- “This will let HCD approve the pay-off of the HCD loan in whole or in part, prior to the end of its term, and would generate funding that could be used for various affordable housing purposes, including costs related to the repair and rehabilitation needs of a project.” – Senator Eloise Gomez Reyes
By Vanguard Staff
SACRAMENTO – Senator Eloise Gomez Reyes’ bill to expand affordable housing financing has cleared the Legislature and now awaits the governor’s signature.
SB 686 authorizes the Department of Housing and Community Development (HCD) to approve the payoff of HCD loans in whole or in part prior to the end of their term and to allow equity extraction from developments for purposes approved by HCD.
The measure, co-sponsored by the California Council for Affordable Housing and the California Housing Consortium, is designed to unlock millions of dollars in loan repayments that could be recycled into new housing production. Affordable housing developers often rely on multiple funding sources, including HCD loans, but current law prohibits repayment of those loans before maturity.
Supporters argue that the prohibition can force original developers to lose ownership of projects, sometimes leading to transfers to owners who do not preserve affordability. SB 686, they say, provides flexibility by allowing refinancing, sale, or partial repayment while ensuring that regulatory agreements requiring long-term affordability remain in place.
The bill allows housing sponsors to use loan and equity payments for specific purposes, including purchasing a limited partner interest of a tax credit investor, paying any unpaid deferred developer fees, covering necessary repairs and rehabilitation, and replenishing department-approved reserves. At the same time, it bars any restructuring from causing rent increases above the annual adjustments permitted under HCD regulatory agreements.
Developers will still be subject to HCD monitoring and oversight even if loans are repaid in full, with the department authorized to continue collecting monitoring fees. Equity extractions are also subject to being shared with HCD in proportion to the original loan amount, ensuring the state recaptures part of the value.
Reyes emphasized the bill’s importance in addressing the state’s housing shortage. “HCD currently has a prohibition on loan repayments or partial repayments for loans the state lends to affordable housing developers. This prohibition can lead to the original developer losing ownership of the project to an owner who does not preserve the project as an affordable housing development. It’s imperative that we do not allow bureaucratic policies to exacerbate the housing crisis,” Reyes said in a floor analysis statement.
“Allowing HCD loans to be prepaid in whole or in part would free up funding that can be loaned out sooner for new affordable housing projects. SB 686 will allow for HCD to authorize the sale and refinancing of HCD financed projects,” Reyes continued. “This will let HCD approve the pay-off of the HCD loan in whole or in part, prior to the end of its term, and would generate funding that could be used for various affordable housing purposes, including costs related to the repair and rehabilitation needs of a project. It is critical that we find creative ways to free up funding that could support the creation of additional affordable housing opportunities.”
The measure received overwhelming bipartisan support, passing the Senate 38-0 and the Assembly 74-0.
Dozens of organizations backed the legislation, including Housing California, the California Housing Partnership, Eden Housing, the Housing Authority of the County of Santa Barbara, and the Tenderloin Neighborhood Development Corporation. No opposition was recorded.
With the bill now on the governor’s desk, advocates see it as a step toward freeing up capital for badly needed affordable housing across California, while maintaining protections for tenants.
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The REAL issue which will continue to prevent cities from meeting RHNA targets is the fact that there aren’t sufficient subsidies to entice production of Affordable (low-income) housing.
So as long as voters don’t “shoot themselves in the foot” by approving some ballot measure intended to increase those subsidies, the state’s RHNA targets will continue to fail regardless of how many laws they pass.
This is a situation similar to disclosing one’s skin color to institutions (if you happen to have the wrong skin color). In other words – like skin color – Affordable housing can, and will be used against you. (Largely as the result of the Affordable housing industry “teaming up with” market-rate developers – or becoming one themselves.) (This “teamwork” would then result in more market-rate housing being forced upon cities, as well.)