California Housing Finance Agency Board of Directors · 12/12/2017 · California Housing Finance Agency Board of Directors December 12, 2017 Bank of the West Tower ... to put all

BOARD OF DIRECTORS

California Housing Finance Agency

Board of Directors

December 12, 2017

Bank of the West Tower

500 Capitol Mall

Conference Center, 18th Floor

Sacramento, California

(916) 326-8000 (CalHFA Receptionist)

10:00 a.m.

1. Roll Call.

2. Chairman/Executive Director comments.

3. Approval of the minutes of the October 12, 2017 Board of Directors meeting..............................01

4. Discussion, recommendation and possible action to increase the Area Median Income (AMI) for

Single Family Program eligibility to 150% in all counties and to adopt a single household size

adjustment, Resolution No. 17-24 (Tim Hsu) ................................................................................04

5. Discussion, recommendation, and possible action regarding the adoption of a resolution

enacting the Agency’s bond issuance and compliance monitoring policies as required by the

California Debt Limit Allocation Committee, Resolution No. 17-25 (Michael Carroll) ..............11

6. Reports:

A. Homeownership Loan Portfolio Update ...................................................................................72

B. 2017-18 Quarterly Report .........................................................................................................81

C. Conduit Issuance Program Update ............................................................................................87

D. Final Report of the 2017 Legislative Session ...........................................................................89

7. Discussion of other Board matters.

8. Public testimony: Discussion only of other matters to be brought to the Board’s attention.

(NEXT)

9. Adjournment.

10. Handouts.

NOTES**

PARKING: Public parking at Bank of the West

Tower – Entrance at 5th and N Streets. Public parking:

1) Bank of the West Parking structure ($1.75 per 20 minutes,

$18 maximum); 2) Street parking available via meter ranging

from 2 hours to 10 hours; 3) Other nearby parking structures.

REFRESHMENTS: Available for purchase at Specialty’s

Café in the lobby.

FUTURE MEETING DATE: Next CalHFA Board

of Directors Meeting will be January 16, 2018, location

TBA.

10/12/17 Board Minutes

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MINUTES

California Housing Finance Agency (CalHFA)

Board of Directors Meeting

October 12, 2017

Meeting noticed on September 29, 2017

1. ROLL CALL

The California Housing Finance Agency Board meeting was called to order at 10:01 a.m. by

Acting Chair Gunning. A quorum of members was present.

MEMBERS PRESENT: Avila Farias, Brown (for Chiang), Gunn (for Imbasciani),

Gunning, Johnson-Hall, Ortega (for Cohen), Prince, Sotelo,

Russell, von Koch-Liebert (for Podesta), Boatman Patterson.

MEMBERS ARRIVING Gallagher, Metcalf.

AFTER ROLL CALL:

MEMBERS ABSENT: Alex, Falk, Hunter.

STAFF PRESENT: Thomas O. Freeburger, Don Cavier, Michael Carroll, Ruth Vakili,

Tony Sertich, Liane Rhodes, Melissa Flores.

2. APPROVAL OF MINUTES – September 14, 2017

The minutes were approved by unanimous consent of members present.

3. CHAIRMAN/EXECUTIVE DIRECTOR COMMENTS

Executive Director comments:

a) Reported on the passage of the Legislative Housing Package – SB2 includes an estimate of

$30-40 million annually to support Multifamily Programs low to moderate and mixed

income housing;

b) Reported that the staff appreciation picnic was held on October 11th and was brought

indoors due to the poor air quality as a result of the devastating wildfires burning in

California. She offered prayers to those impacted by the catastrophic effects of the

wildfires;

c) Reported on the achievement of Agency goals; i) replaced our federal temporary line of

credit with a private bank by December 31, 2015, ii) enhanced efficient delivery of

affordable housing through single family and multifamily lending programs, iii)

strengthened our formal collaboration with HCD to assist us in becoming a lender with a

purpose and aligned our lending activities with other state housing models;

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Prince recognized the successful accomplishments and suggested that the hard work of the staff be acknowledged by the Board. Gunning said that he would follow up on this request.

d) Announced that she will be chairing the Fannie Mae Advisory Council Meeting, of which

she is a member, on October 18, 2017 in Washington, D.C.;

e) Informed the Board that November and December Board meetings will be scheduled due to

business need.

4. REPORT OF THE CHAIR OF THE AUDIT COMMITTEE

Committee Chair Gunning reported that the Audit Committee met earlier this morning. The

Committee heard informational presentations by:

Liane Rhodes, Director of IT, reported on cyber security, security assessments and

results, oversight requirements, and current & future initiatives.

Tony Sertich, Director of Enterprise Risk Management, gave an update on the

implementation of the new Enterprise Risk Management unit. Committee Chair Gunning

asked that the Audit committee in their Agency oversight role work closely with Tony

and his unit.

BUSINESS ITEMS:

5. Final Loan Commitment for Kottinger Gardens Phase 2, No. 17-016-A/N for 54 Units

located in Pleasanton/Alameda – Resolution No. 17-23.

Presented by Carroll and Vakili.

On a motion by Sotelo, the Board approved staff recommendation for Resolution 17-23. The

votes were as follows:

AYES: Avila Farias, Brown (for Chiang), Gallagher, Gunn (for Imbasciani), Gunning,

Johnson-Hall, Metcalf, Prince, Sotelo, Russell, von Koch-Liebert (for Podesta).

NOES: None.

ABSTAIN: None.

ABSENT: Falk, Hunter.

6. DISCUSSION OF OTHER BOARD MATTERS

None.

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7. PUBLIC TESTIMONY: DISCUSSION ONLY OF OTHER MATTERS TO BE

BROUGHT TO THE BOARD’S ATTENTION

None.

8. ADJOURNMENT

As there was no further business to be conducted, Acting Chair Gunning adjourned the meeting

at 10:33 a.m.

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State of California

M E M O R A N D U M To: Board of Directors Date: December 12, 2017

TIM HSU, Acting Director of Single Family Lending

From: California Housing Finance Agency

Subject: RECOMMENDATION FOR CHANGING INCOME LIMITS CALCULATION ON CALHFA

MORTGAGE PRODUCTS

Recommendations:

In an effort to more closely align income limit calculations with existing housing authority law and recent

statutory changes to more efficiently serve individuals and families seeking homeownership in California

when using Single Family Lending’s TBA financing model, CalHFA staff recommends the Board formally

adopt the following income limit calculations on all CalHFA non-Mortgage Revenue Bond (MRB) mortgage

products:

(1) High Cost Areas. Increase CalHFA’s income limits to 150% of the area median

income (AMI) in all 58 California counties; and

(2) Household Size Adjustment. Adopt a single household size adjustment factor of

8, regardless of actual household size.

Note: Though CalHFA Single Family Lending is currently not using MRB financing for its lending products,

CalHFA would need to follow federal MRB income limit guidelines if or when MRBs are utilized by CalHFA

Single Family Lending in the future.

Background – High Cost Areas:

The California Housing Finance Agency’s legislation authorizes CalHFA to finance loans to persons and

families of low and moderate income. California Health and Safety Code (HSC) section 50093 defines

moderate income as income not exceeding 120% of AMI, adjusted for family size.

HSC section 50093 further authorizes CalHFA, jointly with HCD, or with the concurrence of the Secretary of

the Business, Consumer Services and Housing Agency, to use higher income limits in designated geographic

areas of the state, upon a determination that the 120% of the median income in the particular geographic areas

is too low to qualify a substantial number of persons and families of low or moderate income who can

otherwise afford a home purchase financed by CalHFA.

Previously, a 2015 Legislative Analyst Office report entitled “California’s High Housing Costs – Causes and

Consequences” (LAO Report) found that even California’s least expensive housing markets are about or more

expensive than the U.S. average.1 Accordingly, CalHFA designated 35 counties as “high cost” pursuant to

1 https://www.acgov.org/cda/hcd/documents/lao_report-on-high-housing-costs2015.pdf

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CalHFA Board Resolution 16-02 and began calculating moderate income as income not exceeding 140% of

AMI.

More recently, the California Association of Realtors’ (CAR) 2017 – Q3 market data showed that California’s

First Time Buyer Housing Affordability Index (FTB-HAI)2 has dropped almost 10% over the last 33 months

since CalHFA adopted the 140% AMI limit for the current 35 high costs counties. In other words, almost

20,000 of California’s 200,000 first time homebuyer population that were potentially eligible for their first

home in 2015 can no longer afford the median sale priced home in their county.3

Recommendation Assessment – High Cost Areas:

CalHFA staff has determined that the 140% AMI limit remains too low a figure to qualify a substantial

number of persons and families of moderate income in those 35 designated counties, much less the remaining

23 counties using 120% of AMI, and believes home prices in all communities throughout California are

higher than what the median income household can afford. Under this standard, all counties in California

could be designated “high cost.”

The LAO Report further recommended, among other things, to put all policy options on the table to address

California’s high housing costs. Accordingly, CalHFA staff recommends that the Board increase CalHFA’s

income limits to 150% of AMI in all 58 California counties because current income limits remain too low to

qualify a substantial number of persons and families of low or moderate income who can otherwise afford a

home purchase financed by CalHFA and to align with the income limits established under existing California

housing authority law as well as the recently enacted 2017 Building Homes and Jobs Act (SB 2; HSC section

50470(b)(2)(D)(ii)).4

Background – Household Size Adjustment:

In further response to the LAO Report’s recommendation to put all policy options on the table, CalHFA staff

also recommends changing the manner in which income limits are adjusted based upon household size.

As previously discussed, borrowers must not exceed the limit of what is considered moderate income in a

particular county to be eligible for a CalHFA single-family mortgage product. CalHFA relies upon HCD’s

published figures for establishing California’s moderate income limit levels. HCD sets the maximum

moderate income limit to equal 120% of the county’s AMI. After calculating the 4-person AMI limit for a

particular county, income limits are adjusted for household size so that larger households have higher income

2 http://www.car.org/marketdata/data/ftbhai/ 3 https://fred.stlouisfed.org/series/CAHOWN 4 While the county median income in some California counties might not be higher than the national average,

the LAO Report makes clear that there are other significant financial impediments to owning a home in

California, regardless of location, including the fact that the overall home ownership rate in California is at a

30 year low. For those reasons and the sake of efficiency, CalHFA staff is recommending all counties move

to 150% AMI.

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limits than smaller households. HCD’s adjustments use the following percentages, with results rounded to the

nearest $50 increment:

Number of Persons in Household: 1 2 3 4 5 6 7 85

Adjustments: 70% 80% 90% Base 108% 116% 124% 132%

For example, the 4-person median income for Alameda County is $97,400. HCD calculates moderate-income

limits for household sizes of 1 through 8 as follows:

Currently, CalHFA sets the maximum moderate income limit to equal 140% of the county’s AMI, using the

same percentages off the base 4-person income. For example, CalHFA calculates the moderate income limits

in Alameda County for household sizes of 1 through 8 as follows:

While it may make sense to use actual household size in the multi-family lending context, it does not

necessarily apply for purposes of the CalHFA single-family lending business. Consider, for example, 8

separate household size adjustments for all 58 counties amounts to 464 different income limits. Perhaps more

importantly, however, lower limits frequently and, in our experience, unfairly excludes smaller household

sized borrowers from affordable homes in areas that they would otherwise be eligible to purchase.

Additionally, inaccurate income limit calculations based on household size accounts for the majority of all

loan suspenses and denials.

Recommendation Assessment – Household Size Adjustment:

For purposes of issuing MRBs, household sizes are categorized as 1-2 and “3 or more” under the federal

Internal Revenue Code (IRC). CalHFA used these 1-2 and “3 or more” household size categories for its first

loans when CalHFA funded MRBs and used the 1 through 8 household size categories for its subordinate

loans. When CalHFA stopped MRB financing and moved to the TBA model, CalHFA continued to use the 1

through 8 household size categories, regardless of funding source. The only exception being the MCC

program where the 1-2 and “3 or more” household size categories are still used.

Given that the CalHFA single-family funding mechanism has changed to the TBA model, and absent a federal

or state requirement otherwise, there is nothing preventing CalHFA from adopting a different manner of

adjusting for household size when calculating income limits to better serve the housing affordability challenge

outlined in the LAO Report and reflected in CAR’s most recent data. In fact, this authority is expressly

contemplated by HSC 50093, last paragraph, which provides, in pertinent part: “Nothing in this division shall

5 For households of more than 8 persons, HCD applies the following per person formula: (1) multiply 4-person income limit by 8%, (2) multiply result by number of persons in excess of 8, (3) add the amount to the 8-person income limit, and (4) round to the nearest $50.

County Income Number of Persons in Household

Category 1 2 3 4 5 6 7 8

Alameda County Moderate Income 81850 93500 105200 116900 126250 135600 144950 154300

County CalHFA Number of Persons in Household

Income Limits 1 2 3 4 5 6 7 8

Alameda County 95450 109050 122700 136350 147250 158150 169050 179950

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prevent the agency or the department from adopting separate family size adjustment factors or programmatic

definitions of income to qualify households, persons, and families for programs of the agency or department,

as the case may be.” A fact acknowledged by HCD’s “State Income Limits for 2017” which provides, in

pertinent part: “Applicability of these State Income Limits is subject to particular programs as program

definitions of such factors as income, family, and household size, etc. vary…” Of course, if there were a

federal statutory (i.e., MCC) or programmatic requirement to adjust for household size, CalHFA would have

to comply.

Additional research by CalHFA also has shown other state HFAs have adopted the use of one single income

limit, regardless of actual household size, when they are utilizing TBA financing. CalHFA staff believes a

single household size of 8 for all single-family loan products not otherwise required by a federal law or

program, regardless of actual household size, should be used because it is more inclusive for all eligible first-

time homebuyers.6

6 With respect to households of over 8 persons, an analysis of the origination history since relaunching the

single-family lending business in 2013 shows that only 9 loans out of over 27,700 reservations actually

needed household income in excess of 8 persons in order to qualify.

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BOARD OF DIRECTORS 1

OF THE CALIFORNIA HOUSING FINANCE AGENCY 2

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RESOLUTION NO. 17-24 4

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RESOLUTION SUPPORTING INCREASED INCOME LIMITS AND OTHER 6

CHANGES FOR HOMEOWNERSHIP PROGRAMS IN CALIFORNIA 7

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WHEREAS, the California Housing Finance Agency (the “Agency”) has 9

determined that there exists a need in California for providing financial assistance to persons and 10

families of low or moderate income to enable them to purchase moderately priced single family 11

residences; 12

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WHEREAS, the Agency has determined that it is in the public interest for the 14

Agency to provide such financial assistance by means of ongoing programs (collectively, the 15

“Homeownership Program”); 16

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WHEREAS, pursuant to Resolution No. 16-02, the Agency made a determination 18

that in particular “high cost” geographic areas of California, the Agency’s current income limits 19

were too low to qualify a substantial number of persons or families of low or moderate income 20

and therefore subsequently modified the Homeownership Program to increase income limits in 21

those particular geographic areas of California as a means of furthering the Agency’s mission of 22

promoting housing opportunities for low to moderate income Californians; 23

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WHEREAS, the Agency has made a new determination that the Agency’s current 25

income limits continue to remain too low to qualify a substantial number of persons or families 26

of low or moderate income in all geographic areas of California thereby prohibiting otherwise 27

qualified buyers from qualifying for the Agency’s loan products; 28

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WHEREAS, the Secretary of Business, Consumer Services, and Housing and the 30

Director of the Department of Housing and Community Development (“HCD”) concur with the 31

Agency in the use of higher income limitations in all geographic areas of California; 32

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WHEREAS, the Agency has historically adjusted income limits for purposes of 34

qualifying persons or families of low or moderate income based upon household size. For 35

purposes of issuing Mortgage Revenue Bonds (“MRB”), the Agency used 1-2 and “3 or more” 36

household size categories for its first loans and used one (1) through eight (8) household size 37

categories for the Agency’s subordinate loans. When the Agency stopped MRB financing and 38

moved to the TBA model, the Agency continued to use the one (1) through eight (8) household 39

size categories, regardless of funding source, so that larger households had higher income limits 40

than smaller households; 41

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WHEREAS, in order to lower loan suspense and denial rates, and provide 43

additional homeownership opportunities to persons or families of low or moderate income with 44

smaller household sizes, the Agency staff recommended that income limits for each county in 45

California as published annually by HCD be adjusted using a single household size of eight (8) 46

in accordance with California Health and Safety Code section 50093; 47

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WHEREAS, the Board supports this action to modify the Homeownership 1

Program to further the Agency’s mission of promoting housing opportunities for low to moderate 2

income Californians. 3

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NOW, THEREFORE, BE IT RESOLVED by the Board of Directors (the 5

