                               
bonds.   Through  the NIBP,  AHFC participated  in the  amount of                                                               
$193 million.  He noted that  another new program, the Tax Credit                                                               
Loan Program (TCLP)  was disliked due to  its limiting provisions                                                               
regarding the  pre-payment of variable  rate debt.   He explained                                                               
AHFC's  policy on  variable rate  debt.   Returning  to the  bond                                                               
market, he  said liquidity in  the market has improved;  in fact,                                                               
AHFC is now  very competitive again, and its rate  today is about                                                               
4.65 percent for first-time, tax-exempt,  homebuyers.  Mr. Fauske                                                               
assured the committee that AHFC is  "back in play" and is looking                                                               
forward  to  increased activity.    Actually,  in the  first  ten                                                               
months of the  calendar year 2009, AHFC purchased  240 loans with                                                               
a  total   principal  balance   of  approximately   $47  million.                                                               
Furthermore,  AHFC  interest   rates  became  competitive  around                                                               
September  2009, and  loan activity  increased with  activity for                                                               
the last  two months  of 2009  being 189  loans purchased  with a                                                               
total   principal   balance   of   approximately   $40   million.                                                               
Additionally,  106 loan  commitments were  made in  January 2010,                                                               
for approximately  $23 million.   Mr.  Fauske anticipated  a very                                                               
good year for AHFC if the Alaska economy stays healthy.                                                                         
1:20:18 PM                                                                                                                    
REPRESENTATIVE  BUCH asked  if,  during  past difficult  economic                                                               
times, the state  required a vote of the people  to approve bonds                                                               
issued by AHFC.                                                                                                                 
MR. FAUSKE  responded that this is  the only bond issued  by AHFC                                                               
that requires  a vote of  the people.   Other bonds are  based on                                                               
the  credit of  the corporation  or  revenue bond  activity.   He                                                               
acknowledged that in  the 1980's there was a  state budget crisis                                                               
and  shortfalls  were  internalized  in  the  state.    Only  the                                                               
financial  strength  of  the  corporation  let  it  recover  from                                                               
14,000-15,000 [units] of "real estate  owned (REO)" on its books.                                                               
However,  he opined  that the  present situation  was induced  by                                                               
greed, the lack  of oversight, and improperly secured  loans.  In                                                               
truth, the  mortgage-back security  market collapsed  and because                                                               
AHFC was not participating in  interest-only loans and adjustable                                                               
rate mortgages (ARMS),  it currently sits in  a premium position:                                                               
Alaska, with  North Dakota and  Wyoming, are last in  the country                                                               
in  the  amount  of  foreclosures and  delinquencies.    Although                                                               
activity has slowed, there is not  a drastic decline in the value                                                               
of homes and there is nothing  forecast that is alarming to AHFC.                                                               
He  re-stated the  importance  of  jobs to  the  strength of  the                                                               
housing industry.   One oversight of the  current recovery effort                                                               
is  that  the  state  housing corporations  are  refused  federal                                                               
assistance because of their inability to access capital markets.                                                                
1:25:42 PM                                                                                                                    
REPRESENTATIVE  BUCH reminded  the committee  that the  state has                                                               
one diminishing pot  of money impacting the state's  revenue.  He                                                               
expressed his  concern that, over  the long-term, the  state [may                                                               
fail to]  follow-through with  the kind of  vision that  AHFC has                                                               
proven to be effective and  profitable.  Representative Buch said                                                               
he would like "to get some  reports about how much money you have                                                               
made,  you guys  have done  a phenomenal  job [in  the] last  two                                                               
years."   However,  AHFC  policies need  to  be substantiated  in                                                               
order to get "buy-in" from the public.                                                                                          
1:27:11 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI asked  whether there  are other  bonding                                                               
mechanisms that AHFC  uses for the same purpose, and  if so, what                                                               
they are.                                                                                                                       
MR. FAUSKE answered that, in  addition to the bonds authorized by                                                               
the bill, AHFC  has guaranteed bonds through  two other programs.                                                               
All of these bonds are monies  used to fund the various programs,                                                               
whether  it   is  the  tax-exempt  program   for  the  first-time                                                               
