HBA-TYH C.S.S.B. 1703 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 1703 By: Ellis Urban Affairs 5/22/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Owner-builder housing can be an affordable option for those with the skills and desire to attempt it. However, several barriers hinder quality owner construction. One of the most significant barriers is 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.S.B. 1703 directs the Texas Department of Housing and Community Affairs to establish an owner-builder pilot interim construction loan program in partnership with construction supply companies and nonprofit housing assistance organizations. 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 Affairs in SECTION 1 (Sections 2306.752 and 2306.753, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 2306, Government Code, by adding Subchapter FF, as follows: SUBCHAPTER FF. PILOT INTERIM CONSTRUCTION LOAN PROGRAM Sec. 2306.751. DEFINITIONS. Defines "construction supply company," "nonprofit housing assistance organization," and "owner-builder." Sec. 2306.752. PILOT 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 pilot program in which the department: (1) cooperates with construction supply companies or nonprofit housing assistance organizations to provide interim construction loans for owner-builders; and (2) provides other services that facilitate the implementation of the program, including assistance in refinancing interim construction loans to provide private market-rate mortgages for owner-builders who participate in the program. (b) Authorizes an interim construction loan program to provide resources to build new residential housing, or develop, renovate, or make basic repairs or improvements to existing housing. (c) Prohibits an interim construction loan under this program from providing resources to finance a luxury item or other improvement that is not a basic improvement or repair necessary for a housing unit to comply with minimum building code standards. (d) Authorizes the department to adopt rules necessary to accomplish the purposes of this subchapter. Sec. 2306.753. PARTICIPATION AGREEMENT. (a) Requires the department, under the program, to enter into a participation agreement with one or more construction supply companies or nonprofit housing assistance organizations to provide loan guarantees for interim construction loans to eligible owner-builders. (b) Requires the department, by rule, to establish a limit for the percentage of an interim construction loan that the department guarantees under the program based on the estimated value of the property after the improvements to the property are completed. Prohibits the department from agreeing to a guarantee for an interim builder 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 interim construction 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 interim construction loan. Sec. 2306.754. OWNER-BUILDER ELIGIBILITY. Requires the department to establish eligibility requirements for owner-builders to participate in the program, which must include a priority for owner-builders whose incomes are very low or extremely low. 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 interim construction loan, provide technical assistance to the owner-builder, perform the necessary inspections for improvements made to the property, and warrant that funds provided under the interim construction loan have been used exclusively for eligible purposes under this subchapter. Sec. 2306.756. REFINANCING ASSISTANCE. Requires the department to assist an owner-builder who obtains an interim construction loan to refinance the loan to pay the balance of the interim construction loan and obtain a mortgage loan on the improved property. Requires the department to identify private lenders to provide market ratemortgages for low-income 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 any coinciding loan guarantee issued under a program under this subchapter; _report the loan amounts, uses, nature of improvements funded, and the incomes of the owner-builders who participate in the program; _make recommendations to improve the effectiveness and efficiency of the program; and _deliver a copy of the report to the governor, the lieutenant governor, and the speaker of the house of representatives. SECTION 2. (a) Effective date: September 1, 1999. (b) Requires the department to deliver the first report required by Section 2306.758, Government Code, as added by this Act, no later than January 1, 2001. (c) Requires the department to select an economically distressed area, as defined by Section 16.341 (Definitions), Water Code, in which to implement the pilot program required by Subchapter FF, Chapter 2306, Government Code, as added by this Act. (d) Prohibits the department from entering into a participation agreement under the pilot program authorized by Subchapter FF, Chapter 2306, Government Code, as added by this Act, on or after September 1, 2001. SECTION 3. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original bill in SECTION 1 (proposed Subchapter FF, Chapter 2306, Government Code) by changing the heading of proposed Subchapter FF from "Interim Construction Loan Program" to "Pilot Interim Construction Loan Program." The substitute modifies the original bill in SECTION 1 (proposed Section 2306.752) by changing the title of proposed Section 2306.752 from "Interim Construction Loan Program" to "Pilot Interim Construction Loan Program." The substitute modifies the original bill by including the authorization for an interim construction loan to provide resources to make basic repairs to existing residential housing. The substitute also modifies the original bill in proposed Section 2306.752 by adding a provision to prohibit an interim construction loan under this program from providing resources to finance a luxury item or other improvement that is not a basic improvement or repair necessary for a housing unit to comply with minimum building code standards, and by making conforming changes. The substitute modifies the original bill in SECTION 1 (proposed Section 2306.754) by removing the priority for owner-builders who are individuals or families with low income from the eligibility requirements for participation in the program. The original bill included a priority for owner-builders who are individuals or families of low, very low, or extremely low income in the eligibility requirement. The substitute modifies the original bill in SECTION 1 (proposed Section 2306.755) by requiring a construction supply company or nonprofit assistance organization that participates in the program to: _perform, rather than perform or assist in performing, the necessary inspections for improvements made to the property; and _warrant that funds provided under the interim construction loan have been used exclusively for eligible purposes under this subchapter. The substitute modifies the original bill in SECTION 1 (proposed Section 2306.756) by requiring the department to assist an owner-builder who obtains an interim construction loan to refinance the loan to pay the balance of the interim construction loan, rather than the balance of the interim construction loan and other debts on the property. The substitute modifies the original bill in SECTION 1 (proposed Section 2306.758) by requiring the department to: _compose an annual report evaluating the repayment history and any coinciding loan guarantee, rather than coinciding guarantee percentages for guarantees, issued under a program under this subchapter; _report the loan amounts, uses, nature of improvements funded, and the incomes of the owner-builders who participate in the program; and _make recommendations to improve the effectiveness and efficiency of the program. The substitute modifies the original bill in SECTION 2, by adding Subsections (c) and (d), as follows: (c) Requires the department to select an economically distressed area, as defined by Section 16.341 (Definitions), Water Code, in which to implement the pilot program required by Subchapter FF, Chapter 2306, Government Code, as added by this Act. (d) Prohibits the department from entering into a participation agreement under the pilot program authorized by Subchapter FF, Chapter 2306, Government Code, as added by this Act, on or after September 1, 2001.