“Board”) of the California Housing Finance Agency as follows: 6

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Section 1. Authorization to Increase Income Limits. As soon as is practicable, 8

the Agency shall increase income limits to a maximum of one hundred fifty percent (150%) of 9

the area median income in all geographic areas of California. 10

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Section 2. Authorization to Adjust Household Size. As soon as is practicable 12

or as otherwise required by federal law, the Agency shall adjust income limits in each county of 13

California as published annually by HCD for purposes of qualifying persons or families of low 14

or moderate income for the Homeownership Program based upon a household size of eight (8), 15

regardless of the actual number of members of a household. 16

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Section 3. Authorization to Modify Income Limits in Response to GSE and 18

other Federal Requirements. The Agency may, as necessary, in response to Government 19

Sponsored Entity or other Federal Regulatory entity, such as the Department of Housing and 20

Urban Development, modify income limits in conformance with those federal requirements. 21

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Section 4. Authorization of Related Actions and Agreements. The officers of 23

the Agency, or the duly authorized deputies thereof, are hereby authorized and directed, jointly 24

and severally, to do any and all things and to execute and deliver any and all agreements and 25

documents which they may deem necessary or advisable in order to effectuate the purposes of 26

this resolution, including but not limited to satisfying in the best interests of the Agency. 27

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SECRETARY'S CERTIFICATE 1

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I, Thomas O. Freeburger, the undersigned, do hereby certify that I am the duly 3

authorized Acting Secretary of the Board of Directors of the California Housing Finance 4

Agency, and hereby further certify that the foregoing is a full, true, and correct copy of 5

Resolution No. 17-24 duly adopted at a regular meeting of the Board of Directors of the 6

California Housing Finance Agency duly called and held on the 12th day of December 2017, at 7

which meeting all said directors had due notice, a quorum was present and that at said meeting 8

said resolution was adopted by the following vote: 9

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AYES: 11

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NOES: 13

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ABSTENTIONS: 15

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ABSENT: 17

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IN WITNESS WHEREOF, I have executed this certificate hereto this ___th day 19

of ____________ 20___. 20

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ATTEST: 23

THOMAS O. FREEBURGER 24

Acting Secretary of the Board of Directors of the 25

California Housing Finance Agency 26

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State of California

M E M O R A N D U M

To: Board of Directors Date: November 28, 2017

Tony Sertich, Director of Enterprise Risk Management & Compliance From: CALIFORNIA HOUSING FINANCE AGENCY

Subject: CALHFA BOND ISSUANCE & POST-ISSUANCE COMPLIANCE POLICY

On December 15, 2016, the California Debt Limit Allocation Committee (“CDLAC”) adopted

Regulation 5031(c), which requires all private activity bond Issuers to submit a Bond Issuance

and Post-Issuance Compliance Policy (“Policy”) to CDLAC by December 31, 2017. The

Policy must be approved by the Issuer’s governing Board.

CalHFA has had a bond policy and an asset management handbook for several years.

However, we have not had an overall bond issuance and compliance policy with specific focus

on CDLAC compliance. The attached policy documents our current practices, which already

align with CDLAC’s requirements.

Formal approval of the Policy is requested from the Board.

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Bond Issuance & Post-Issuance Compliance Policy

November 27, 2017

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DEBT ISSUANCE POLICY

AUTHORITY

Authority to Issue Bonds

The California Housing Finance Agency (“Agency” or “CalHFA”) is authorized to issue Bonds

for financing housing in California pursuant to Parts 1 through 4 of Division 31 of the California

Health and Safety Code.

Single Family Bond Resolutions

Annually the Director of Financing will prepare a resolution, and obtain Board approval,

authorizing the Agency’s single family bond indentures, the issuance of single family bonds,

credit facilities for homeownership purposes, and related financial agreements and contracts for

services.

Multifamily Bond Resolutions


authorizing the financing of the Agency’s multifamily housing program, the issuance of

multifamily bonds, the Agency’s multifamily bond indentures, credit facilities for multifamily

purposes, and related financial agreements and contracts for services.

Approval to Submit Applications to the California Debt Limit Allocation Committee

(“CDLAC”)


authorizing the summiting of an application(s) to CDLAC for private activity bond allocations to

be used in connection with the issuance of all or a portion of Agency bonds, in order for interest

on such Bonds to be excludable from gross income for federal income tax purposes. The

Resolution states the aggregate amount authorized to be allocated for the calendar year. The

Resolution may be amended and increased during the year if demand requires additional

authority.

APPLICATION

Agency Application

The Agency will not submit applications to CDLAC for bond allocation on qualified residential

rental projects (“QRRP”) until the borrower has provided CalHFA with a complete Agency

application and full application fee. The Agency’s application includes a project description,

sources and uses, proposed project income and rent restrictions, partnership and borrower

information, and details on the entities involved in the development.

CDLAC Applications

For tax-exempt bonds, prior to the issuance of bonds, the Agency must apply for and receive an

allocation of bond issuance authority from CDLAC. To receive such an allocation the Agency

must document its readiness to issue the bonds promptly and meet other CDLAC requirements.

13

Applications for Bonds shall include evidence of a performance deposit equal to one-half of one

percent (.5%) of the allocation requested, not to exceed $100,000. In the case of a multifamily

project, such evidence may include, but is not limited to a copy of a check or certified funds from

the developer to the Agency. In the case where the application is for a single family housing

program, a copy of a general ledger statement evidencing that funds have been reserved for this

purpose, and a fully executed Performance Deposit Certification that certifies the required

deposit has been made and is being held by the Agency on the behalf of the CDLAC.

The Agency will maintain the performance deposit until a written release is received from

CDLAC. A written authorization releasing the performance deposit or refund of deposits, if paid

to CDLAC, will occur upon CDLAC’s receipt of a properly completed Report of Action. If the

financing does not close within the time allowed by CDLAC, and CDLAC requires that the

deposit be forfeited, then the deposit will be remitted to or retained by CDLAC.

Tax Equity and Fiscal Responsibility Act (“TEFRA”) Hearing

When the Agency proposes to issue Single Family or Multifamily Bonds, Federal tax law (in

order for the interest on the bonds to be tax-exempt) imposes a requirement that a public hearing

be held by which the Treasurer of the State of California will approve the Bond issue. Public

notice of the hearing must be published at least two weeks prior to the hearing. The TEFRA

Hearing purpose is to allow interested persons an opportunity to express their views for or

against the issuance of the Bonds. Information (dates and times) of the Agency’s scheduled

TEFRA hearings are posted on the Agency’s webpage. (www.calhfa.ca.gov) TEFRA hearings

are conducted in the Agency’s Sacramento offices.

Request for Proposals for Advice and Recommendations (“RFP”)

The Agency will periodically post to its website a RFP to notify all interested and qualified

investment banking firms, brokers, dealers, and financial services entities that it wishes them to

provide advice and recommendations in connection with a municipal financial product and/or the

issuance of municipal securities.

Derivative Financial Products (“Hedges”)

The Agency may enter into Hedges in connection with management of the Agency’s Single

Family and Multifamily loan commitments. The Agency’s Executive Director and Director of

Financing are authorized to enter into Hedges consistent with the Agency’s normal management

process. The Hedges allow the Agency to mitigate the risk of its exposure to movements in

interest rates as part of managing the Agency’s programs.

The circumstances where Hedges may be used, the methods and guidelines to be employed when

Hedges are used and the management and reporting responsibilities of staff and others is set-

fourth in the Agency’s Board Approved Master Hedge Policy. (See Exhibit #1)

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http://www.calhfa.ca.gov/

BOND CHARACTERISTICS

Types of Bonds

The Board approved Single Family and Multifamily resolutions give the Agency its authority to

issue debt pursuant to Parts 1 through 4 of Division 31 of the California Health and Safety Code.

The Agency may issue either tax-exempt or taxable bonds. Tax-exempt bonds require an

allocation of bond authority from CDLAC. Taxable bonds are not exempt from federal taxation,

therefore, do not require an allocation of bond authority from CDLAC. If a bond is a tax-exempt

refunding bond, the bond may require an allocation of bond authority from CDLAC.

Negotiated Sales, Private Placements, and Bonds Issued on Behalf of a Nongovernmental

Borrower (“Conduit Financings”).

Bonds can be either publicly sold, privately placed, or financed on behalf of a nongovernment

borrower.

Negotiated Sale

The Agency typically issues bonds via a negotiated sale. In a negotiated sale the Agency will

use a managing underwriter. The responsibilities and selection criteria of the managing

underwriter is summarized below, under the “Bond Issuance Team” section.

Privately Placed Bonds

The Agency will privately place bonds if the Executive Director and the Financing Director

determine that it would be in the best interest of the Agency. If a decision is made to do a private

placement, the Financing Director, after consulting with the Executive Director will appoint an

underwriter/placement agent. The placement agent acts as agent for the Agency in selling bonds

to a private placement purchaser, and as such does not purchase the bonds.

Conduit Financings for Nongovernmental Borrowers

The Agency is authorized to issue bonds and lend the proceeds to one or more nongovernmental

borrowers to finance Multifamily Housing, the development of which is deemed to be a public

purpose. In each case, the criteria for qualification as a borrower are derived from state

constitutional and statutory criteria, the Agency’s own policy requirements, and in the case of

federally tax-exempt bonds, federal tax requirements. Generally, the nongovernmental borrower

and any credit enhancement provided by or on its behalf, are the only sources of revenues for

repayment of the bonds. The role the nongovernmental borrower takes varies, however, in all

cases the Agency is the central figure in the financing.

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Bond Ratings

The bonds issued under the single family and multifamily programs should generally be rated

double -A or its equivalent, with the minimum rating being single-A, or its equivalent, from at

least one of the following nationally recognized rating agencies: Moody’s Investors Service,

Standard & Poor’s Corporation or Fitch Investors Inc. Where feasible, the rating Services of

Moody’s and Standard & Poor’s should be used. The same rating requirement applies in the

case of a substitution of existing credit facility for bonds that are outstanding.

Bond ratings are not required for private placements and Conduit Financings.

Bond Authority Limitation

Currently, the Agency has authority to have outstanding bonds or notes, at any one time in the

aggregate principal amount of $13,500,000,000 excluding refunding issues and certain taxable

securities. This authority is statutory (CA Health & Safety Code 51350), and is increased as

necessary.

Interest Rate

Each financing will be structured to ensure the lowest possible cost of funds for the bonds in the

current market. This takes into account the bond interest rate, bond fees, and risk structure of the

bonds.

Bond Denominations

Typically, the Agency’s publicly offered bonds will be sold in $5,000 denominations. Most

privately placed bonds, including Conduit Financings, will be sold in $0.01 denominations. In

no case, shall the bond denominations exceed $100,000.

Credit Enhancements

For certain bonds (e.g. variable rate bonds), the preferred method of obtaining the required rating

on the bonds is through the provision of additional outside credit support for the bond issue by

rated, financially strong private institutions, such as bond insurance companies; domestic and

foreign banks and insurance companies; saving and loans, and loan-level insurance, etc. The

rating on the bonds is determined by the credit worthiness of the participating credit

enhancement provider.

Rated Bonds without Credit Enhancement

Fixed rate bonds can be issued without credit enhancement if the proposed financing structure

results in the required and desired rating on the bonds.

Liability for Repayment of Bonds

Bonds issued by the Agency are special limited obligations of the Agency, payable solely from

the revenues, assets and properties pledged under the respective indentures. The Agency has no

taxing power. The Bonds issued by the Agency do not constitute a debt or liability of the State

of California or any political subdivision thereof, other than the Agency, or a pledge of the faith

and credit of the State of California or any such political subdivision, other than the Agency.

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Use of Bond Proceeds

The Agency uses the proceeds of single family mortgage revenue bonds to assist low to

moderate income homebuyers in California purchase a home and multifamily bond proceeds to

provide acquisition/rehabilitation and permanent financing to preserve, improve, maintain and

increase the affordability of rental housing for very low, low, and moderate income families in

California.

No more than five percent (5%) of the net bond proceeds may be used for private business use or

trade or business activity unrelated to the Agency’s purpose. In addition no proceeds of the

bonds will be used to finance or refinance any airplane, skybox or other private luxury box,

health club facility, facilities primarily used for gambling or any store the principal business of

which is the sale of alcoholic beverages for consumption.

FEES

Cost of Issuance (“COI”)

The COI of Bonds financed with proceeds of such Bonds (including premium and transferred

proceeds allocable to the bonds), shall not exceed two percent (2%) of the proceeds of the

obligations. On Conduit Financings, the borrower is responsible for paying the entire COI.

Application Fees

The Agency’s application fees are outlined in each program’s term sheet. The fee is small and

covers initial administrative costs.

CDLAC Fees

For QRRP applications, the CDLAC filing fee will be paid by the borrower. The borrower will

pay for any additional fees and deposits required by CDLAC unless explicitly stated in

CalHFA’s term sheets.

Issuance Fees

Conduit Financings require an issuer fee to be paid to the Agency. The Conduit Issuer Program

Term sheet will govern the fees due to the Agency, including the Issuer Fee. (See Exhibit #2)

Administrative Fees

For Homeownership bond issuances, the Agency may, but is not required to, charge an annual

administrative fee for administering the bond programs of the Agency. The Administrative Fee

calculations for each bond program is described in the applicable indenture.

For Multifamily bond issuances where the Agency is the lender, the administrative fee will be

paid through the loan interest rate. For Conduit Financings, the Conduit Issuer Program Term

Sheet will govern the fees due to the Agency, including the Annual Administrative Fee. The

Annual Administrative Fee is priced to cover the Agency’s cost of monitoring the property. (See

Exhibit #2)

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BOND ISSUANCE TEAM

The Bond offering process is a coordinated effort among various professionals. If it is

determined by the Agency’s Executive Director and Director of Financing that there is a need to

issue either multifamily or single family debt (“Transaction”) a Financing Team is established, to

develop offering documents, prepare for information for rating agencies, market the bonds to

investors, price the bonds and close the Transaction. The team members vary depending on the

type and complexity of the Transaction.

Appointment of a Transaction Manager

The Director of Financing appoints a lead person to manage the Transaction (“Transaction

Manager”). The Transaction Manager is responsible for coordinating the efforts of the financing

team and keeping the Transaction on schedule. The Transaction Manager is also responsible for

ensuring all aspects of the financing plan have been reviewed, which includes all documents and

the financing structure.

Appointment of Bond Counsel

After consulting with the Agency’s Executive Director, the Financing Director will appoint a

Bond Counsel to the Transaction. The Bond Counsel will prepare the necessary legal documents

and provide an opinion regarding the validity of the bonds and their tax exemption. The Bond

Counsel will also provide legal advice on all relevant issues to best protect the interest of the

Agency and ensure compliance with federal and state securities law. The Bond Counsel

specifically represents the interest and concerns of the Agency in ensuring the integrity of the

bond transaction.

The Bond Counsel is to be a nationally recognized firm experienced in Public Finance Law.

Approval criteria will include the experience of the firm and staff as well as the cost of services.

Periodically, the Agency will conduct a RFP to ensure that the most qualified and cost-effective

Bond Counsel are retained.

Appointment of Bond/Disclosure Counsel

After consulting with the Agency’s Executive Director, the Financing Director will appoint a

Disclosure Counsel to the Transaction. Customarily the Disclosure Counsel is also the Bond

Counsel. The Disclosure Counsel will draft the bond financing documents including but not

limited to the indenture, the Preliminary Official Statement (“POS”), the Official Statement

(“OS”), the Tax Certificate, the Continuing Disclosure Agreement as well as other closing

documents.

Approval criteria will include the experience of the firm and staff as well as cost of services.

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Appointment of a Managing Underwriter/Remarketer and Underwriting Syndicate/Selling Group

After consulting with the Agency’s Executive Director, the Director of Financing will appoint a

Managing/Senior underwriter (“Underwriter”) and, in most cases, an underwriting/selling team

to the Transaction. The Underwriter is to be a nationally recognized firm experienced in

underwriting mortgage revenue bond issuances. Approval criteria will include the experience of

the firm and staff, cost of services, underwriting abilities and financial qualifications and

abilities.

The Underwriter will work with the Agency in determining the financing structure and plan of

finance. The Underwriter will also review bond documents, manage the pricing process, execute

pre-sale marketing, provide preliminary pricing indications, work with the Agency to determine

how orders are filled from the bond pricing order period, execute the bond purchase agreement,

and provide proceeds at closing.

The Underwriter customarily will appoint an underwriter’s counsel to represent the underwriter’s

interests, draft the purchase contract and assist in undertaking the due diligence review.