homebuyer,  the taxable  program  for  the first-time  homebuyer,                                                               
conventional  loans, or  the rural  loan portfolio.   He  further                                                               
explained that  in a good  year, AHFC is  in the market  for $400                                                               
million  to $800  million annually.    AHFC's task  is to  access                                                               
capital and buy mortgages from  banks that are "paid off, through                                                               
people  paying  of their  mortgage  payment."   Although  a  huge                                                               
responsibility, this  business model is heavily  scrutinized and,                                                               
with  good  fiduciary  and fiscal  oversight,  AHFC  successfully                                                               
serves as  the secondary market.   Furthermore, after  the normal                                                               
programs, it  is sometimes necessary  to find  additional funding                                                               
through  grant  programs  administered  through  AHFC's  planning                                                               
department  such as  federal HOME  monies, Community  Development                                                               
Block  Grants (CDBG),  the Special  Needs  Housing Grant  Program                                                               
(SNHG), and  a good mix  of corporate dollars and  federal monies                                                               
for disabled Alaskans,  disabled veterans, and seniors.   On this                                                               
subject, he warned  that Alaska has a fast  growing population of                                                               
seniors and there  is a need to  keep pace.  He  then pointed out                                                               
the  positive  impact of  the  energy  rebate and  weatherization                                                               
program that reduces  energy costs and makes  home ownership more                                                               
affordable for young citizens and  seniors.  Mr. Fauske observed,                                                               
"That  [program]  is having  an  amazing  impact on  [this]  very                                                               
1:31:27 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI asked  for  the size  of the  first-time                                                               
homebuyer program at  its inception.  He  also questioned whether                                                               
there was a time limit on the bond authorization.                                                                               
MR. FAUSKE deferred the question to Mr. Dubler.                                                                                 
1:33:04 PM                                                                                                                    
JOE  DUBLER,  Chief  Financial Officer/Finance  Director,  Alaska                                                               
Housing Finance Corporation (AHFC),  Department of Revenue (DOR),                                                               
in response to Representative Kawasaki,  opined that there is not                                                               
a  time limit  on the  bond authorization.   In  the case  of the                                                               
veteran's  bond,  there  is  a  monetary  limit  on  the  federal                                                               
legislation of  $100 million  per year; thus  the most  the state                                                               
could fund  is $100  million each year.   Mr.  Dubler anticipated                                                               
the authorization would last between four and five years.                                                                       
1:34:03 PM                                                                                                                    
CHAIR GATTO opined  there is confusion when  the government bonds                                                               
for a bridge,  a building, or a public project.   The committee's                                                               
questions   to   the   presenters  are   realistic   for   public                                                               
understanding that  this is  an authorization to  bond on  an "as                                                               
needed basis."                                                                                                                  
MR.   FAUSKE  agreed   that   most   people  may   misunderstand;                                                               
furthermore,  because the  bill will  be on  an election  ballot,                                                               
AHFC cannot  promote its  passage.   Explaining "how  the process                                                               
would work" will be limited to public service announcements.                                                                    
MR. DUBLER  recalled the voting  history of veteran's bonds.   In                                                               
1982, the  voters authorized $400  million in bonds and  in 1983,                                                               
$400  million were  sold.   He  noted  that there  was  a lot  of                                                               
activity  then,  and many  veterans  qualified  for the  program.                                                               
Furthermore, veteran's programs have always  been one of the best                                                               
performing programs  in terms of  low rates of  delinquencies and                                                               
foreclosures.   In  1983,  the voters  approved  $500 million  in                                                               
bonds and those  were all issued that year.   In 1984, the voters                                                               
approved $700 million  in bonds, and in 1986  the voters approved                                                               
$600 million in  bonds for a total of $1.7  billion in those four                                                               
years.   He  re-stated that  AHFC has  [$94.6] million  remaining                                                               
from  the 2002  authorization.   In response  to Chair  Gatto, he                                                               
said the vote is typically 70 percent in support.                                                                               
1:36:33 PM                                                                                                                    
MR.  DUBLER, in  response to  Representative Kawasaki,  indicated                                                               
