HBA-MPA C.S.H.B. 3315 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3315 By: Cuellar Urban Affairs 4/6/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Owner-builder housing can be an affordable option for those with the skills and desire to attempt it. Several barriers hinder quality owner construction, however, the most significant being financing. Without financing, owner-builders often proceed with construction in a piecemeal fashion, adding to their structures as they accumulate cash for materials. C.S.H.B. 3315 directs the Texas Department of Housing and Community Affairs to establish an owner-builder interim construction loan program in partnership with construction supply companies and nonprofit housing assistance organizations. More than 1,500 colonias -- unincorporated communities, many of them characterized by poverty, substandard housing, and inadequate basic services -- lie along the U.S. side of the Mexican border, 98 percent of them in Texas. The general unavailability of mortgage loans for people in such communities leaves only one finance mechanism for home ownership: a contract for deed (CFD). In 1995, the 74th Texas Legislature set aside state and federal money to refinance CFDs and convert them into traditional notes and deeds of trust, thereby allowing colonia residents to build equity and gain access to loan funds for construction and rehabilitation. C.S.H.B. 3315 creates a guaranteed loan fund to allow private lenders to make contracts for deed conversions. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Texas Department of Housing and Community Development in SECTION 1 (Sections 2306.752 and 2306.753, Government Code), and in SECTION 2 (Section 2306.255, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 2306, Government Code, by adding Subchapter FF, as follows: SUBCHAPTER FF. INTERIM CONSTRUCTION LOAN PROGRAM Sec. 2306.751. DEFINITIONS. Defines "construction supply company," "nonprofit housing assistance organization," and "owner-builder." Sec. 2306.752. INTERIM CONSTRUCTION LOAN PROGRAM. (a) Requires the Texas Department of Housing and Community Affairs (department), in order to provide for the development of affordable housing in this state, to establish a program in which the department: (1) cooperates with construction supply companies and nonprofit housing assistance organizations to provide interim construction loans (i-c loans) for owner-builders; and (2) provides other services that facilitate the implementation of the program, including contract for deed conversion assistance under Section 2306.255, and assistance in refinancing i-c loans to provide private market-rate mortgages for owner-builders who participate in the program. (b) Authorizes an i-c loan program under this section to provide resources to build new residential housing, and develop, renovate, or make improvements to existing housing. (c) Authorizes the department to adopt rules necessary to accomplish the purposes of this subchapter. Sec. 2306.753. PARTICIPATION AGREEMENT. (a) Requires the department to enter into a participation agreement with one or more construction supply companies or nonprofit housing assistance organizations to provide loan guarantees for i-c loans to owner-builders. (b) Requires the department, by rule, to establish a limit for the percentage of an i-c loan that the department guarantees under the program based on the estimated value of the property after the improvements to the property. Prohibits the department from agreeing to a guarantee for an i-c loan to an owner-builder that exceeds the limit. (c) Prohibits the department from making an agreement with a construction supply company or nonprofit housing assistance organization under the program unless the participation agreement allows the department to annually renegotiate the guarantee percentage. Requires the department to renegotiate the terms of the i-c loan to obtain a better guarantee percentage for the state. (d) Authorizes the participating construction supply company or nonprofit housing assistance organization to require the owner-builder to provide a warranty deed of the property as collateral for the i-c loan. Sec. 2306.754. OWNER-BUILDER ELIGIBILITY. Requires the department to establish eligibility requirements for an owner-builder to participate in the program, which must include a priority for owner-builders who are low, very low, or extremely low income. Authorizes the department to select a nonprofit housing assistance organization to certify the eligibility of an owner-builder for the program. Requires the organization to use the requirements established by the department for that purpose. Sec. 2306.755. PARTICIPANT DUTIES. Requires a participating construction supply company or nonprofit housing assistance organization to administer the i-c loan, provide technical assistance to the owner-builder, and perform or assist in performing inspections. Sec. 2306.756. REFINANCING ASSISTANCE. Requires the department to assist an owner-builder who obtains an i-c loan to refinance the loan to pay the balance of the i-c loan and other debt on the property, and obtain a mortgage loan on the improved property. Requires the department to identify private lenders to provide market rate mortgages for lowincome owner-builders, and nonprofit housing assistance organizations and programs to aid owner-builders who do not qualify for market rate mortgages. Sec. 2306.757. FUNDING. Prohibits the department from spending state money to fund a loan guarantee issued under this subchapter. Requires the department to identify funds appropriate for this program. Authorizes the department to cooperate with a nonprofit housing assistance organization to establish loan guarantee pools to be used to obtain loans. Sec. 2306.758. REPORTING DUTIES. Requires the department to compose an annual report evaluating the repayment history and guarantee percentages used to obtain loans, and deliver a copy of the report to the governor, the lieutenant governor, and the speaker of the house of representatives. SECTION 2. Amends Subchapter K, Chapter 2306, Government Code, by adding Section 2306.255, as follows: Sec. 2306.255. CONTRACT FOR DEED CONVERSION PROGRAM. (a) Defines "office" as the office established by the department to promote initiatives for colonias. (b) Requires the office to establish a program to guarantee loans made by private lenders to convert a contract for deed into a warranty deed. (c) Requires the office to make agreements with private lenders that will issue loans for contract conversion under guarantee from the department. Provides that the department and the lender must agree to the criteria for issuing the loan, including the percentage guarantee issued by the department. (d) Prohibits the office from making an agreement with a lender under the program unless the agreement allows the office to annually renegotiate the guarantee percentage. Requires the office to renegotiate the terms of the guarantee to obtain a better guarantee percentage for the state. (e) Requires the office to establish eligibility requirements for a holder of a contract for deed to participate in the program, which must include a priority for homeowners who are low, very low, or extremely low income. (f) Requires the office to use funds allocated by the department under the federal HOME Investment Partnership program established under Title II of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. Section 12701 et seq.) for a guarantee issued under this section. (g) Authorizes the office to use the services of the Texas State Affordable Housing Corporation when necessary to accomplish the purposes of this section. (h) Requires the office to compose an annual report evaluating the repayment history and guarantee percentages for guarantees under this section, and deliver a copy of the report to the governor, the lieutenant governor, and the speaker of the house of representatives. (i) Authorizes the department to adopt rules necessary to accomplish the purposes of this section. SECTION 3. (a) Effective date: September 1, 1999. (b) Requires the department to deliver the first report required by Section 2306.758, Government Code, as amended by this Act, no later than January 1, 2001. (c) Requires the office to deliver the first report required by Section 2306.255(h), Government Code, as amended by this Act, no later than January 1, 2001. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 3315 differs from the original in SECTION 1 by adding a definition for "nonprofit housing assistance organization" in proposed Section 2306.751, Government Code. The substitute makes conforming changes by adding references to nonprofit housing assistance organization in proposed Sections 2306.752(a)(1), 2306.753(a), (c), and (d), and 2306.755. The substitute adds "establish a program in which the department" before the list of activities in which the department is required to participate in proposed Section 2306.752(a), and deletes reference to "threshold" limits in proposed Section 2306.753(b). The substitute changes the title of proposed Section 2306.755 from "Construction Supply Company Duties" to "Participant Duties." C.S.H.B. 3315 differs from the original in SECTION 2 (proposed Section 2306.255(f), Government Code) by removing the proposed prohibition against the office spending state money to fund a loan guarantee.