Typically the underwriter’s counsel’s fees are paid by the Underwriter from the underwriting

expense portion of their spread.

Appointment of Bond Trustee/Paying Agent

A bank will be designated by the Agency as the custodian of funds and official representative of

bondholders. After consulting with the Agency’s Executive Director, the Director of Financing

will appoint a Bond Trustee to the transaction. In addition to acting in a fiduciary role, the

Trustee will also maintain records on behalf of the Agency to identify the registered owners of

the bonds and transmit principal and interest payments from the Agency to the bondholders. The

Trustee will also provide required notices to bondholders and protect the interests of bondholders

by monitoring compliance with covenants of the indentures. Approval criteria of the Trustee

will include the experience of the firm and staff, cost of services and financial qualifications and

abilities. The Trustee’s on-going expenses are paid from the revenues of the applicable

indenture.

The Trustee customarily will appoint a bank/trustee counsel to represent the Trustee’s interests.

Typically, the Trustee’s counsel’s fees are paid by the Agency, a component of the COI.

Appointment of Credit Rating Agency(ies)

After consulting with the Agency’s Executive Director the Director of Financing may appoint

one or more credit rating agencies to the Transaction. If the Transaction is part of a parity

indenture, the rating agency may already be determined. The rating agency will give an

independent credit quality rating to the Transaction. The rating agency is part of the Transaction

team and therefore, has access to all documents, however, once the structure is in reasonably

final form, the Underwriter will provide the rating agency with additional information, such as

cash-flow projections or other financial analysis. The rating agency will assess the credit quality

of the Bonds and assign a rating to the bond issue.

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Underwriters and investors rely upon the credit quality judgement made by the rating agency.

Some mutual funds, institutions and investment trusts are restricted by law or by the terms of

their organizational documents to buying securities at or above specified credit ratings.

Ratings are reviewed periodically by the rating agency(ies) whether or not requested by the

Agency. Such a review may result in the upgrading or downgrading of an existing rating. To

perform such a review, the Agency will periodically provide the rating agency(ies) with financial

statements and other reports relating to the status of the Transaction.

Appointment of a Credit Enhancement Provider

If applicable (e.g. variable rate debt), after consulting with the Agency’s Executive Director, the

Director of Financing will appoint a credit enhancement provider to the Transaction.

The credit enhancement provider typically is a bank providing a Letter of Credit or a bond

insurer providing a Bond Insurance policy. The credit enhancement provider may be a savings

and loan association, a mortgage insurer, a federal agency or a private guarantor. In each case

the purpose of the credit enhancement is to provide, for a fee, additional security for the bonds

that improves the credit rating of the bonds and thereby lowers the borrowing costs to the

Agency. The Agency will make the determination to use credit enhancement when the savings

from the credit enhancement exceed the cost of the credit enhancement or where the credit

enhancement facilitates the sale of a bond issue that would not otherwise be possible.

Approval criteria of the credit enhancement provider will include the experience of the firm and

staff, as well as costs associated with providing credit enhancement.

Auditor

Typically, the auditor that is contracted to perform the Agency’s annual audit is appointed to the

Transaction team. The Auditor performs procedures (which are agreed upon by the Underwriter)

on financial data in the POS and OS and provides the Underwriter or Underwriter’s counsel with

a comfort letter. The fees associated with providing a comfort letter is customarily paid by the

Agency as a component of the COI; however, the fees associated with the comfort letter are

negotiated with the auditor’s at the time they awarded the auditing contract.

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Disclosure Oversight Committee

The Agency has established a Disclosure Oversight Committee (the “Committee”). The

members of the committee are as follows:

Executive Director

General Counsel

Director of Financing

Director of Enterprise Risk Management and Compliance

Comptroller

Programs Administrator

Housing Finance Chief – Single Family Lending

Housing Finance Chief –Single Family Portfolio Management

Housing Finance Chief-Loan Servicing

Housing Finance Chief-Asset Management

Housing Finance Chief-Multifamily Programs

Agency’s Disclosure Representative; and

A Housing Finance Officer Representative from the Agency’s Financing Division.

The Committee may also retain and consult with outside legal counsel.

The primary responsibilities of the Committee are:

i. meet annually to review SEC Rule 15c2-12 disclosure requirements with respect to

outstanding bonds

ii. meet annually with the Financial Statement Disclosure Review Committee (the “FS

Committee”) to discuss the annual financial statement’s disclosure reporting, and

iii. meet as necessary to promote best practices regarding all Agency disclosure reporting

The Agency’s Disclosure representative, currently the Agency’s Director of Financing, is a

major participant in the preparation and review of the Agency’s Bond disclosure documents.

Financial Advisor

Typically, the Agency does not utilize the services of a Financial Advisor, but reserves the right

to appoint one to the Transaction team, if the Executive Director and the Director of Financing

deems it would be beneficial to the Agency.

Printing and Disseminating Services

Typically, the Agency uses a service to house and disseminate documents as well as print and or

provide online access of the POS and OS. Currently the Agency is utilizing Elabra to perform

these services.

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TRANSACTION PROCESS

Preparation of an Interested Parties Distribution List

The Transaction Manager will prepare an interested parties distribution list identifying all parties

to the Transaction, their e-mail address and their telephone numbers. The distribution list will be

posted to Elabra by the Transaction Manager. The distribution list must include (but is not

limited to) the following individuals or representatives from the following areas (“Working

Group”) (the Working Group will receive notifications of all postings related to the Transaction).

Working Group

Director of Financing

Director of Enterprise Risk Management and Compliance

Transaction Manager

Financing Associate (or person responsible for document management)

Back-up Transaction Manager

Agency’s Legal Division

State of California’s Treasurer’s Office

Office of the Attorney General of the State of California

Agency’s Outside Bond Counsel

Disclosure Counsel

The Bond Trustee for the Transaction

Counsel to the Trustee

Underwriter/Manager for the Transaction

Underwriter’s Counsel

Rating Agencies

Credit Enhancement Provider (s) , if applicable

Preparation of a Timeline/Schedule

The Transaction Manager will prepare a timeline/schedule identifying when the disclosure

documents will be distributed, who will be responsible for the preparation of the draft

documents, when comments are due and when the final documents are due. The Transaction

Manager will post the timeline/schedule to Elabra.

Preparation of a Budget

The Transaction Manager will prepare a budget for the Transaction, ensuring that the total COI

does not exceed 2% of the related proceeds. The breakdown of the fees associated with each

issuance is negotiated with the Underwriter and is based on the then current industry standards.

Preparation of the POS and OS

As required by securities law, the Agency prepares a POS and OS when issuing municipal debt.

The POS is the preliminary prospectus of a bond issue. Investors use the POS as one of their

primary resources for investment decisions. After the bonds are sold and the bond structure is

finalized, the POS is updated to create the OS.

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The Agency utilizes the services of a Bond Counsel and Disclosure Counsel to prepare the POS

and OS and to assist and advise the Agency on disclosure obligations. However, the material

accuracy of the POS and OS is the Agency’s responsibility.

Disclosure Review and Information Gathering for the POS and OS

In addition to the above mentioned working group, the Transaction Manager will identify any

additional contributors and reviewers of the POS and OS. The Transaction Manager will contact

them as soon as possible to inform them that their assistance is needed in either providing

information or reviewing information in the POS and OS and will let them know what they need

to provide/review and when the information is needed. The Transaction Manager will send out a

contributor’s memorandum. The Transaction Manager will maintain a checklist of all

individuals that were requested to contribute or review the information in the POS and OS and

follow-up with them if the Transaction Manager has not heard from them by the due date. Upon

receipt of the information the Transaction Manager will review and send the information to the

Disclosure Counsel. The Disclosure Counsel will update the POS or OS and distribute the

information to the Working Group, via Elabra.

Requirements for Offering Materials or Disclosure Documents

Customarily both the multifamily and single family POS and OS consists of two sections

(“Parts”). Part I provides information concerning the Agency’s Offered Bonds. Additional

information concerning the Agency, security for the Bonds, the Program and the Agency’s other

financing programs is contained in Part 2 of the POS and OS.

Part 1 primarily provides, but is not limited to, information concerning:

Introduction (information about the bonds being issued)

Application of Funds

Tax Matters

Litigation

Ratings

Continuing Disclosure

Underwriters

Part 1 usually contains, but is not limited to, the following appendices:

Proposed Form of Legal Opinion

Summary/Form of Continuing Disclosure Agreement

Part 2 primarily provides, but is not limited to, certain information concerning:

The Agency

Security for the Bonds

The Program

Other Programs of the Agency

Certain Investor Considerations

Summary of Certain Provisions of the General Indenture, if applicable

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Part 2 usually contains, but is not limited to, the following appendices, if applicable (e.g. a parity

indenture):

Single Family

o Agency Audited Financial for the latest Fiscal Year End

o Bonds under the Indenture

o Counterparties

o Mortgage Loan Portfolio

o GNMA Mortgage-Backed Securities

o Fannie Mae Mortgage-Backed Securities

Multifamily

o Agency Audited Financial for the latest Fiscal Year End

o Description of Developments and loans allocable to the Offered Bonds

o Developments and loans financed by prior series of bonds

o Certain Agency financial Information and Operating Data

Conduit Disclosure Requirements

The disclosure obligations for conduit bond issuances are the responsibility of the developer.

Bond Counsel will notify the Agency if the requirements are not being met and the Agency will

take appropriate action as directed by Bond Counsel. This may include reporting the disclosure

failures to the Securities and Exchange Commission.

Review Procedures and Requirements for Financing Structure

The financing structure will be prepared by the Underwriter with input from the Agency. In

designing the structure, the Underwriter will take into consideration the Agency’s needs as well

as the needs of municipal investors. Before finalizing the financing structure, the structure will

be reviewed by the Director of Financing, the Transaction Manager and Bond Counsel.

Report of Any Significant Disclosure Issues

The Transaction Manager will report any significant disclosure issues and concerns to the

Disclosure Representative and if the Disclosure Representative believes they are material, will

convene a meeting of the Disclosure Committee. The Disclosure Committee will address the

issue and make a decision as soon as possible. The Transaction Manager will notify the Working

Group of the Disclosure Committee’s decision. The Disclosure Counsel will update the POS,

OS or other documents, if necessary, and distribute to the Working Group, via Elabra.

Due Diligence by Underwriter

The Transaction Manager will work with the Disclosure Counsel and Underwriter to set up a

formal due diligence meeting/call prior to the issuance of the POS.

Disclosure Checklist and Working Documentation

Prior to signing off on the POS the Transaction Manager will go through their checklist to make

sure that all the requested information has been updated and all comments have been addressed

and that the updates and comments have been posted to Elabra. The checklist and all supporting

documents will become part of the bond files.

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POS – “Substantially Final” Certificate

SEC Rule 15c-2-12 requires that prior to making any offers or sales, the underwriters must

receive a certificate from the issuer stating that the POS is ‘substantially final”. Underwriter’s

Counsel prepares this certificate and submits it to the Transaction Manager. The Transaction

Manager will have the Director of Financing sign the certificate. Note that obtaining the

certificate is the underwriter’s responsibility not the Agency’s.

Approve and Distribute POS

The timeline will indicate the date in which the POS will need to be approved and distributed.

The Transaction Manager will coordinate the OS approvals. The Transaction Manager is the last

person to approve the POS and will not approve until all comments have been resolved and

posted to Elabra. The Director of Financing signs the final POS authorizing its execution and

delivery.

Ratings Affirmed

A few days prior to the date upon which the ratings need to be provided, the Transaction

Manager will contact the rating agency(ies) to ensure each has everything needed to provide a

rating on the transaction in accordance with the timeline.

Pre-Pricing Call

Typically the Underwriter, the Agency, and the State Treasurer’s Office (“STO”), the Agency’s

Agent for sale, will have a pre-pricing call in which the UW provides the Agency and the STO

with a summary of market conditions and investors responses to the transaction. At this time the

Agency and the STO will have an opportunity to ask questions and make decisions regarding

pricing.

Pricing Call

At this time the Underwriter provides a final summary of the market and preliminary sales.

During the call a verbal award is usually authorized.

Sign Purchase Contract/Deliver Good Faith Deposit

After the pricing call the purchase contract is signed, and typically the Underwriter will deliver a

Good Faith Deposit to the STO.

Distribute Draft Closing Documents

Draft closing documents are posted to Elabra for review by the Working Group.

Approve the OS

The timeline will indicate the date in which the OS will need to be approved. The Transaction

Manager will coordinate the OS approvals. The Transaction Manager is the last person to

approve and will not approve until all comments have been resolved and posted to Elabra. The

Director of Financing signs the final OS authorizing its execution and delivery.

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Pre-Close All Bonds

The day prior to closing the transaction, a pre-close conference is scheduled, typically via a

conference call, to confirm there are no outstanding issues and all signatures for all documents

have been obtained.

Close All Bonds

On the day of closing, the Underwriter wires the bond proceeds to the STO and upon verification

of receipt of the proceeds the Bond Trustee, upon written request of the Agency, authenticates,

registers, and delivers the bonds to the purchaser and the transaction is closed.

Investment of Bond Proceeds

The bond proceeds will be invested in accordance with the Agency’s Board Approved

Investment Policy. (See Exhibit #3)

QUALIFIED RESIDENTIAL RENTAL PROJECT (“QRRP”) REQUIREMENTS

Loan Amount

There is no minimum or maximum loan amount for QRRP applicants.

Loan-to-Value (“LTV”)

The maximum LTV for the Agency’s lending programs is governed by the program term sheets.

The maximum LTV for projects that desire tax-exempt Private Activity Bonds to be issued is

100%.

Debt Service Coverage Ratio (“DCR”)

The minimum DCR for the Agency’s lending programs is governed by the program term sheets.

The minimum DCR for projects that desire tax-exempt Private Activity Bonds to be issued is

1.00.

Affordability Requirements

The Agency requires a minimum of either a) 20% of the units to be restricted to renters earning a

maximum of 50% of the county’s Area Median Income (AMI) or b) 40% of the units to be

restricted to renters earning a maximum of 60% of the county’s AMI with 10% of the units

restricted to renters earning a maximum of 50% of the county’s AMI. The rents will be

restricted to no more than 30% of the restricted AMI less the utility allowance.

Developer Fee Limitations

All developer fee limitations imposed by CDLAC will be enforced by the Agency. If the

Agency is providing any subordinate financing, the developer fee must be deferred or

contributed to match the subsidy fund amount, up to 50% of the total allowable developer fee.

Local Review

The Agency will request input from local governments prior to issuing bonds through its Conduit

Issuer Program. The feedback will be incorporated into the Senior Loan Committee approval

package.

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Partnership Entity

The partnership entity must have a complete LP-1 filing. The partnership must be a single-asset

entity.

Developer Team Requirements

Each of the following members of the development team must have the required experience in

affordable housing, as detailed in the Agency’s “Development Team Requirements for CalHFA

Financing”. (See Exhibit #4)

Developer

Architect

Development and/or Financial Consultant

General Contractor

Management Company

EXCEPTIONS AND OVERSIGHT

On-Going Review

All Agency Board Approved Policies are reviewed periodically, and if material changes are

needed they will be brought to the Board for approval.

Exceptions & Waivers

An Exceptions and Waivers to this policy must be approved by Senior Loan Committee and, if

necessary, the Board of Directors. The exceptions will be noted in project approval requests

distributed prior to Senior Loan Committee and Board of Director meetings. The Board of

Directors will be notified of any exceptions that are approved by the Senior Loan Committee.

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POST ISSUANCE COMPLIANCE POLICY

BOND POST ISSUANCE COMPLIANCE

Bond Compliance

The Agency consults with bond counsel and other legal counsel and advisors, as needed,

throughout the Bond issuance process to identify requirements and to establish procedures

necessary or appropriate so that the tax-exempt Bonds will continue to qualify for tax-exempt

status. The requirements and procedures are documented in the tax certificate and agreement

(“Tax Certificate”) and/or other documents finalized at or before issuance of the tax-exempt

Bonds. The requirements and procedures includes future compliance with applicable arbitrage

rebate requirements and certain other applicable post-issuance requirements of federal tax law

throughout (and in some cases beyond) the term of the tax-exempt Bonds.

