California Housing Finance Agency: credit enhancement mechanisms study.

The entire Part 4.1 (Sections 51700 through 51726+) establishing the California Housing Finance and Credit Act was removed. This included program administration, definitions, premium charges, annual reporting, Legislative Analyst's Office biannual reports, loan insurance qualifications, default and foreclosure procedures, debenture issuance, property management powers, termination provisions, and creation of the California Housing Finance and Credit Fund in the State Treasury.

The bill title changed from 'An act to add Part 4.1 (commencing with Section 51700) to Division 31 of Section 51071 to the Health and Safety Code, relating to housing, and making an appropriation therefor' to simply 'An act to add Section 51071 to the Health and Safety Code, relating to housing.'

The continuous appropriation of moneys from the California Housing Finance and Credit Fund to the agency for credit enhancements and administrative expenses was removed. The bill no longer makes an appropriation.

The legislative findings section (Section 1) documenting housing production shortfalls (only 20 percent of very low-income units permitted in the fifth housing element cycle), Bay Area pipeline needs (over $7 billion for 395 projects), and the New York City RMIC track record was removed.

The vote requirement changed from a two-thirds majority to a simple majority, reflecting the reduced scope of the bill from a major financial program to a study and pilot authorization.

The conditional language 'Commencing January 1, 2027, and only if Senate Constitutional Amendment ____ of the 2025-26 Regular Session is approved by voters' was removed along with the CAHFCA provisions it governed.

New Section 51071 requires the California Housing Finance Agency to conduct a comprehensive assessment of potential credit enhancement mechanisms designed to reduce borrowing costs for housing projects receiving state financial assistance, with specific focus on construction financing costs.

Coauthors were updated: Senator Durazo was added, and Assembly Members Pellerin and Stefani were added as coauthors. A formatting error in 'Quirk-Silva Haney' was corrected to list Haney separately.

The assessment must evaluate seven broad categories: credit enhancement structures for construction and permanent financing, mechanisms to reduce interest rates and mitigate risk, construction phase risk and market conditions, permanent financing considerations, specific credit enhancement structures (portfolio-based reserves, partial guarantees, construction insurance, hybrid models), financial modeling and fiscal analysis, and governance/administrative structure.

The agency must consult with construction lenders, permanent lenders, community development financial institutions, bond underwriters, bond counsel, actuaries, credit risk modelers, insurance and reinsurance advisors, rating agency consultants, affordable housing developers, and representatives of other housing finance agencies during the assessment.

The agency must submit an interim report by January 1, 2028, and a final report by July 1, 2028, to the Legislature and Department of Finance. The final report must include a recommended program design, fiscal impact analysis, risk modeling results, and an implementation roadmap.

Upon separate appropriation, the agency may establish within six months a limited-scale pilot credit enhancement product and program running concurrently with the assessment, along with a Construction Credit Enhancement Fund to deploy the product. The pilot must prioritize decreasing loan value ratios by up to 10 percent for shovel-ready projects.

The appropriation designation changed from 'yes' to 'no,' meaning the bill no longer appropriates funds directly upon passage. The pilot program requires a separate future appropriation to activate.

The pilot program requires all units to be affordable to lower income households (Section 50079.5) and moderate income households (Section 50093), and proponents must have a recorded regulatory agreement with the agency, Tax Credit Allocation Committee, Department of Housing and Community Development, or Housing Development and Finance Committee.

Section 51708(a) now specifies concrete qualification criteria that developments must meet to receive credit enhancements. Previously it only directed the agency to 'establish minimum qualifications' without specifying what they would be. Now it lists three alternative options: (1) a direct regulatory agreement with CHFA, CTCAC, or DHCD; (2) a substantially equivalent regulatory agreement lasting at least 55 years for rental units or 45 years for homeownership units; or (3) for units for sale, all of the following: sold by a 501(c)(3) nonprofit, priced below fair market value, and receiving a property tax welfare exemption.

New alternative qualification pathway allowing developments with 'substantially equivalent' regulatory agreements (not necessarily from the three named state entities) to qualify, provided the agreement lasts at least 55 years for rental or 45 years for homeownership units. This broadens which projects can access credit enhancements.

New specific requirements for homeownership units: must be sold by a 501(c)(3) nonprofit, priced below fair market value, and receive a property tax welfare exemption. This creates a defined path for for-sale affordable housing to qualify.

