Legislature(2009 - 2010)BELTZ 105 (TSBldg)

02/04/2010 09:00 AM Senate STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 217 Out of Committee
Moved SB 216 Out of Committee
Heard & Held
          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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
MR. FAUSKE agreed that the  sectional analysis is for a different                                                               
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                                                               
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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