The Agency also consults with bond counsel and other legal counsel and advisors, as needed,

following issuance of the tax-exempt Bonds to ensure that all applicable post-issuance

requirements are met. The Agency engages expert outside advisors (“Rebate Service Provider”)

or prepares in-house, the calculation of arbitrage rebate payable with respect to the investment of

Bond proceeds. Unless otherwise provided by the indenture relating to the Bonds, unexpended

Bond proceeds are held by a trustee or other financial institution, and the investment of Bond

proceeds are managed by the Agency, in accordance with the Agency’s Investment Policy. (See

Exhibit #3)

Continuing Disclosure

SEC Rule 15c-2-12 requires that underwriters participating in most bond offerings obtain from

the issuer of the bonds a written Continuing Disclosure Agreement (CDA) to provide continuing

disclosure with respect to the bonds being issued as long as they remain outstanding.

The continuing disclosure element of the Rule requires the issuer (either by itself or through a

trustee or other dissemination agent) to provide two separate disclosures:

i. Once a year, an annual financial report including the issuer’s audited financial

statements for the most recently completed fiscal year, and updating of other financial

and operating information which was included in the original official statements.

ii. Notice of the occurrence of certain material events with respect to the bonds, within ten

(10) business days of such occurrence.

The commitment to provide these continuing disclosures is set forth in detail in a Master CDA

for each indenture. The Agency’s processes and procedures for ensuring these obligations are

met is described in the Agency’s Board Approved Disclosure Policy. To ensure that these

obligations are performed timely the Agency maintains a Responsible Parties List and Timeline.

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Conduit Continuing Disclosure Requirements

Any continuing disclosure obligations for conduit bond issuances are the responsibility of the

developer. Bond Counsel will notify the Agency if the requirements are not being met and the

Agency will take appropriate action.

Bond Document Retention Requirements

Bond documents, including tax certificates, opinions, offering statements, and other closing and

monitoring documents, will be retained for 7 years after the bonds are fully redeemed.

ARBITRAGE COMPLIANCE

Non-Purpose Investments

The Agency’s Fiscal Services Division will complete all non-purpose investment arbitrage

calculations in accordance with Internal Revenue Service (“IRS”) rules. In certain cases, these

calculations will be conducted by a qualified third party. Any excess investment earnings will be

rebated to the IRS.

Mortgage Yield Compliance

The Agency’s Financing Division will conduct all mortgage yield compliance calculations for

purpose investment arbitrage. Any excess earnings on purpose investments will either be

returned to the borrower or rebated to the IRS.

SINGLE-FAMILY COMPLIANCE

The Financing Division will annually certify to CDLAC through the online compliance

verification system that the Agency’s single-family bond allocations are in compliance with the

CDLAC resolution. This will include verifying the income targets have been met.

QRRP COMPLIANCE

CDLAC Requirements & Timing

The Agency, as the Bond Issuer, is required by CDLAC to ensure that all multifamily projects

are in compliance with CDLAC Regulations. In addition, the Agency ensures that the projects

are in compliance with the Regulatory Agreement (“RA”) requirements. The self-certification

must be submitted by the Agency to CDLAC no later than March 1 of each year.

Prior to Conversion to Permanent

The Multifamily Lending Division will collect the sponsor’s certification and report to CDLAC

through the online compliance verification system that the project is still under construction or

rehabilitation.

At Conversion to Permanent

The Multifamily Lending Division will collect verification that minimum sustainable building

standards were utilized during construction or rehabilitation. The Multifamily Lending Division

will also verify that any additional sustainable building methods required by CDLAC were met

and/or completed.

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The project will be transferred to the Asset Management Division for all on-going compliance.

The Asset Management Division will ensure compliance with all other applicable requirements

of the CDLAC resolution.

Projects Receiving Allocation Prior to December 31, 2016

Each January, the Asset Managers (AM) will be responsible for obtaining all documents

required by CDLAC from the Sponsor in order to verify compliance with the CDLAC

Resolution.

o Project Sponsors’ Certification of Compliance I on sponsor’s letterhead

(applicable for projects awarded allocation after 2000).

o In addition, Project Sponsors are required to provide all supporting documentation

as back up to the Certificates of Compliance for services provided and income

requirements as listed on the Resolution, such as flyers, calendars of events,

service contracts, rent rolls, Tenant Income Certification (“TIC”), Project Status

Report (“PSR”) and annual Tenant Verification Lists (“TVL”).

The Agency monitor the income and rent restrictions annually, as per the requirements in

the RA, until the end of the qualified project period.

o Project Sponsors are required to provide information, via the TVL, on qualified

tenants annually no later than August 15 (with information as of June 30) via the

agency’s online Web Compliance Management System (“WCMS”).

o Copies of such certifications shall be retained in the Borrower’s files for a period

of three (3) years and shall be available for inspection by the Agency or its agents

upon request.

Audited Financial Statements submitted at the end of Sponsor’s fiscal year and reviewed

by the AM.

After the AM has received all documentation from the Sponsor, the AM will review and

then submit the Annual Applicant and Public Benefits and Ongoing Compliance Self-

Certification to CDLAC, via the online compliance certification system no later than

March 1.

The Applicant shall complete and submit the Annual Applicant Public Benefits and On-

going Compliance Self Certification, via the online compliance certification system

annually for the longer of the period the bonds remain outstanding or the period of

restriction for QRRP projects outlined in Section 5192 of the CDLAC Regulations.

Projects Receiving Allocation after December 31, 2016

Each January, the AM will be responsible for obtaining all documents required by

CDLAC from the Sponsor in order to verify compliance with the CDLAC Resolution.

o Project Sponsors’ Certification of Compliance II on sponsor’s letterhead

(applicable for projects awarded allocation after December 31, 2016).

o Certificate of Completion for Qualified Residential Rental Projects.

o In addition, Project Sponsors are required to provide all supporting documentation

as back up to the Certificates of Compliance for services provided and income

requirements as listed on the Resolution, such as flyers, calendars of events,

service contracts, rent rolls, TIC, PSR and TVL.

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The Agency monitors the income/rent restriction annually, as per the requirements in the

RA, until the end of the qualified project period.

o Project Sponsors are required to provide information, via the TVL, on qualified

tenants annually no later than August 15 (with information as of June 30th) via

WCMS.

Copies of such certifications shall be retained in the Borrower’s files for a period of three

(3) years and shall be available for inspection by the Agency or its agents upon request.

Audited Financial Statements submitted at the end of Sponsor’s fiscal year and reviewed

by the AM.

After the AM has received all documentation from the Sponsor, the AM will review and

then complete and submit The Annual Applicant Public Benefits and On-going

Compliance Self Certification to CDLAC, via the online compliance certification system

by March 1 of every year until the termination of the Regulatory Period and/or

Compliance Period.

All Multifamily Projects

The Agency’s Inspectors conduct site inspections (every 1 to 3 years as required) of the

units and the projects’ exterior to ensure the projects are being maintained in the

standards established by State and local housing quality standards and code requirements

and the existence of any change in amenities. Once the inspection has been completed the

inspectors will send the borrower an inspection report identifying items that have failed

or are in need of repair/replacement. The borrower is required to submit a report noting

corrective actions taken to the Agency.

Change in Ownership/Management Company – The borrower is required to notify the

AM of any change in ownership, Management Company or project name. Once the AM

is notified of the change the AM will contact the borrower and request submission of the

documentation required by CDLAC and the Agency for the change.

o CDLAC form - Part V – Legal Status of Project Sponsor and Developer

(Ownership Change)

o CDLAC form - Attachment W-1 – Information on Project Sponsor (Ownership

Change)

o Organizational Chart (Ownership Change)

o CDLAC form - Attachment X – Information on Proposed Management Company

(Management Company Change)

AM will review all documentation and then complete and submit:

o All the above required CDLAC forms

o Request to Revise Resolution (completed for either a change in ownership and/or

Management Company) to CDLAC at the time of change.

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Penalty for Non-Compliance

When there is a violation of the CalHFA Regulatory Agreement the borrower is given a

thirty (30) day notice to correct deficiency or non-compliance. If correction is not

completed CalHFA will notify other involved lenders/compliance agency of our intention

to force a cure or issue pre-NOD and or NOD if the situation warrants.

o If there is a CDLAC violation – for example, a tenant’s rental income exceeds

that allowed under the Exhibit A (CDLAC Resolution) the Sponsor is notified to

give a notice to move the resident to a unit whose rental amount conforms to

CDLAC requirement or given a notice to seek other rental accommodations.

o If there is a violation of the property’s Exhibit A (CDLAC Resolution) with

regard to amenities, then the property must provide alternative amenities (if not

actually seeking a revision of its Resolution) within a reasonable time, or reinstall

amenity.

Should the Sponsor not comply within the time provided and prior to March 1,

notification will be given to the Sponsor that they are out of compliance and notice will

be sent to CDLAC notifying of the non-compliant issue(s).

EXCEPTIONS AND OVERSIGHT

On-Going Review

All Agency Board Approved Policies are reviewed periodically, and if material changes are

needed they will be brought to the Board for approval.

Exceptions & Waivers

An Exceptions and Waivers to this policy must be approved by Senior Loan Committee and, if

necessary, the Board of Directors. The exceptions will be noted in project approval requests

distributed prior to Senior Loan Committee and Board of Director meetings. The Board of

Directors will be notified of any exceptions that approved by the Senior Loan Committee.

32

Page 1 of 10


MASTER HEDGE POLICY

I. Purpose

The purpose of this Master Hedge Policy (the “Policy”) is to establish guidelines for the

use and management of various derivative financial products (“Hedges”) in conjunction

with the California Housing Finance Agency’s (“CalHFA” or the “Agency”)

management of its loan commitment pipeline.

The Policy and its contemplated Hedges are intended to cover only future hedging

activities of the Agency’s loan commitments. This policy is not intended to encompass

the Agency’s existing portfolio of interest rate swaps. This policy is not intended to

completely eliminate the Agency’s interest rate risk. For example, the Agency will

continue to bear some interest rate risk in situations where the closing of loans and/or

delivery of mortgage-backed securities precede the issuance of bonds.

The use of Hedges allows CalHFA to mitigate the risk of its exposure to movements in

interest rates as part of managing the Agency’s single family and multifamily loan

commitment pipelines. The short-term goal of the Policy is to ensure a pre-defined target

profit on loan originations. The long-term goal of the Policy is to generate a stable profit

margin range for the Agency’s lending activities.

The Policy sets forth a framework for the utilization of Hedges with particular emphasis

on their content and execution. As a framework, the intent of the Policy is to set forth

guidance while maintaining the flexibility needed to effectively use and manage Hedges

under changing market conditions.

II. Scope

The Policy describes the circumstances where Hedges may be used, the methods and

guidelines to be employed when Hedges are used and the management and reporting

responsibilities of staff and others necessary in carrying out the Policy.

III. Legal Authority

A. Authority

CalHFA may enter into Hedges in order to reduce the amount of interest rate risk.

CalHFA has statutory authority to enter into Hedge.

Exhibit #1 33

Page 2 of 10

B. Approval

CalHFA may enter into Hedges in connection with management of the Agency’s

loan commitments. The Agency’s Executive Director, Director of Financing and

Financing Risk Manager are authorized to enter into Hedges consistent with the

Agency’s normal management process.

The Policy shall govern CalHFA’s use and management of all Hedges. While

adherence to the Policy is required in applicable circumstances, the Agency

recognizes that changes in the capital markets, Agency programs, and other

unforeseen circumstances may from time to time produce situations that are not

covered by the Policy and will require modifications or exceptions to achieve

policy goals. In these cases, management flexibility is appropriate, provided the

Board is informed of any significant departures from previous practice.

The Policy shall be reviewed and updated periodically and presented to the Board

for approval. The Director of Financing is the designated administrator of the

Policy, and shall have the day-to-day responsibility and authority for structuring,

implementing, and managing Hedges.

CalHFA shall be authorized to enter into Hedges only with qualified Hedge

counterparties, as described in Section VII below. The Director of Financing

shall have the authority to select the counterparties, so long as the criteria set forth

in the Policy are met.

The Executive Director, the Director of Financing or the Financing Risk Manager

may delegate individuals to authorize the execution of trades on CalHFA’s behalf.

Delegated individuals will have approval to authorize trades below certain trade

limitations defined in the Hedging Procedures document. Authorization by the

Executive Director, the Director of Financing or the Financing Risk Manager will

be required when these trade limitations are exceeded. Trade limitations are set

on:

1. The notional amount of any one specific trade;

2. The aggregate notional threshold amount for any one specific business

day.

Initially, the trade limitations will be relatively small and, over time, will be

increased as the program volume increases.

Exhibit #1 34

Page 3 of 10

IV. Use of Hedges

A. Appropriate Usage

CalHFA will use Hedges solely to mitigate the interest risk associated with

running a lending program. As part of the hedging program, CalHFA may

amend, terminate or enter into offsetting transactions in order to manage market,

counterparty and credit risk associated with its Hedges.

B. Prohibited Strategies

CalHFA shall not enter into Hedges where one or more of the following

conditions exist:

1. The Hedge serves a purely speculative purpose, such as entering into a

hedge for the sole purpose of trading gains;

3. There is insufficient pricing data available to allow the Agency and its

advisors to adequately value the hedge instrument.

C. Procedure

Recommendations to enter into Hedges will be made based on CalHFA’s analysis

of the loan commitment pipeline. Recommendations will consider the following

elements:

1. The appropriateness of the transaction for the Agency based on the

balance of risks and rewards presented by the proposed transaction,

including a description of the transactional structure, a description of the

risks it presents, and risk mitigation measures;

2. California statutes, Agency resolutions, and indenture and contractual

requirements (including those contained in credit agreements), as well as

any federal tax considerations;

3. Potential effects that the transaction may have on the credit ratings

assigned by the rating agencies to any Agency obligations;

4. The potential impact of the transaction on any areas where the Agency’s

capacity is limited, now or in the future, including the use of variable-rate

debt, bank liquidity facilities or letters of credit, and bond insurance;

5. The ability of the Agency to handle any administrative burden that may be

imposed by the transaction, including accounting and financial reporting

requirements; and,

Exhibit #1 35

Page 4 of 10

6. Other implications of the proposed transaction as warranted.

V. Permitted Hedges

A. Permitted Hedges for Single Family

1. All permitted Hedges for single family are intended to be cash settled and

are not contemplated to remain in place over a long-term period (e.g.,

swaps associated with long-dated variable-rate bonds). Hedges will be

used to protect against adverse movements in interest rates that may occur

over short-term periods. Such period may be as long as six months.

2. TBA (To Be Announced)

A TBA would be used to hedge interest rates on single family loan

commitments. A TBA is a forward mortgage-backed securities trade.

Pass-through securities issued by Freddie Mac, Fannie Mae and Ginnie

Mae trade in the TBA market. The term TBA is derived from the fact that

the actual mortgage-backed security that will be delivered to fulfill a TBA

trade is not designated at the time the trade is made. The securities are "to

be announced" 48 hours prior to the established trade settlement date. A

TBA used to hedge single family commitments would be in effect for less

than 90 days. The nominal term of the underlying mortgage-backed

security (MBS) for a TBA trade for single family commitments shall not

exceed 30 years.

On the TBA settlement date, if the TBA is “in-the-money,” CalHFA will

receive a payment, but if the TBA is “out-of-the-money,” CalHFA will

make a payment. Because CalHFA may owe the counterparty a payment,

the counterparty bears additional credit risk to the Agency. That is, these

transactions could result in additional collateral posting requirements to

the counterparties.

B. Permitted Hedges for Multifamily

1. All permitted Hedges for multifamily are intended to be cash settled and

are not contemplated to remain in place over a long-term period (e.g.,

swaps associated with long-dated variable-rate bonds). Hedges will be

used to protect against adverse movements in interest rates that may occur

over short-term periods. Such period may be as long as 36 months.

2. Forward Rate Option

Forward rate options would be used to hedge multifamily permanent-only

loan commitments. A forward rate option is an option on a forward swap

Exhibit #1 36

Page 5 of 10

whereby the issuer has the right, but not the obligation, to enter into a

cash-settled swap similar to that described in the rate lock description

above. The rate on the swap is decided when the option is purchased. The

rate is typically set at a level above the current market rate and serves as

insurance against rates rising above the designated rate. A forward rate

option used to hedge multifamily commitments would have a forward

starting date less than 36 months. The nominal term of the underlying

swap shall not exceed 40 years. An upfront payment by CalHFA is

required with a forward rate option, but upon termination, CalHFA would

not face the risk of having to make a payment. The hedge can only result

in CalHFA receiving a payment or, at worst, expiring worthless.

On the forward starting date (the “Exercise Date”), if the option is “in-the-

money,” CalHFA will exercise the option and receive a payment, but if the

option is “out-of-the-money,” CalHFA will not exercise the option and

allow the option to expire. Because CalHFA cannot owe the counterparty

any payment on the Exercise Date, the counterparty does not bear any

additional credit risk to CalHFA. That is, these transactions will not result

in additional collateral posting requirements by CalHFA to the

counterparties.

