LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
March 28, 2001
TO: Honorable Bill G. Carter, Chair, House Committee on Urban
Affairs
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB2657 by Ehrhardt (Relating to the authorization of
bonds by the Texas Department of Housing and Community
Affairs.), As Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB2657, As Introduced: negative impact of $(10,931,773) through *
* the biennium ending August 31, 2003. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
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General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $(4,770,760) *
* 2003 (6,161,013) *
* 2004 (6,161,013) *
* 2005 (6,161,013) *
* 2006 (6,161,013) *
****************************************************
All Funds, Five-Year Impact:
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*Fiscal Probable Probable Probable Revenue *
* Year Savings/(Cost) from Savings/(Cost) from Gain/(Loss) from *
* General Revenue Fund Housing Safekeeping Housing Safekeeping *
* 0001 Trust Fund Trust Fund *
* 2002 $(4,770,760) $(6,851,000) $6,851,000 *
* 2003 (6,161,013) (6,851,000) 6,851,000 *
* 2004 (6,161,013) (6,851,000) 6,851,000 *
* 2005 (6,161,013) (6,851,000) 6,851,000 *
* 2006 (6,161,013) (6,851,000) 6,851,000 *
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Technology Impact
There would be no technology impact.
Fiscal Analysis
The bill would amend Section 2306.004 of the Government Code to allow the
Texas Department of Housing and Community Affairs (TDHCA) to issue
mortgage revenue bonds for the purpose of funding single family mortgage
projects in underserved, financially distressed, rural areas. The
authority to issue these types of bonds currently exists and the bill
would direct the agency to allocate a portion of the proceeds to specific
areas.
In 2002, the bill would allow for TDHCA to allocate no less than 30
percent of total loan volume to serve the submarkets for the single
family mortgage bond program and 40 percent each subsequent year. The
TDHCA board would be required to adopt a methodology for determining the
recipients of the mortgage revenue bonds. The methodology would be based
on home ownership and loan statistics for different rural geographical
areas.
The bill would allow TDHCA to analyze loan availability and home mortgage
lending rates available to low through extremely low-income borrowers in
census tracts where the median family income (MFI) is less than 80
percent of the national MFI. For the geographically underserved
submarkets, and the extremely low and very low income borrower markets,
the TDHCA board would be required to consider specific set-asides of
mortgage loans, including reserving funds to serve families with credit
ratings of "B" and "C".
Following TDHCA board approval, each single family mortgage bond issue
would be submitted to the Texas Bond Review Board for review and
approval. The Texas Bond Review Board, in its sole discretion, may
modify or waive the allocation levels.
According to TDHCA, additional general revenue would be needed as a
reserve to maintain current bond rating levels, therefore, the bill has a
fiscal impact of a total of $35.6 million from General Revenue over the
course of the subsequent six years.
The bill would take effect September 1, 2001.
Methodology
According to TDHCA, the estimated cost is based on the issuance of 30
percent to 40 percent of its $108.6 million private activity bond
authority. Subprime loans generally produce more losses than prime
loans. Thus, rating agencies require additional Loss Coverage Reserves
(LCRs) to compensate for the additional risk. Rating agencies calculate
these reserves using factors that include loan-to-value, foreclosure
frequency, foreclosure costs, property market value decline, geographic
concentration and type of dwelling. To minimize the LCR required, TDHCA
would have to use lower loan-to-values. The agency would require the
borrower to have 10 percent for down payment and would match the
borrower's contribution with a grant of 10 percent.
TDHCA reports that granting only 10 percent to borrowers would require at
least $3.3 million in the first year and $4.3 million thereafter at the
30 percent and 40 percent set-asides proposed. The agency does not have
sufficient funds to finance this grant and would have to rely on state
general revenue.
According to TDHCA, the LCR requirement would increase as certain stated
factors change. Although the agency may structure an issue that funds
most of the LCR requirement, another source of funds, most likely state
general revenue funds, would have to be appropriated to finance the
unfunded LCR requirement of approximately $1.4 million in the first year
and $1.8 million each year thereafter.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies: 352 Texas Bond Review Board, 332 Texas Department
of Housing and Community Affairs
LBB Staff: JK, DB, RT, ER