Additional coauthors added: Senator Umberg joins the Senate coauthors; Assembly Members Haney, Kalra, and Papan join the Assembly coauthors. The amendment date was updated from July 7 to July 17, 2025.

The act was renamed from 'California Residential Mortgage Insurance Housing Finance and Credit Act (Cal REMIA)' to 'California Housing Finance and Credit Act (CAHFCA),' removing the 'Residential Mortgage Insurance' language throughout.

All references to 'affordable multifamily housing developments' were changed to 'affordable housing developments,' broadening eligibility beyond just multifamily projects. The definition of 'multifamily housing development' (five or more residential units) was removed entirely.

The definition of 'credit enhancement' was expanded from 'a method of reducing risk for a lender through letters of credit and bond and loan insurance' to 'a method of reducing risk for a lender, including, but not limited to, credit insurance, loan guarantees, bond ratings and guarantees, and other forms of securitization that optimize securitized credit ratings.'

The definition of 'construction loan' was changed from financing 'the construction or rehabilitation of an affordable multifamily housing development' to 'the construction of an affordable housing development,' removing both the rehabilitation component and the multifamily limitation.

A new requirement was added in Section 51708(b)(5) that a development must be receiving financing from, and have a recorded regulatory agreement with, the California Housing Finance Agency, the California Tax Credit Allocation Committee, or the Department of Housing and Community Development.

In the default provisions (Section 51713), references to 'health facility property' were changed to 'project property,' removing language that appeared carried over from a health facility loan insurance model.

The bill is renamed from the California Residential Mortgage Insurance Act (Cal REMIA) to the California Residential Mortgage Insurance Housing Finance and Credit Act (CAHFCA), signaling a broader mandate beyond traditional mortgage insurance.

The program's stated purpose expands from an 'insurance program for affordable multifamily housing construction loans' to a 'credit enhancement program' that also covers permanent loans and aims to further overall housing production, not just construction.

Section 51708(a) reframes eligibility language from qualifying for 'construction loan insurance, permanent loan insurance, or credit enhancements' to qualifying for 'credit enhancements for construction loan insurance, insurance and permanent loan insurance, or credit enhancements insurance,' positioning credit enhancement as the overarching framework.

A new definition of 'Loan' is added, covering money or credit advanced for construction costs, including initial loans, refinancing, interim and long-term loans, bonds, bond issues, and installment sale agreements.

The definition of 'Credit enhancement' is expanded to explicitly include credit insurance, loan guarantees, bond ratings and guarantees, and other forms of securitization that optimize securitized credit ratings, rather than just letters of credit and bond and loan insurance.

The definition of 'Construction loan' now requires the loan to be 'fully secured by a deed of trust or other means of security,' adding a security requirement that was not previously stated.

The definition of 'Permanent loan' is broadened from being secured by a deed of trust to being 'fully secured by a deed of trust or other means of security,' allowing alternative security instruments.

A new subdivision (c) in Section 51703 requires the agency to include guidelines or criteria for lending to projects that provide home ownership opportunities in any notices of available credit enhancements for construction loans or permanent loans.

The Governor is now required to include in the budget submitted to the Legislature a limit on the authorization for the agency to insure housing construction and expansion loans for the budget year, creating a new annual fiscal control mechanism.

References to 'department' are changed to 'agency' in several sections (51706(b), 51713(a)(1), 51716(b)), correcting terminology to consistently refer to the California Housing Finance Agency.

The program is now limited to 'affordable multifamily housing' rather than all multifamily housing. The word 'affordable' was inserted before 'multifamily housing' throughout the bill (Sections 51701, 51703, 51708, and elsewhere), significantly narrowing which projects can receive insurance or credit enhancements.

A new definition of 'Affordable' was added to Section 51702(a). It means affordable to a mix of lower income and moderate-income households, with cross-references to Health and Safety Code Sections 50079.5 (lower income) and 50093 (moderate income). This sets the eligibility threshold for which housing developments qualify.

A new Section 51707.1 requires the Legislative Analyst's Office to submit a biannual report (every other year by January 1) to the Legislature evaluating program effectiveness. The report must include the percentage of debt capacity used, the number of credit enhancement beneficiaries, and the number of affordable housing units planned for each income level, with recommendations for adjustments to increase distribution of credit enhancements.

Multiple cross-references were updated to correct section numbering (e.g., 'Section 51725' changed to 'Section 51726' in the Fund definition; references to 'Section 51712' expanded to 'Section 51712 51713' in default and debenture provisions). These are renumbering corrections rather than substantive policy changes.