VI. Hedging Limitations, Exposure Limitations and Costs

A. Hedging Limitations: Single Family Reservation Pipeline

The Reservation Pipeline is defined as loans previously purchased plus those

loans for which a reservation has been received and is in an “active” (not

cancelled, denied or other inactive status) status and not yet sold. The

Reservation Pipeline must be hedged at a minimum of 80% and a maximum of

120% of the loans expected to be purchased after adjusting for fallout, and no

more than 100% of the total Reservation Pipeline.

B. Exposure Limitations: Single Family Hedging Activities

1. Limitations on Hedging Losses

The single family hedging program shall not reduce the predefined target

profit on lending activities. CalHFA has determined that savings from the

in-house hedging program will be between 0.25% and 0.75% of the

hedged Reservation Pipeline. For management purposes, we expect the

savings will be 0.50% of the hedged Reservation Pipeline.

For management purposes, CalHFA will track the cumulative savings

resulting from the anticipated .50% savings of running the hedging

program in-house over time, and after the initial 6-month program ramp

up period, the net realized financial losses, if any, shall not exceed these

Exhibit #1 37

Page 6 of 10

cumulative savings. In the event that the realized losses do exceed the

cumulative savings, CalHFA shall initiate the process of discontinuing the

in-house hedging program and outsource the hedging function. The

process of discontinuing the in-house hedging program may require the

Agency to continue to enter into hedges for new loan commitments during

the transition to outsource the program, which will be completed as soon

as possible.

2. Limitations on mark-to-market exposure

CalHFA shall initiate the process of discontinuing the in-house hedging

program and outsource the hedging function if the mark-to-market on the

outstanding hedges for single family loan commitments exceeds $10

million (only when an amount is due and payable by the Agency if the

hedges were to be terminated immediately). The process of discontinuing

the in-house hedging program may require the Agency to continue to enter

into hedges for new single family loan commitments during the transition

to outsource the program, which will be completed as soon as possible.

C. Hedging Costs: Multifamily Hedging Activities

An upfront payment by CalHFA is required with the Forward Rate Option. The

upfront payment is the sum of i) a contribution of no more than 1.5% of the

expected loan balance from CalHFA’s own funds and ii) a rate lock fee paid by

the borrower.

D. Exposure Limitations: Multifamily Hedging Activities

1. Limitations on Negative Mark-to-Market Exposure

CalHFA shall discontinue the in-house hedging program if the mark-to-

market on the outstanding hedges for multifamily loan commitments is

greater than $5 million (only when an amount is due and payable by the

Agency if the hedges were to be terminated immediately).

VII. Counterparties

Hedge products may create, for the Agency, exposure to the creditworthiness of financial

institutions (when the mark-to-market of the Hedges are “in-the-money” to the Agency;

i.e., when CalHFA is due a payment upon immediate termination) that serve as the

Agency’s counterparties on Hedge transactions. In general, the Agency will utilize the

following standards in selecting counterparties:

Exhibit #1 38

Page 7 of 10

A. Credit Standards

Standards of creditworthiness, as measured by credit ratings, will determine

eligible counterparties. Differing standards may be employed depending on the

term, size and interest-rate sensitivity of a transaction, type of counterparty, and

potential for impact on the Agency’s or a specific enterprise-fund’s credit rating.

As a general rule, the Agency will enter into transactions only with counterparties

whose obligations are rated in the A category or better from at least two

nationally-recognized rating agencies. In cases where the counterparty’s

obligations are rated based on a guarantee or specialized structure to achieve the

required credit rating, the Agency shall thoroughly investigate the nature and legal

structure of the guarantee or structure in order to determine that it meets the

Agency’s requirements in full.

B. Diversification of Exposure

The Agency will seek to avoid excessive exposure to a specific counterparty by

diversifying its counterparties and monitoring the potential termination value of

each counterparty both in absolute dollar values and in percentages of the entire

portfolio.

C. Termination

When a counterparty fails to maintain its ratings above a certain specified

threshold, the Agency may exercise a right to terminate the transaction prior to its

scheduled termination date. The Agency will seek to require, whenever possible,

that terminations triggered by a counterparty credit downgrade will occur in

financial terms that are favorable to the Agency and which would allow the

Agency to go back into the market to replace the downgraded party with another

suitable counterparty at no out-of-pocket cost to the Agency.

VIII. Internal Management of Obligations and Exposure

Achieving the Agency’s goals to meet state housing needs while protecting interest rates

committed to borrowers requires the Agency to address several risks. The provisions of

the Policy are designed to create a framework for evaluating and addressing these risks

with hedging and ongoing management. The following paragraphs describe pertinent

risks and the means through which the Agency may mitigate them.

Counterparty Risk is the risk that a counterparty will fail to make required

payments. In order to limit the Agency’s counterparty risk, the Agency will seek

to avoid excessive concentration of exposure to a single counterparty or guarantor

by diversifying its counterparty exposure over time. Exposure to any counterparty

will be measured based on the termination value of all Hedge contracts entered

into with the counterparty. In addition, the Agency will determine and monitor the

Maximum Potential Exposure, which is a reasonable worst-case value of a mark-

Exhibit #1 39

Page 8 of 10

to-market calculation of the cost of terminating the Hedge contracts, on a

quarterly basis. Aggregate Hedge termination value for each counterparty should

take into account netting of offsetting transactions (i.e., fixed-to-floating vs.

floating-to-fixed). As a matter of general principle, the Agency may require

counterparties to provide regular mark-to-market valuations of Hedges they have

entered into with the Agency, and may also seek independent valuations from

third party professionals.

Hedge Mismatch Risk is the risk that the settlement payment on the hedge fails

to offset the change in the actual cost of the deferred debt financing. This risk

arises because debt instruments are issuer and market-specific while the market

for hedges is generally limited to generic market indexes whose price movement

may vary from that of any individual instrument.

Interest Rate Risk is the risk that unhedged rates committed to through the single

family loan reservation process or the multifamily loan commitment process may

rise, producing either losses in income or absolute losses. The Agency may enter

into Hedges to mitigate this interest rate risk. The Agency may also choose to

incur an acceptable level of interest rate exposure. In defining the desired amount

of rate exposure, the Agency will consider its ability to withstand losses in a

rising rate environment.

Market Risk is the risk that under a termination event, the Agency will not be

able to obtain a replacement Hedge. Market risk can be divided into general

market risk and market access risk. General market risk may occur because the

Hedge market has suffered a loss of liquidity or collapsed, making it difficult or

impossible to obtain a replacement hedge. Market access risk is the risk that

following an early termination, the Agency will not be able to obtain a

replacement Hedge because its credit has deteriorated or it is shut out of the

market for other Agency-specific reasons. To mitigate this risk, the Agency will

carefully monitor its credit and act to maintain its rating.

Non-Delivery Risk/Fallout Risk is the risk that the committed loans are not

delivered thus the Hedges effectively become an investment, which exposes the

Agency to the mark-to-market of the Hedges. Typically, fallout moves in an

inverse relationship to mortgage rates, that is, if mortgage rates decrease after rate

lock then fallout will increase but if mortgage rates increase after rate lock then

fallout will decrease.

Size Risk is the risk that the amount of loan commitments that deliver is

significantly above or below the anticipated size, leaving the loan commitment

over-hedged or under-hedged, and the issuer is left with a potentially costly

settlement upon termination.

Termination Risk is the risk that due to some event or exercise of a right the

Hedge may terminate or be terminated prior to its scheduled expiration, which

Exhibit #1 40

Page 9 of 10

could result in a termination payment becoming payable by the Agency. To

mitigate this risk, the Agency will enter Hedges with appropriate termination

provisions. If a Hedge terminates, the Agency must decide whether to replace the

Hedge. The Agency would evaluate the nature and scope of its interest rate risk

without the terminated Hedges and its ability to make any termination payments

without entering a replacement. Since any termination payment owed by the

Agency will generally be funded by payment from the replacement counterparty,

the Agency considers its exposure to be market risk (as defined above) and the

aggregate value of the bid-ask spread or the difference between the payments it

would receive and make on each Hedge.

Timing Risk is the risk that loan extensions or early closings leave the loan

commitment under-hedged or over-hedged and the issuer is left with a potentially

costly settlement upon termination.

As a general rule, the Agency will manage the risks of its Hedge exposure on an

enterprise-wide or “macro” basis, and will evaluate individual transactions within the

larger context of their impact across the relevant enterprise. In each case, the degree of

risk should be evaluated in comparison with degree of benefit provided.

IX. Disclosures and Financial Reporting Requirements

The Agency will track the financial implications of the Hedges it enters into, taking steps

to ensure that there is full and complete monitoring and disclosure of all Hedges to the

Board, to rating agencies, and in disclosure documents. The disclosure shall include a

clear summary of the special risks involved with Hedges and any potential exposure to

interest rate volatility or unusually large and rapid changes in market value. With respect

to its financial statements, the Agency will adhere to the guidelines for the financial

reporting of Hedges, as set forth by the Government Accounting Standards Board.

Internal disclosures: A regular report will be prepared for the Board including:

A. A summary of outstanding Hedges and their counterparties;

B. The mark-to-market value (termination value) of its Hedges, as measured by the

economic cost or benefit of terminating outstanding contracts as of a designated

valuation date;

C. The mark-to-market value (termination value) that the Agency has to each

specific counterparty, as measured by aggregate mark-to-market value, netted for

offsetting transactions;

D. The Maximum Potential Exposure that the Agency has to each specific

counterparty, as measured by aggregate mark-to-market value, netted for

offsetting transactions;

Exhibit #1 41

Page 10 of 10

E. The credit ratings of each counterparty (or guarantor, if applicable) and any

changes in the credit rating since the last reporting period; and

F. Any collateral posting as a result of Hedge agreement requirements.

X. Selecting and Procuring Interest Rate Hedges

The Agency will choose counterparties for entering into Hedge contracts on either a

negotiated or competitive basis. As a general rule, a competitive selection process will be

used if the product is relatively standard, if it can be broken down into standard

components, if two or more providers have proposed a similar product to the Agency, or

if competition will not create market pricing effects that would be detrimental to the

Agency’s interests. Negotiated procurement may be used for original or proprietary

products, for original ideas of applying a specified product to an Agency need, to avoid

market pricing effects that would be detrimental to the Agency’s interests, or on a

discretionary basis in conjunction with other business purposes. The Agency will strive

to use standard Hedge products wherever possible in order to increase price transparency

and liquidity.

Consideration may be given in negotiated transactions to those counterparties who have

demonstrated their willingness to participate in competitive transactions and have

performed well. If it is determined that a Hedge should be competitively bid, the Agency

may employ a hybrid structure to reward unique ideas or special effort by reserving a

specified percentage of the Hedge to the firm presenting the ideas on the condition that

the firm match or better the best bid. To provide safeguards on negotiated transactions,

the Agency should generally secure outside professional advice to assist in the process of

structuring, documenting and pricing the transaction, and to verify that a fair price was

obtained. In any negotiated transactions, the counterparty shall be required to disclose all

payments to third parties (including lobbyists, consultants and attorneys) who had any

involvement in assisting the counterparty in securing business with the Agency.

XI. Hedging Procedures

Hedging procedures will be implemented and changed, from time to time, to reflect

current market conditions and operational practices. This document will be shared with

the Board when it is available in final form and also when material changes are made to

the document.

Exhibit #1 42

2017 CALIFORNIA HOUSING FINANCE AGENCY WWW.CALHFA.CA.GOV | 877.9.CALHFA (877.922.5432)

Brian Anderson, Financing Officer500 Capitol Mall, Suite 1400 Sacramento, CA [email protected]

The CalHFA Conduit Issuer Program (“Conduit Program”) is designed to facilitate both for-profit and non-profit developers in accessing tax-exempt

and taxable bonds for the financing of family and senior affordable and mixed-income housing developments. The conduit bonds may be used to

finance the acquisition, rehabilitation, and/or development of an existing project; or for the construction of a new project.

CONDUIT ISSUER PROGRAM MULTIFAMILY HOUSING BONDS

Qualifications • Available to for-profit, non-profit or public agency sponsors.

• Non-profit borrowers may be eligible for 501(c)(3) bonds.

• CalHFA Portfolio Loan – if bond proceeds are utilized to pay off an existing CalHFA portfolio loan. Visit

www.calhfa.ca.gov for the CalHFA Portfolio Loan Prepayment Policy.

Loan Amount • Determined by the selected lender(s)

Fees(subject to change)

• Application Fee: $5,000 non-refundable, due at time of application submittal but credited towards issuer fee

• Issuer Fee:

1. The greater of $15,000 or 0.20% of the bond amount if less than $20 million

2. If more than $20 million $40,000 + 0.10% of the amount above $20 million

• Annual Administrative Fee: $7,500 (scattered site projects may require increased fees) is due and payable

in advance in annual installments commencing on bond issuance through the term of the regulatory period

• Public Sale: additional fee of $6,000 applies when bonds are sold to the public

• CDLAC Allocation Fee: 0.035% of the bond amount, $1,200 of which is due at time of CDLAC application

submittal with the remaining fee due at loan close, payable to CDLAC

• CDLAC Performance Deposit:

1. Deposit of 0.50% of the requested bond amount, not to exceed $100,000, due at time of application

submittal

2. Deposit to be refunded after bond closing, upon receipt of authorization letter from CDLAC

• TEFRA Costs: None

The Borrower shall be responsible for all other costs of issuance including fees of the underwriter, trustee, rating

agencies, lender, compliance administrator, all bond counsel, and any other parties required to complete the

transaction.

Exhibit #2 43

http://www.calhfa.ca.gov/multifamily/programs/forms/prepayment-policy.pdf

2017 CALIFORNIA HOUSING FINANCE AGENCY WWW.CALHFA.CA.GOV | 877.9.CALHFA (877.922.5432)

CONDUIT ISSUER PROGRAM

Occupancy Requirements

• Either (A) 20% of the units must be rent restricted and occupied by individuals whose incomes are 50% or

less of the area median income as determined by HUD (“AMI”) with adjustments for household size (“20%

@ 50% AMI”), or (B) 40% or more of the units must be both rent restricted and occupied by individuals

whose income is 60% or less of the AMI, with adjustments for household size (“40% @ 60% AMI”); however

in the latter case, a minimum of 10% of the units must be at 50% or less of AMI.

• Borrower will be required to enter into a Regulatory Agreement which will be recorded against the

affordable housing development for the Qualified Project Period (as defined in the Regulatory Agreement).

This includes the latter of the federally-required qualified project period, repayment of the loan, redemption

of the bonds or the full term of the CDLAC Resolution requirements.

Last revised: 08/2017

The information provided in this program description is for guidance only. While we have taken care to provide accurate information, we cannot cover every circumstance nor program nuance. This program description is subject to change from time to time without prior notice. The California Housing Finance Agency does not discriminate on any prohibited basis in employment or in the admission and access to its programs or activities. Not printed at taxpayer expense.

Exhibit #2 44

1


Investment Policy (Adopted March 14, 2012)

(Revised March 7, 2013 - see last page of policy)

(Revised February 11, 2014 - see last page of policy)

Introduction and Purpose

This Investment Policy and the related exhibits (collectively, the “Policy”) are intended

to provide guidelines for the prudent investment of funds authorized to be deposited or

invested by the California Housing Finance Agency (the “Agency”). In methods,

procedures and practices, the policy formalizes the framework for the Agency’s

investment activities that must be exercised to ensure effective and judicious fiscal and

investment management of the Agency’s funds. The ultimate goal is to enhance the

Agency’s financial return consistent with the prudent protection of the Agency’s

investments while conforming to all applicable state statutes governing the investment of

these funds.

Governing Authority

All investments shall be made in conformance with the State of California Government

Code: Division 4, Part 2, Chapter 3; the State of California Health and Safety Code:

Division 31, Part 3, Chapter 3 as well as bond covenants applicable to any debt issued by

the Agency.

Investment Oversight Committee

The Agency has established an Investment Oversight Committee (“Committee”). The

members of the Committee are the Agency’s Executive Director, Deputy Director,

General Counsel, Director of Financing, Financing Risk Manager and Comptroller. The

primary responsibilities of the Committee are to approve any new credit counterparty and

to monitor and review the Investment Policy. The Committee may also retain and

consult with legal, financial and other investment professionals and advisors.