that  the  current amount  of  veteran's  mortgage program  bonds                                                               
outstanding is  $338 million and  that amount represents  four or                                                               
five different  transactions.  In further  response, he confirmed                                                               
that [$94.6] million is left from 2002.                                                                                         
1:37:18 PM                                                                                                                    
CHAIR GATTO  posed a scenario in  which a veteran obtains  a loan                                                               
and  five years  later wants  to sell  his house  and "carry  the                                                               
mortgage himself."                                                                                                              
MR.  DUBLER responded  that some  loans are  assumable, with  the                                                               
qualification  that  the  new  buyer  would also  have  to  be  a                                                               
MR. FAUSKE  added that there  is no requirement that  the veteran                                                               
remain living in the home.                                                                                                      
MR. DUBLER  clarified that the  veteran cannot rent the  home and                                                               
then apply for another veteran's loan,  but can get a second loan                                                               
if he sells the first home.                                                                                                     
1:38:49 PM                                                                                                                    
REPRESENTATIVE BUCH  assumed that the state  patterns its program                                                               
after federal compliance requirements.                                                                                          
MR.  DUBLER pointed  out that  the  veteran's program  is a  loan                                                               
guarantee program  that can be added  to any one of  AHFC's loans                                                               
to allow  the financing of closing  costs and a loan  of a higher                                                               
amount than what would be available with a conventional loan.                                                                   
1:39:27 PM                                                                                                                    
REPRESENTATIVE KAWASAKI asked for the  total amount of money that                                                               
AHFC currently has that is not out to bond.                                                                                     
MR. FAUSKE explained that this is  the one time AHFC comes before                                                               
the  legislature  for  authorization.     However,  AHFC  reports                                                               
annually on  activity that is  anticipated for the  upcoming year                                                               
to the  Joint Legislative Committee  on Budget and  Audit (JBUD).                                                               
AHFC  is  also  authorized  to  come  to  the  Joint  Legislative                                                               
Committee on Budget and Audit  for additional funds, although, he                                                               
could not recall if this was ever necessary.                                                                                    
MR. DUBLER, in further response  to Representative Kawasaki, said                                                               
AHFC   currently  has   approximately   $3.1   billion  in   debt                                                               
outstanding  for  all of  its  programs  including state  capital                                                               
projects, the  Atwood Building, all  of the  first-time homebuyer                                                               
programs, the multi-family programs,  and veteran's programs.  He                                                               
explained that  the majority of  the debt was for  the first-time                                                               
homebuyer programs  that are through  the federal  government and                                                               
authorized through  the private-activity  bond cap and  the state                                                               
bond  committee allocates  the money  to whatever  entities issue                                                               
the bonds.                                                                                                                      
1:41:53 PM                                                                                                                    
CHAIR GATTO observed that the  Alaska Commission on Postsecondary                                                               
Education  is another  very successful  organization, along  with                                                               
AHFC and  the Alaska  Permanent Fund Corporation.   He  asked for                                                               
the percentage of AHFC's return on equity.                                                                                      
MR. DUBLER remarked:                                                                                                            
     To look at return on equity  of AHFC like you look at a                                                                    
     bank,  with all  the  social programs  that we  support                                                                    
     with our  capital budget and operating  budget, doesn't                                                                    
     really make a lot of sense  and we ... don't keep those                                                                    
     numbers .... I  can calculate it for you and  I can get                                                                    
     it to your office ... we haven't done one in years.                                                                        
MR.  FAUSKE offered  that AHFC  returns a  substantial amount  of                                                               
cash to  the state every  year.  In  response to Chair  Gatto, he                                                               
confirmed         that         the        corporation         was                                                               
front-loaded in the 1980s with $1.8 billion from the state.                                                                     
MR. DUBLER assured  the committee that AHFC looks  closely at its                                                               
net interest spread-which  is the difference between  the rate at                                                               
which  it  borrows  and  the  rate at  which  it  lends-and  that                                                               
