HBA-ATS, MPA S.B. 867 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 867 By: Lucio Business & Industry 5/12/1999 Engrossed BACKGROUND AND PURPOSE Colonias are generally described as subdivisions in unincorporated areas, characterized by poverty, substandard housing, and a lack of adequate water or wastewater services. These areas are frequently home to individuals or families of low, very low, and extremely low income (those that earn less than 30 to 80 percent of the areas median income). The general absence of mortgage loans for these low to extremely low income families leaves only one finance mechanism available to realize home ownership in these areas: a contract for deed (CFD). A contract for deed is similar to a standard mortgage loan in that it enables a buyer to purchase a lot from a developer, however, the CFD buyer does not receive title to the land until the full price has been paid. Buyers making monthly payments on a CFD do not build equity, and therefore cannot use it for collateral for loans. Despite these disadvantages, the low monthly payment and low down payment make the deal financially feasible for low income residents. S.B. 867 establishes a program within the Office of Colonia Initiatives (office) to guarantee loans made by private lenders to convert a CFD into a traditional mortgage loan. This bill also calls for the office to establish eligibility criteria that may include, but are not limited to, counties within 150 miles of the Texas-Mexico border, and that will favor low, very low, and extremely low income individuals and families. The office will use funds available under the federal HOME Investment Partnership for guarantees issued under this program. The office will also prepare an annual report for the governor, lieutenant governor, and the speaker of the house of representatives that evaluates the program. 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 (Section 2306.255, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. 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 Texas Department of Housing and Community Affairs (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 conversions under guarantee from the department. Provides that the office 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) Authorizes 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 have 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 2. (a) Effective date: September 1, 1999. (b) Requires the office established by the department to deliver the first report required by Section 2306.255(h), Government Code, as added by this Act, no later than January 1, 2001. SECTION 3. Emergency clause.