Scope

It is intended that this Policy cover the deposit or investment of the following funds:

Bond Proceeds

Home Mortgage Revenue Bonds

Residential Mortgage Revenue Bonds

Multifamily Housing Revenue Bonds II

Exhibit #3 45

2

Multifamily Housing Revenue Bonds III

Affordable Multifamily Housing Refunding Revenue Bonds 2009 Series

A 21 and 22, and

Housing Program Bonds

Indentures created under Resolutions 13-01 and 13-02

Agency General Obligation (“G-O”) Accounts

Housing Assistance Trust

Supplementary Bond Security Account

Emergency Reserve Account

Agency’s Operating Account

This Policy does not cover the deposit or investment of funds of entities for which the

Agency serves as the conduit issuer of bonds.

General Objectives

The Agency’s primary objectives, in priority order, of investment activities shall be:

Safety: Safety of principal is the foremost objective. Investments shall be

undertaken in a manner that seeks to ensure the preservation of capital in the

overall portfolio. The goal will be to mitigate credit risk.

Liquidity: The Agency’s investments shall remain sufficiently liquid to meet all

operating and cash flow requirements that may be reasonably anticipated.

Return on Investment: The Agency seeks to optimize the yield on its investments,

consistent with constraints imposed by its safety and liquidity objectives.

Prudence

The individuals authorized to make investment decisions on behalf of the Agency shall

be held to the prudent investor standard applicable to California municipal entities:

When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing

public funds, a trustee shall act with care, skill, prudence, and diligence under the

circumstances then prevailing, including, but not limited to, the general economic

conditions and anticipated needs of the agency, that a prudent person acting in a like

capacity and familiarity with those matters would use in the conduct of funds of a like

character and with like aims, to safeguard the principal and maintain the liquidity needs

of the agency.

Ethics and Conflicts of Interest

The Director of Financing or his/her designees (the “Director of Financing”) the

Financing Risk Manager or his/her designees (the “Risk Manager”), the Comptroller,

Exhibit #3 46

3

his/her designees (the “Comptroller) all other members of the Oversight Committee as

well as investment advisors and trustees involved in funds management operations shall

operate in a manner that is consistent with applicable conflict of interest and incompatible

activity laws of the State. They shall refrain from personal business activities that could

conflict with the proper execution of the funds management program, or which could

impair their ability to make impartial investment decisions, advise on investment

decisions, or perform their fund management activities impartially, as applicable.

Investment and Cash Management Operations

Investment Operations: The Director of Financing and the Risk Manager have the

authority to manage the investment operations in accordance with the decisions

made by the Committee and this investment policy.

Cash Management Operations: The trustees under the bond resolutions along

with the Comptroller are responsible for the execution of the Agency’s investment

decisions and for the safekeeping of investment securities.

Permitted Investments and Investment Authority

Agency Investments - Attached are the provisions of State law which describe the

types of investments that are authorized for the Agency (exhibit #1: Section

51003 of Part 3 of Division 31 of the California Health and Safety Code).

Agency Deposit of Non-Bond Proceeds in the State Treasury and Investment in

Securities: Moneys other than bond moneys shall generally be invested, as

authorized by State law, in the Surplus Money Investment Fund (“SMIF”), a State

of California investment pool administered by the California State Treasurer

under the supervision of the State’s Pooled Money Investment Board (“PMIB”) or

in eligible securities. Attached are the provisions of State law which describe the

types of investments that are authorized for the State of California (exhibit #2:

Section 16430 of Part 2 of Division 4 of the State of California Government

Code).

a) Investment in SMIF: the Comptroller may direct the State Treasurer’s

Office (“STO”) to deposit funds in the State Treasury to be invested in

SMIF.

b) Investment in securities: the Financing Director or the Risk Manager

may direct the STO to invest funds that are not required for its current

needs in eligible securities.

c) Interest-bearing bank accounts and Money Market Funds (MMF): the

Comptroller may deposit or direct the STO to deposit funds in interest

bearing bank accounts or MMF outside the State’s Centralized

Treasury System (CTS) if 1) the bank deposits with the STO collateral

in excess of 10 percent of the deposit (in accordance with government

Exhibit #3 47

4

code 16521); 2) the funds are deposited (intraday) for administrative

efficiencies that are not available through the CTS.

Agency Investment of Bond Proceeds held by Bond Trustees Outside the STO:

Bond moneys shall be invested in accordance with the provisions of each bond

indenture and the Agency’s governing authority. Attached are the provisions for

the following bond indentures:

Home Mortgage Revenue Bonds (exhibit #3)

Residential Mortgage Revenue Bonds (exhibit #4)

Multifamily Housing Revenue Bonds II (exhibit #5)

Multifamily Housing Revenue Bonds III (exhibit#6)

Affordable Multifamily Housing Refunding Revenue Bonds 2009

Series A 21 and 22(exhibit #7), and

Housing Program Bonds (exhibit #8)

Investment funds that are proceeds of bonds or are set aside and pledged to secure

payment of bonds and are held by bond trustees shall be invested as follows:

a) Investment in Guaranteed Investment Contracts (“GICS”): If a decision is

made, by the Director of Financing or the Risk Manager, to use a GIC for

the investment of bond proceeds, the Comptroller may directly deposit or

direct the trustee to deposit funds in the GIC (note: a competitive bid

process, which counsel to the Agency advises is in compliance with

Federal Tax law, shall be used to award a GIC).

b) Investment in Securities: the Financing Director or the Risk Manager may

direct the Trustee to invest funds that are not required for its current needs

in any eligible securities.

c) Investment in MMF: the Financing Director or Risk Manager may direct

the Trustee to invest funds that are not required for its current needs in

eligible MMFs.

d) Investment in U.S. Bank N.A. Open Commercial Paper: the Financing

Director or Risk Manager may direct the Trustee to invest funds that are

not required for its current needs in U.S. Bank N.A. Open Commercial

Paper.

e) Investment of Funds in the State Treasury: the Financing Director or Risk

Manager may direct the trustee to invest funds in the State Treasury.

f) Interest-Bearing Bank Accounts: the Financing Director or Risk Manager

may direct the trustee to invest funds in interest bearing bank accounts.

Exhibit #3 48

5

Safekeeping and Custody of Securities

Third Party Safekeeping: Securities will be held by an independent third-party

trustee or other custodial arrangement. All securities will be held by the third

party in the Agency’s name.

Delivery vs. Payment: All trades of securities will be cleared and settled on a

delivery vs. payment basis to ensure that securities are deposited with the third

party trustee prior to the release of funds.

Internal Controls: The Risk Manager or the Comptroller, as applicable, shall

establish a system of internal controls. The internal control structure shall be

designed to ensure that the assets of the Agency are protected from loss, theft or

misuse and to provide reasonable assurance that these objectives are met.

Investment Parameters

In general the Agency primarily has three types of risk:

1) credit (counterparty) risk

2) interest-rate risk

3) reinvestment risk

And five classes of investments:

1) guaranteed investment contracts (GICs)

2) mortgage-backed securities (MBSs)

3) Money Market Funds (MMFs)

4) U.S. Bank N.A. Open Commercial Paper, and

5) the State of California’s Surplus Money Investment Fund (SMIF);

The Agency’s policy regarding monitoring these risks for each class of investment is as

follows:

Credit risk: is the risk that an investment will lose some or all of its value due to a

real or perceived change in the ability of the investment provider to meet its

obligations.

Guaranteed Investment Contracts: All GICs shall include provisions

protecting the Agency’s interests in the event of a credit rating downgrade

of the provider. Investment contracts with foreign financial institutions

are allowed only if the Agency is sufficiently protected from the added

risks of foreign investment: i) the sovereign debt of the home country

should be rated double A by at least one credit rating service acceptable to

the Agency; ii) the agreement should be with a domestic branch of the

Exhibit #3 49

6

foreign institution so that it is enforceable under the laws of the United

States.

The Agency’s Risk Manager has developed, and shall maintain, an

automated process in which the Agency is automatically notified by

Bloomberg if there is a change in the rating(s) of any of our

counterparties. In addition to the automatic notification by Bloomberg,

counterparties are required, via a signed investment contract, to notify the

trustee and/or Agency, within a certain number of days that they were

downgraded.

A credit downgrade triggers a review by the Risk Manager of all the

investment contracts related to the downgraded counterparty.

The majority of the Agency’s GICs have language that provides the

following options if either rating drops to single “A” or if both ratings

drop to single “A”:

i. the GIC provider could elect to assign or transfer its

obligations to a related or unrelated entity, that has

acceptable ratings.

ii. the GIC provider could elect to post collateral as specified

in the investment contract

iii. if the GIC provider elects not to post collateral and notifies

the Agency of this decision, the Agency has the option to:

a) terminate the GIC and receive the invested principal

and accrued interest to date.

b) keep the GIC with the provider at the lower credit

rating.

In general, the Agency’s policy on the retention of a “triggered”

investment agreement is:

i. if the provider has a split rating of double “A” and single

“A”, the Agency’s Risk Manager has unlimited discretion

to maintain the invested funds.

ii. if the provider has two single “A” ratings, the Agency’s

Risk Manager cannot maintain more than $10 million of

the invested funds in the GIC.

iii. if the provider has only one single “A” rating, the Agency’s

Risk Manager cannot maintain more than $5 million of the

invested funds in the GIC.

iv. if the provider does not have at least one single “A” rating,

the Agency’s Risk Manager must terminate the GIC.

Exhibit #3 50

7

Mortgage Back Securities: the majority of the Agency’s MBSs were

created by securitizing the Agency’s whole loans. The scheduled

principal and interest payments on these MBSs are guaranteed by Fannie

Mae or Ginnie Mae and carry a triple A rating by Moody’s and an AA+

rating by S&P, therefore, they have minimal credit risk.

Money Market Funds: The MMF that the Agency currently invests in is

the First American Government Obligation Fund. The Agency’s Risk

Manager believes that the First American Government Obligation Fund is

well managed, sufficiently diversified, and generally adheres to the

parameters set forth in the investment objectives. The Funds’s strategy is

to seek to provide maximum current income and daily liquidity by

purchasing high-quality U.S. government securities and repurchase

agreements collateralized at more than 100%. The Fund is rated AAAm

by Standard & Poor’s and Aaa-mf by Moody’s. The Agency’s Risk

Manager believes it has minimal credit risk. Additional information on the

First American Government Obligation Fund can be obtained via the

internet at www.firstamericanfunds.com/home/money-market-

funds/money-market-funds.aspx/d=1028/title= Government Obligations/

class=D

U. S. Bank Open Commercial Paper: the Agency has entered into an open

commercial paper agreement with U.S. Bank N.A. for most of the

Agency’s programs except for Home Mortgage Revenue Bonds. An open

commercial paper agreement has no specific end date; it continues to earn

interest until the buyer requests the funds to be returned. The open

commercial paper agreement allows for greater liquidity by providing

flexibility to make adjustments or redeem at any point in time. Under the

U.S. Bank Open Commercial Paper Agreement the Agency’s credit risk is

with U.S. Bank N.A.

Surplus Money Investment Fund: SMIF is part of the State of California

Pooled Money Investment Account (PMIA) which is managed by the

Pooled Money Investment Board (PMIB) which has the oversight

responsibility for SMIF. Additional information on the PMIA investment

policy and PMIA investment reports can be obtained via the internet at

www.treasurer.ca.gov/pmia-laif/answer/policy.

Interest Rate Risk and Reinvestment Risk: for the purpose of this Policy,

investment risk is defined as the potential loss of principal and accrued interest if

the investment were to be drawn upon, sold or terminated early and reinvestment

risk is defined as the risk that if an investment matures or is terminated early you

will not be able to reinvest the funds at a comparable rate.

Exhibit #3 51

http://www.firstamericanfunds.com/home/money-market-funds/money-market-funds.aspx/d=1028/title=%20Government%20Obligations/%20class=D



8

Guaranteed Investment Contracts: the GICs have a fixed interest rate and

the term of the GIC is matched to the term of the applicable bond issue,

therefore, they have no interest rate or reinvestment risk

Mortgage Back Securities: the majority of the Agency’s MBSs were

created by securitizing the Agency’s whole loans with the intent of

holding the security until maturity; because of this intent to hold the

security to maturity, the MBSs have minimal interest rate and

reinvestment risk.

Money Market Funds: since the Agency’s objective in investing in a

MMF is to maintain a NAV of $1 by investing in short-term, high-grade

debt instruments, there is no interest rate risk for the MMF but there is

reinvestment risk.

U. S. Bank Open Commercial Paper: similar to the MMF, has no interest

rate risk but it does have reinvestment risk.

Surplus Money Investment Fund: similar to the MMF, SMIF has no

interest rate risk but it does have reinvestment risk.

Reporting

The Financing Director or Risk Manager will prepare and present to the Agency’s Board

of Directors an annual investment report. The report will include, at a minimum, the

following information:

A summary of the dollar amount invested in each type of investment.

A summary of the dollar amount invested in Guaranteed Investment Contracts

(“GIC”s) by provider.

Moody’s and Standard & Poors’ investment ratings for each GIC provider

A summary of the dollar amount invested in GICs at each rating

A summary of securities by type of security showing the par value, market value,

weighted average coupon and weighted average remaining maturity of the

securities.

A list of the current mortgage backed securities showing the bond series that owns

the security, the pass-thru rate, the yield to the bond series, the mortgage rate, the

type of security, the pool number, the CUSIP number, the settlement date, the

maturity date and the then outstanding principal balance of the mortgage backed

security.

Exhibit #3 52

9

Annual Review of Investment Policy

The investment policy will be reviewed at least annually by the Committee to ensure its

consistency with the overall objectives of preservation of principal, liquidity and return,

and its relevance to current law and financial and economic trends.

Revisions

March 7, 2013 – added language describing the U.S. Bank N.A. Open Commercial Paper

investment and deleted the language describing the U.S. Bank N.A. Open Repurchase

Agreement.

February 11, 2014 – added language regarding the investment of non-bond funds outside

the Centralized State Treasury System.

Exhibit #3 53

10

EXHIBIT 1

STATE OF CALIFORNIA

Health and Safety Code

Division 31, Part 3, Chapter 3

51003 Investment of moneys; repurchase and reverse repurchase

agreements; investment agreements; eligible securities; financial

institutions; increments

The agency shall, from time to time, direct the Treasurer to

invest moneys in the fund which are not required for its current

needs, including proceeds from the sale of any bonds, in any eligible

securities specified in Section 16430 of the Government Code which

the agency shall designate. The agency may direct the Treasurer to

invest the moneys by entering into repurchase agreements or reverse

repurchase agreements, which, for purposes of this section, shall

mean agreements for the purchase or sale of eligible securities

pursuant to which the seller or buyer agrees to repurchase or sell

back the securities on or before a specified date and for a specified

amount. The agency may direct the Treasurer to invest the moneys in

investment agreements with corporations, financial institutions, or

national associations within the United States which are rated by a

nationally recognized rating service within the top three ratings of

the service. For purposes of this section, investment agreements

shall mean any agreement for the investment of moneys in the fund

whether at fixed or variable interest rates, and may include, but not

be limited to, repurchase agreements, notes, uncollateralized time

deposits and certificates of deposit. The agency may direct the

Treasurer to deposit moneys in interest-bearing accounts in state or

national banks or other financial institutions having principal

offices in this state.

Subject to any agreement with holders of particular bonds, in

furtherance of the provisions of Section 51373, and to the extent

permitted by law, the agency may also invest moneys of the fund in

obligations or financial institutions as are permitted by board

resolution. The agency may alternatively require the transfer of

moneys in the fund to the Surplus Money Investment Fund for

investment pursuant to Article 4 (commencing with Section 16470) of

Chapter 3 of Part 2 of Division 4 of Title 2 of the Government Code.

All interest or other increment resulting from such investment or

deposit shall be deposited in the fund, notwithstanding Section

16305.7 of the Government Code. Moneys in the fund shall not be

subject to transfer to any other fund pursuant to any provision of

Part 2 (commencing with Section 16300) of Division 4 of Title 2 of

the Government Code, excepting the Surplus Money Investment Fund.

Exhibit #3 54

11

EXHIBIT 2

STATE OF CALIFORNIA

Government Code

Division 4, part 2, Chapter 3

16430. Eligible securities for the investment of surplus moneys

shall be any of the following:

(a) Bonds or interest-bearing notes or obligations of the United

States, or those for which the faith and credit of the United States

are pledged for the payment of principal and interest.

(b) Bonds or interest-bearing notes on obligations that are

guaranteed as to principal and interest by a federal agency of the

United States.

(c) Bonds, notes, and warrants of this state, or those for which

the faith and credit of this state are pledged for the payment of

principal and interest.

(d) Bonds or warrants, including, but not limited to, revenue

warrants, of any county, city, metropolitan water district,

California water district, California water storage district,

irrigation district in the state, municipal utility district, or

school district of this state.