difference has been over 1 percent  for many years, and was about                                                               
1.4  percent at  AHFC's last  board meeting.   He  concluded that                                                               
this percentage tells  AHFC how well it is managing  its debt and                                                               
mortgage   portfolios;    typically,   state    housing   finance                                                               
corporations earn less than 1 percent.                                                                                          
1:44:23 PM                                                                                                                    
REPRESENTATIVE  TAMMIE  WILSON  inquired  as  to  the  number  of                                                               
veterans that stay in the state because of this program.                                                                        
MR. FAUSKE  estimated that there  are 76,000 veterans  in Alaska;                                                               
in fact, Alaska has the highest  per capita number of veterans in                                                               
the nation.                                                                                                                     
MR. DUBLER  opined that AHFC  does not  have any knowledge  as to                                                               
whether  veterans stay  in  the state  because  of this  program,                                                               
although it may one of the "top three reasons."                                                                                 
CHAIR GATTO observed that soldiers  know that Alaska welcomes the                                                               
1:45:44 PM                                                                                                                    
REPRESENTATIVE BUCH related that the  VA has an accurate count of                                                               
the  number of  veterans  living  in the  state.    He said  this                                                               
program, and  others, influence veterans  to return to  Alaska to                                                               
1:46:22 PM                                                                                                                    
MR. FAUSKE  stressed that from a  business perspective, veteran's                                                               
loans "stand  out" with low  foreclosures and  low delinquencies.                                                               
He  then  offered  to  provide  committee  members  with  further                                                               
answers to questions at any time.                                                                                               
1:47:34 PM                                                                                                                    
REPRESENTATIVE KAWASAKI asked for Mr.  Fauske's opinion as to why                                                               
this loan program has a low delinquency rate.                                                                                   
MR. FAUSKE explained  that these loans often  involve people with                                                               
established careers and job security.   In addition, the interest                                                               
rate reduction  is a  condition of  federal law  as is  "the tax-                                                               
exempt issuance  of debt  [that] is  controlled by  the [Internal                                                               
Revenue  Service   (IRS)]  in  this  country,   and  the  federal                                                               
government."   Historically,  the  taxable rate  versus the  tax-                                                               
exempt rate is a 100 basis  points spread in difference, which is                                                               
1  percentage point  of interest.   Thus  a conventional  rate in                                                               
today's market  might be 5  percent, but a tax-exempt  rate might                                                               
be 4 percent,  and this interest rate incentive  helps drive down                                                               
the  cost of  the mortgage  for  the veteran.   For  this, and  a                                                               
variety of  other reasons,  it is  a "very  high-performing, very                                                               
successful loan program."                                                                                                       
1:49:59 PM                                                                                                                    
REPRESENTATIVE KAWASAKI  inquired as  to why  more states  do not                                                               
participate in this program.                                                                                                    
MR. DUBLER  recalled there was  a very short window  during which                                                               
states  could enter  the program.   In  the 1970s,  AHFC and  the                                                               
other [four] states had the foresight to get in the program.                                                                    
MR. FAUSKE acknowledged that veteran's  groups have had to defend                                                               
the  program  over the  years.    In response  to  Representative                                                               
Kawasaki, he indicated  that the bonds for this  program can only                                                               
be used for veterans.                                                                                                           
1:52:57 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI then  asked  for  confirmation that  the                                                               
total number of loans issued since 1994 was 4,758.                                                                              
MR.  FAUSKE  assumed  that number  may  include  some  first-time                                                               
homebuyers.    He  re-stated  that the  total  number  was  "$2.6                                                               
billion of bonds issued on  the veteran's side, since inception."                                                               
In  response to  Representative  Kawasaki,  Mr. Fauske  indicated                                                               
that more information will be provided.                                                                                         
1:53:45 PM                                                                                                                    
CHAIR GATTO announced that HB 291 was held.                                                                                     

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