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
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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 issue." 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 veteran. 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 military. 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 retire. 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.