(e) Any of the following:

(1) Bonds, consolidated bonds, collateral trust debentures,

consolidated debentures, or other obligations issued by federal land

banks or federal intermediate credit banks established under the

Federal Farm Loan Act, as amended (12 U.S.C. Sec. 2001 et seq.).

(2) Debentures and consolidated debentures issued by the Central

Bank for Cooperatives and banks for cooperatives established under

the Farm Credit Act of 1933, as amended (12 U.S.C. Sec. 2001 et

seq.).

(3) Bonds or debentures of the Federal Home Loan Bank Board

established under the Federal Home Loan Bank Act (12 U.S.C. Sec. 1421

et seq.).

(4) Stocks, bonds, debentures, and other obligations of the

Federal National Mortgage Association established under the National

Housing Act, as amended (12 U.S.C. Sec. 1701 et seq.).

(5) Bonds of any federal home loan bank established under that

act.

(6) Obligations of the Federal Home Loan Mortgage Corporation.

(7) Bonds, notes, and other obligations issued by the Tennessee

Valley Authority under the Tennessee Valley Authority Act, as amended

(16 U.S.C. Sec. 831 et seq.).

(8) Other obligations guaranteed by the Commodity Credit

Corporation for the export of California agricultural products under

the Commodity Credit Corporation Charter Act, as amended (15 U.S.C.

Sec. 714 et seq.).

(f) (1) Commercial paper of "prime" quality as defined by a

nationally recognized organization that rates these securities, if

the commercial paper is issued by a corporation, trust, or limited

liability company that is approved by the Pooled Money Investment

Board as meeting the conditions specified in either subparagraph (A)

or subparagraph (B):

Exhibit #3 55

12

(A) Both of the following conditions:

(i) Organized and operating within the United States.

(ii) Having total assets in excess of five hundred million dollars

($500,000,000).

(B) Both of the following conditions:

(i) Organized within the United States as a special purpose

corporation, trust, or limited liability company.

(ii) Having programwide credit enhancements including, but not

limited to, overcollateralization, letters of credit, or surety bond.

(2) A purchase of eligible commercial paper may not do any of the

following:

(A) Exceed 180 days' maturity.

(B) Represent more than 10 percent of the outstanding paper of an

issuing corporation, trust, or limited liability company.

(C) Exceed 30 percent of the resources of an investment program.

(3) At the request of the Pooled Money Investment Board, an

investment made pursuant to this subdivision shall be secured by the

issuer by depositing with the Treasurer securities authorized by

Section 53651 of a market value at least 10 percent in excess of the

amount of the state's investment.

(g) Bills of exchange or time drafts drawn on and accepted by a

commercial bank, otherwise known as bankers acceptances, that are

eligible for purchase by the Federal Reserve System.

(h) Negotiable certificates of deposits issued by a federally or

state-chartered bank or savings and loan association, a

state-licensed branch of a foreign bank, or a federally or

state-chartered credit union. For the purposes of this section,

negotiable certificates of deposits are not subject to Chapter 4

(commencing with Section 16500) and Chapter 4.5 (commencing with

Section 16600).

(i) The portion of bank loans and obligations guaranteed by the

United States Small Business Administration or the United States

Farmers Home Administration.

(j) Bank loans and obligations guaranteed by the Export-Import

Bank of the United States.

(k) Student loan notes insured under the Guaranteed Student Loan

Program established pursuant to the Higher Education Act of 1965, as

amended (20 U.S.C. Sec. 1001 and following) and eligible for resale

to the Student Loan Marketing Association established pursuant to

Section 133 of the Education Amendments of 1972, as amended (20

U.S.C. Sec. 1087-2).

(l) Obligations issued, assumed, or guaranteed by the

International Bank for Reconstruction and Development, the

Inter-American Development Bank, the Asian Development Bank, the

African Development Bank, the International Finance Corporation, or

the Government Development Bank of Puerto Rico.

(m) Bonds, debentures, and notes issued by corporations organized

and operating within the United States. Securities eligible for

investment under this subdivision shall be within the top three

ratings of a nationally recognized rating service.

(n) Negotiable Order of Withdrawal Accounts (NOW Accounts),

invested in accordance with Chapter 4 (commencing with Section

16500).

Exhibit #3

56

13

EXHIBIT 3


General Indenture Relating to Home Mortgage Revenue Bonds

“Investment Securities” means any of the following which at the time are lawful

investments under the laws of the State including the Act for the moneys held under the

Indenture then proposed to be invested therein: (i) direct general obligations of the United

States of America, or obligations the payment of the principal of and interest on which is

unconditionally guaranteed by the United States of America or any federal agency of the

United States of America or the State; (ii) bonds, consolidated bonds, collateral trust

debentures, consolidated debentures, or other obligations issued by Federal Intermediate

Credit Banks established under the Federal Farm Loan Act, as amended, debentures and

consolidated debentures issued by the Central Bank for Cooperatives and Banks for

Cooperatives established under the Farm Credit Act of 1933, as amended, bonds or

debentures of the Federal Home Loan Bank Board established under the Federal Home

Loan Bank Act, bonds, debentures and other obligations of the Federal National

Mortgage Association or of the Government National Mortgage Association, established

under the National Housing Act, as amended, bonds of any Federal Home Loan Bank

established under said act, bonds, notes, and other obligations issued by the Tennessee

Valley Authority under the Tennessee Valley Authority Act, as amended; (iii) the portion

of bank loans and obligations guaranteed by the United States Small Business

Administration or the United States Farmers Home Administration; (iv) bonds,

debentures, and notes issued by corporations organized and operating within the United

States of America and within the top two ratings of a nationally recognized rating service;

(v) negotiable certificates of deposit issued by a nationally or state-chartered bank or

savings and loan association which, to the extent they are not insured by Federal deposit

insurance, are collateralized by securities eligible to secure public deposits in the State, or

which are issued by such an institution rated within the top two ratings of a nationally

recognized rating service; (vi) interest bearing accounts in State or national banks or

other financial institutions which, to the extent they are not insured by federal deposit

insurance, are collateralized by securities eligible to secure public deposits in the State, or

which are issued by such an institution rated within the top two ratings by a nationally

recognized rating service, provided that the amounts of such deposits shall not be based

on the relative participation of the different types of financial institutions as qualified

mortgage lenders under the Act; or (vii) deposits in the Surplus Money Investment Fund

referred to in Section 51002 of the Act.

Exhibit #3 57

14

EXHIBIT 4


General Indenture relating to Residential Mortgage Revenue Bonds

“Investment Obligations” means, to the extent authorized by law for investment

of moneys of the Agency at the time of such investment,

(i) (A) Government Obligations, or (B) obligations rated in either of

the two highest rating categories of each Rating Agency of any state of the

United States of America or any political subdivision of such a state, payment of

which is secured by an irrevocable pledge of Government Obligations;

(ii) (A) bonds, debentures or other obligations issued by Federal

Home Loan Banks, Tennessee Valley Authority, Federal Farm Credit System

Obligations, World Bank, International Bank for Reconstruction and

Development and Inter-American Development Bank; or (B) bonds, debentures

or other obligations issued by Fannie Mae and Federal Home Loan Mortgage

Corporation (excluding mortgage securities which are valued greater than par on

the portion of unpaid principal or mortgage securities which represent payments

of principal only or interest only with respect to the underlying mortgage loans);

(iii) obligations issued by public agencies or municipalities and fully

secured as to the payment of both principal and interest by a pledge of annual

contributions under an annual contributions contract or contracts with the United

States of America, or temporary notes, preliminary loan notes or project notes

issued by public agencies or municipalities and fully secured as to the payment of

both principal and interest by a requisition or payment agreement with the United

States of America, in each case rated in either of the two highest rating categories

(or the highest rating of short-term obligations if the investment is a short-term

obligation) by each Rating Agency;

(iv) time deposits, certificates of deposit or any other deposit with a

bank, trust company, national banking association, savings bank, federal mutual

savings bank, savings and loan association, federal savings and loan association

or any other institution chartered or licensed by any state or the U.S. Comptroller

of the Currency to accept deposits in such state (as used herein, “deposits” shall

mean obligations evidencing deposit liability which rank at least on a parity with

the claims of general creditors in liquidation), which are (a) fully secured by any

of the obligations described in (i) above having a market value (exclusive of

accrued interest) not less than the uninsured amount of such deposit or

(b) (1) unsecured or (2) secured to the extent, if any, required by the Agency and,

in both (1) and (2), made with an institution whose unsecured debt securities are

rated in either of the two highest rating categories and the highest short term

rating category (or the highest rating of short-term obligations if the investment is

a short-term obligation) by each Rating Agency;

(v) repurchase agreements backed by or related to obligations

described in (i) or (ii) above with any institution whose unsecured debt securities

are rated in either of the two highest rating categories (or the highest rating of

Exhibit #3 58

15

short-term obligations if the investment is a short-term obligation) by each

Rating Agency;

(vi) investment agreements, secured or unsecured as required by the

Agency, with any institution whose debt securities are rated in either of the two

highest rating categories (or the highest rating of short-term obligations if the

investment is a short-term obligation) by each Rating Agency;

(vii) direct and general obligations of or obligations unconditionally

guaranteed by the State, the payment of the principal of and interest on which the

full faith and credit of the State is pledged, and certificates of participation in

obligations of the State which obligation may be subject to annual appropriations,

which obligations are rated in either of the two highest rating categories by each

Rating Agency;

(viii) direct and general obligations of or obligations unconditionally

guaranteed by any state, municipality or political subdivision or agency thereof,

which obligations are rated in either of the two highest rating categories by each

Rating Agency;

(ix) bonds, debentures, or other obligations issued by any insurance

company, corporation, government or governmental entity (foreign or domestic),

provided, that such bonds, debentures or other obligations are (a) payable in any

coin or currency of the United States of America which at the time of payment

will be legal tender for the payment of public and private debts, and (b) rated in

either of the two highest rating categories by each Rating Agency;

(x) commercial paper (having original maturities of not more than

365 days) rated in the highest rating category by each Rating Agency;

(xi) money market funds which invest in Government Obligations

and which funds have been rated in the highest rating category by each Rating

Agency;

(xii) deposits in the Surplus Money Investment Fund referred to in

Section 51003 of the Act or any successor fund thereto if each Rating Agency

has confirmed that investment therein, in and of itself, will not adversely affect

the then-existing rating of the Bonds by such Rating Agency; or

(xiii) any investments authorized in a Series Indenture authorizing

Bonds, as long as the related Bonds are rated by each Rating Agency.

Exhibit #3 59

16

EXHIBIT 5


General Indenture Relating to Multifamily Housing Revenue Bonds II

"Investment Obligation" means any of the following which at the time are lawful investments

under the laws of the State for the moneys held hereunder then proposed to be invested therein:

(1) direct general obligations of the United States of America or of the State, or obligations the

payment of the principal of and interest on which are unconditionally guaranteed by the United

States of America, any federal agency of the United States of America, or the State; (2) bonds,

consolidated bonds, collateral trust debentures, consolidated debentures, or other obligations

issued by Federal Land Banks or Federal Intermediate Credit Banks established under the Federal

Farm Loan Act, as amended, debentures and consolidated debentures issued by the Central Bank

for Cooperatives and Banks for Cooperatives established under the Farm Credit Act of 1933, as

amended, bonds or debentures of the Federal Home Loan Bank Board established under the

Federal Home Loan Bank Act, stock, bonds, debentures and other obligations of Fannie Mae or

of the Government National Mortgage Association, established under the National Housing Act,

as amended, bonds of any Federal Home Loan Bank established under said act, bonds, debentures

and other obligations of the Federal Home Loan Mortgage Corporation guaranteeing timely

payment of principal and interest, bonds, notes, and other obligations issued by the Tennessee

Valley Authority under the Tennessee Valley Authority Act, as amended, except, in each case,

securities evidencing ownership interests in specified portions of the interest on or principal of

such obligations; (3) commercial paper rated within the highest Rating Category of each Rating

Agency and issued by corporations (a) organized and operating within the United States; and

(b) having total assets in excess of five hundred million dollars ($500,000,000); (4) bills of

exchange or time drafts drawn on and accepted by a commercial bank the general obligations of

which are rated within the highest two Rating Categories by each Rating Agency, otherwise

known as bankers acceptances, which are eligible for purchase by the Federal Reserve System,

and negotiable certificates of deposits issued by a nationally or state-chartered bank or savings

and loan association which are insured by federal deposit insurance, or which are issued by an

institution the general obligations of which are rated within the highest two Rating Categories by

each Rating Agency; (5) bonds, debentures, and notes issued by corporations organized and

operating within the United States and rated within the two highest Rating Categories by each

Rating Agency; (6) repurchase agreements or reverse repurchase agreements, with nationally

recognized broker-dealers which are agreements for the purchase or sale of Investment

Obligations pursuant to which the seller or buyer agrees to repurchase or sell back such securities

on or before a specified date and for a specified amount, which seller or buyer has outstanding

long-term indebtedness which are rated within the highest two Rating Categories by each Rating

Agency; (7) investment agreements with corporations, financial institutions or national

associations within the United States the general obligations of which (or, if payment of such

investment agreement is guaranteed, the general obligations of the guarantor) are rated within the

two highest Rating Categories by each Rating Agency; (8) interest bearing accounts in State or

national banks or other financial institutions having principal offices in the State (including those

of the Trustee or its affiliates) which, to the extent they are not insured by federal deposit

insurance, are issued by an institution the general obligations of which are rated within the

highest two Rating Categories by each Rating Agency; (9) interests in any short term investment

fund (including those of the Trustee or its affiliates) restricted to investment in obligations

described in any of clauses (1) through (5) of this definition, which are rated within the highest

two Rating Categories by each Rating Agency; (10) deposits in the Surplus Money Investment

Fund referred to in Section 51003 of the Act; or (11) other investment securities acceptable to

each Credit Provider which will not cause the rating on any Bonds to be reduced or withdrawn.

Exhibit #3 60

17

EXHIBIT 6


General Indenture Relating to Multifamily Housing Revenue Bonds III

"Investment Obligation" means any of the following which at the time are lawful

investments under the laws of the State for the moneys held hereunder then proposed to

be invested therein: (1) direct general obligations of the United States of America or of

the State, or obligations the payment of the principal of and interest on which are

unconditionally guaranteed by the United States of America, any federal agency of the

United States of America, or the State; (2) bonds, consolidated bonds, collateral trust

debentures, consolidated debentures, or other obligations issued by Federal Land Banks

or Federal Intermediate Credit Banks established under the Federal Farm Loan Act, as

amended, debentures and consolidated debentures issued by the Central Bank for

Cooperatives and Banks for Cooperatives established under the Farm Credit Act of 1933,

as amended, bonds or debentures of the Federal Home Loan Bank Board established

under the Federal Home Loan Bank Act, stock, bonds, debentures and other obligations

of Fannie Mae or of the Government National Mortgage Association, established under

the National Housing Act, as amended, bonds of any Federal Home Loan Bank

established under said act, bonds, debentures and other obligations of the Federal Home

Loan Mortgage Corporation guaranteeing timely payment of principal and interest,

bonds, notes, and other obligations issued by the Tennessee Valley Authority under the

Tennessee Valley Authority Act, as amended, except, in each case, securities evidencing

ownership interests in specified portions of the interest on or principal of such

obligations; (3) commercial paper rated within the highest three Rating Categories of

each Rating Agency and issued by corporations (a) organized and operating within the

United States; and (b) having total assets in excess of five hundred million dollars

($500,000,000); (4) bills of exchange or time drafts drawn on and accepted by a

commercial bank the general obligations of which are rated within the highest three

Rating Categories by each Rating Agency, otherwise known as bankers acceptances,

which are eligible for purchase by the Federal Reserve System, and negotiable

certificates of deposits issued by a nationally or state-chartered bank or savings and loan

association which are insured by federal deposit insurance, or which are issued by an

institution the general obligations of which are rated within the highest three Rating

Categories by each Rating Agency; (5) bonds, debentures, and notes issued by

corporations organized and operating within the United States and rated within the

highest three Rating Categories by each Rating Agency; (6) repurchase agreements or

reverse repurchase agreements, with nationally recognized broker-dealers which are

agreements for the purchase or sale of Investment Obligations pursuant to which the

seller or buyer agrees to repurchase or sell back such securities on or before a specified

date and for a specified amount, which seller or buyer has outstanding long-term

indebtedness which are rated within the highest three Rating Categories by each Rating

Agency; (7) investment agreements with corporations, financial institutions or national

associations within the United States the general obligations of which (or, if payment of

such investment agreement is guaranteed, the general obligations of the guarantor) are

rated within the highest three Rating Categories by each Rating Agency; (8) interest

bearing accounts in State or national banks or other financial institutions having principal

Exhibit #3 61

18

offices in the State (including those of the Trustee or its affiliates) which, to the extent

they are not insured by federal deposit insurance, are issued by an institution the general

obligations of which are rated within the highest three Rating Categories by each Rating

Agency; (9) interests in any short term investment fund (including those of the Trustee or

its affiliates) restricted to investment in obligations described in any of clauses (1)

through (5) of this definition, which are rated within the highest three Rating Categories

by each Rating Agency; (10) deposits in the Surplus Money Investment Fund referred to

in Section 51003 of the Act; or (11) other investment securities which will not cause any

Unenhanced Rating on any Bonds to be reduced or withdrawn.

Exhibit #3 62

19

EXHIBIT 7


General Indenture Relating to Affordable Multifamily Housing Revenue Bonds

“Investment Obligation” means any of the following which at the time are

lawful investments under the laws of the State for the moneys held hereunder then

proposed to be invested therein: (1) direct general obligations of the United States of

America or of the State, or obligations the payment of the principal of and interest on

which are unconditionally guaranteed by the United States of America, any federal

agency of the United States of America, or the State; (2) bonds, consolidated bonds,

collateral trust debentures, consolidated debentures, or other obligations issued by

Federal Land Banks or Federal Intermediate Credit Banks established under the Federal

Farm Loan Act, as amended, debentures and consolidated debentures issued by the

Central Bank for Cooperatives and Banks for Cooperatives established under the Farm

Credit Act of 1933, as amended, bonds or debentures of the Federal Home Loan Bank

Board established under the Federal Home Loan Bank Act, bonds, debentures and other

obligations of Fannie Mae or of the Government National Mortgage Association,

established under the National Housing Act, as amended, bonds of any Federal Home

Loan Bank established under said act, bonds, debentures and other obligations of the

Federal Home Loan Mortgage Corporation guaranteeing timely payment of principal and

interest, bonds, notes, and other obligations issued by the Tennessee Valley Authority

under the Tennessee Valley Authority Act, as amended, except, in each case, securities

evidencing ownership interests in specified portions of the interest on or principal of such

obligations; (3) commercial paper rated within the highest short-term Rating Category of

each Rating Agency and issued by corporations (a) organized and operating within the

United States; and (b) having total assets in excess of five hundred million dollars

($500,000,000); (4) bills of exchange or time drafts drawn on and accepted by a

commercial bank the general obligations of which are rated within the highest short-term

rating and the highest two Rating Categories by each Rating Agency, otherwise known as

bankers acceptances, which are eligible for purchase by the Federal Reserve System, and

negotiable certificates of deposits issued by a nationally or state chartered bank or

savings and loan association which are insured by federal deposit insurance, or which are

issued by an institution the general obligations of which are rated within the highest

short-term rating and the highest two Rating Categories by each Rating Agency; (5)

repurchase agreements or reverse repurchase agreements, with nationally recognized

broker dealers which are agreements for the purchase or sale of Investment Obligations

pursuant to which the seller or buyer agrees to repurchase or sell back such securities on

or before a specified date and for a specified amount, which seller or buyer has

outstanding long-term indebtedness which are rated within the highest two Rating

Categories by each Rating Agency; (6) investment agreements with corporations,

financial institutions or national associations within the United States the general

obligations of which (or, if payment of such investment agreement is guaranteed, the

general obligations of the guarantor) are rated within the two highest Rating Categories

Exhibit #3 63

20

by each Rating Agency; (7) interest bearing accounts in State or national banks or other

financial institutions having principal offices in the State (including those of the Trustee

or its affiliates) which are issued by an institution the general obligations of which are

rated within the highest short-term rating and the highest two Rating Categories by each

Rating Agency; (8) interests in any short term investment fund (including those of the

Trustee or its affiliates) restricted to investment in obligations described in any of clauses

(1) through (5) of this definition, which are rated within the highest two Rating

Categories by each Rating Agency; (9) deposits in the Surplus Money Investment Fund

referred to in Section 51003 of the Act if each Rating Agency has confirmed that

investment therein, in and of itself, will not adversely affect the then-existing rating on

the Bonds; (10) other investment securities acceptable to each Credit Provider which will

not cause the rating on any Bonds to be reduced or withdrawn; or (11) any investments

authorized in a Series Indenture authorizing Bonds, as long as the related Bonds are rated

by each Rating Agency.

Exhibit #3 64

21

EXHIBIT 8


General Indenture Relating to Housing Program Bonds

“Investment Obligations” means and includes any of the following

securities, if and to the extent the same are at the time legal for investment of the

Agency’s funds:

(a) Direct obligations of, or obligations which are guaranteed by

the full faith and credit of, the United States of America;

(b) Obligations, debentures, notes or other evidence of

indebtedness issued or guaranteed by any of the following, provided that they are

backed by the full faith and credit of the United States of America: Bank for

Cooperatives; Federal Intermediate Credit Banks; Federal Home Loan Bank

System; Export-Import Bank of the United States; Federal Land Banks; Federal

National Mortgage Association (excluding mortgage strip securities, principal

strips valued greater than par and interest obligation strips); Farmers Home

Administration; Federal Home Loan Mortgage Corporation (including

participation certificates only if they guarantee timely payment of principal and

interest); Government National Mortgage Association; Federal Financing Bank;

or Federal Housing Administration, or, in each case, any successor federally

sponsored association or agency;

(c) Repurchase agreements with depositories, acting as principal or

agent, for securities described in (a) and (b) above, if such securities are delivered

to the Trustee or are supported by a safe-keeping receipt issued by a qualified

Depository (A) rated by each Rating Agency sufficiently high to maintain the then

current rating on any Bonds then rated by such Rating Agency or

(B) collateralized in such manner to meet all requirements for collateralized

repurchase agreements of each Rating Agency in order to maintain the then

current rating on any Bonds then rated by such Rating Agency;

(d) Obligations issued by public agencies or municipalities and

fully secured as to the payment of both principal and interest by a pledge of

annual contributions under an annual contributions contract or contracts with the

United States of America; or temporary notes, preliminary loan notes or project

notes issued by public agencies or municipalities, in each case, fully secured as to

the payment of both principal and interest by requisition or payment agreement

with the United States of America and having a rating from each Rating Agency

sufficiently high to maintain the then current rating on any Bonds then rated by

such Rating Agency;

Exhibit #3 65

22

(e) Obligations of Investment Providers under investment

agreements approved in a Series Indenture or other investment agreements having

substantially similar terms;

(f) Units of a money market fund comprised solely of obligations

guaranteed by the full faith and credit of the United States of America or fully

secured by such obligations which fund is rated by each Rating Agency

sufficiently high to maintain the then current rating on any Bonds then rated by

such Rating Agency;

(g) Certificates of deposit, interest-bearing time deposits, or other

similar banking arrangements, including investment agreements, with a bank or

banks (i) rated by each Rating Agency sufficiently high to maintain the then

current rating on any Bonds then rated by such Rating Agency or

(ii) collateralized in such manner to meet all requirements for collateralized

agreements of each Rating Agency in order to maintain the then current rating on

any Bonds then rated by such Rating Agency;

(h) Units of a money market mutual fund which has a rating from

each Rating Agency sufficiently high to maintain the then current rating on any

Bonds then rated by such Rating Agency;

(i) Deposits in the Surplus Money Investment Fund referred to in

Section 51003 of the Act, or any successor fund thereto; and

(j) Any other securities, if and to the extent the same are at the time

legal for investment of any of the Agency’s funds.

Exhibit #3 66

MF CPP Manual Appendix – June 2017 v2

DEVELOPMENT TEAM REQUIREMENTS FOR CALHFA FINANCING For new CalHFA financing or CalHFA Portfolio Loan assignment requests, CalHFA will review and analyze the experience, capacity, and credit worthiness of the Applicants and their entire development team to ensure they collectively meet the below described qualifications and experience requirements. Applicants whose development teams lack the minimum required experience planning, developing, constructing, marketing and managing “comparable” rental housing developments (“Projects”) should partner with a co-developer, Consultant, or firm that can provide the required experience. “Comparable” shall mean: of similar size, or number of units, to that of the proposed Project the Applicant is seeking financing for. NOTE: CalHFA staff will review the information submitted by each Development Team member or firm and advise the Applicant whether any of their Development Team lacks the minimum required experience. CalHFA will order business credit reports from nationally recognized agencies for each Applicant/ Developer/ Sponsor, joint venture partner(s), management agent, and general contractor to assist in evaluating the current financial condition, liquidity and capacity of each party. CalHFA may also require financial statements and/or tax returns, prepared or audited by an independent Certified Public Accountant, in a form and content acceptable to CalHFA, along with appropriate supporting information. In some instances, CalHFA may require a Loan Guarantor. CalHFA may decline financing or loan assignments to Applicants or principals involved with other CalHFA financed Projects who are, or have been, in default or delinquent for more than three (3) months on a CalHFA loan, or who have had, or are currently in a non-monetary default situation in regards to the terms of the CalHFA Regulatory Agreement.

DEVELOPMENT TEAM EXPERIENCE A. Developer: The Developer or co-developer must have successfully developed (from start to finish) a

minimum of three (3) comparable rental housing developments (“Projects”). Developers must submit the following:

1. Resumes for key Development team members, the Project Manager and Principal(s). 2. Describe the three (3) Projects that were built and include the following information for each

Project: i. total number of rental housing units;

ii. list all funding sources and total development costs; iii. state whether the Project involved new construction or rehabilitation; iv. location of each Project v. start and completion dates;

vi. names of the Developers key staff members involved in each Projects; and vii. whether each Project was completed on time and on budget relative to the

schedule and budget at start of construction. 3. The Project Manager for the proposed Project must have personally managed the development of

at least two (2) comparable Projects from start to finish. Provide the names of each Project, the

Exhibit #4 67


total number of units, total development costs, and the time frames the Project Manager worked on each developed Project.

4. Name all Projects the proposed Project Manager will be personally involved with, or responsible for managing during the time frame the proposed Project is expected to be built; the location of the Projects; the total number of units in each Project; and the expected completion dates of each Project.

5. Developer shall certify that they have the capacity (adequate experienced staff) to take on the proposed Project – and list the proposed or current Projects in their pipeline that will be in development during the same time frames as the proposed Project (from start to finish and occupancy).

B. Architect: The Architect must have designed CalHFA financed Projects OR the Architect must have

designed a minimum of three (3) comparable rental housing developments (“Projects”) that have been built and occupied within the past ten years. Architect’s without experience designing CalHFA financed Projects must submit the following information.

1. Submit resumes showing the job history for each key staff person and Principal(s). 2. The Architectural firm must provide a list of three (3) Projects they designed that have the same

construction type (e.g. steel or wood frame or podium construction) and identify the Lead Staff person responsible for helping design each of the three Projects. Provide 8-1/2” x 11” elevation drawings of each Project.

C. Development and/or Financial Consultant: A Consultant is not required if the Developer possess the

minimum required experience noted above in section A. If a consultant or consulting firm is hired to help the Developer meet the minimum experience requirements, the following items must be submitted:

1. Resumes and job descriptions of key staff and the Principal(s). 2. List at least three (3) comparable rent restricted rental housing developments (“Projects”) that the

Consulting Firm has provided consulting services for comparable Projects that were developed using a variety of local, state and/or federal financing and/or tax credits. For each Project, provide a summary of the various financing sources that regulated rents or incomes for units in the comparable Project.

3. For the specific staff person assigned to consult on the proposed Project, list at least two (2) Projects that the staff person was personally involved with from start to finish and summarize the variety of financing utilized for each rent restricted comparable Project.

D. General Contractor: if the licensed General Contractor has not developed CalHFA financed rental

housing developments (“Projects”) during the past five years, the General Contractor should provide the following information as part of the CalHFA Development Team approval process. 1. Submit resumes and job descriptions of key staff, the on-site manager for the proposed Project, and

the Principal(s). 2. List the General Contractor’s experience building at least three (3) similar construction type Projects:

e.g. steel or wood frame, podium construction during the past ten years and list the years of completion/occupancy of each Project and the name of the Development Firm that hired them.

3. Contractor should provide a signed statement that indicates their firm has the capacity to take on the proposed Project – and lists the proposed or concurrent Projects that will be in development any time during the construction or renovation of the proposed Project.

Exhibit #4 68


4. List at least two (2) comparable Projects that the on-site construction supervisor for the proposed Project was involved with from start to finish during the past five years, and the names of the Development firm that contracted for the work to be done.

NOTE: the licensed Contractor will be expected to provide a payment and performance bond in an amount equal to one hundred percent (100%) of the construction contract amount.

F. Management Company – Companies who have not previously managed CalHFA financed Projects are

required to provide evidence of the following items:

1. Experience managing at least three (3) low to moderate income, rent restricted comparable rental housing developments (“Projects”)

2. Indicate the location of the closest proximity Projects or field office to the address of the proposed Project.

3. Resume for the proposed on-site Property Manager that reflects prior experience during the past five years managing Projects with rent restricted units.

4. Management Companies will be expected to provide evidence of the following items prior to start of construction or occupancy of the proposed Project:

a. a Broker’s License; b. a Fidelity Insurance Bond (when required by CalHFA); c. audited financial statements http://www.hcd.ca.gov/financial-assistance/asset-

management-and-compliance/HCDCalHFAAuditHandbook.pdf d. a current Insurance Certificate for the Management Company e. a Project specific Property Management Agreement with the CalHFA required Amendment

http://www.calhfa.ca.gov/multifamily/programs/forms/closing-amendment-management-contract.pdf

f. a detailed Project specific Management Plan; g. a Management Agency Review Form (found on CalHFA’s website); and h. for federally funded projects:

i. evidence of HUD- 2530 Clearance http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/apps/appsmfhm

ii. an Affirmative Fair Housing Marketing Plan (HUD-935.2A) https://portal.hud.gov/hudportal/documents/huddoc?id=935-2a.pdf

Exhibit #4 69

http://www.hcd.ca.gov/financial-assistance/asset-management-and-compliance/HCDCalHFAAuditHandbook.pdf

http://www.hcd.ca.gov/financial-assistance/asset-management-and-compliance/HCDCalHFAAuditHandbook.pdf



http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/apps/appsmfhm

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/apps/appsmfhm

https://portal.hud.gov/hudportal/documents/huddoc?id=935-2a.pdf

-3-

BOARD OF DIRECTORS 1

OF THE CALIFORNIA HOUSING FINANCE AGENCY 2

3

RESOLUTION NO. 17-25 4

5

RESOLUTION APPROVING A BOND ISSUANCE AND 6

POST-ISSUANCE POLICY 7

8

WHEREAS, the California Housing Finance Agency (“Agency”) is authorized to issue 9

private activity bonds for financing housing in California pursuant to Parts 1 through 4 of 10

Division 31 of the California Health and Safety Code; 11

12

WHEREAS, On December 15, 2016, the California Debt Limit Allocation Committee 13

(“CDLAC”) adopted Regulation 5031(c), which requires all private activity bond issuers 14

(“Issuers”) to submit a Bond Issuance and Post-Issuance Compliance Policy (“Policy”) to 15

CDLAC by December 31, 2017; 16

17

WHEREAS, Regulation 5031(c) requires the governing body of Issuers to approve the 18

Policy; and 19

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WHEREAS, the Agency through its Board of Directors (“Board”) has determined that 21

the proposed Policy is necessary and appropriate for adoption by the Agency. 22

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NOW, THEREFORE, BE IT RESOLVED by the members of the Board of Directors as 24

follows: 25

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1. The attached “California Housing Finance Agency Bond Issuance & Post-27

Issuance Compliance Policy” is hereby approved. 28

29

2. The staff is directed to take such action as may be necessary to carry out this 30

Policy. 31

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3. The Executive Director is authorized to amend such policy, from time to time, as 33

may be appropriate, and notice of any change shall be provided to the Board. 34

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SECRETARY'S CERTIFICATE 1

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I, Thomas O. Freeburger, the undersigned, do hereby certify that I am the duly 3

authorized Acting Secretary of the Board of Directors of the California Housing Finance 4

Agency, and hereby further certify that the foregoing is a full, true, and correct copy of 5

Resolution No. 17-25 duly adopted at a regular meeting of the Board of Directors of the 6

California Housing Finance Agency duly called and held on the 12th day of December 2017, at 7

which meeting all said directors had due notice, a quorum was present and that at said meeting 8

said resolution was adopted by the following vote: 9

10

AYES: 11

12

NOES: 13

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ABSTENTIONS: 15

16

ABSENT: 17

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IN WITNESS WHEREOF, I have executed this certificate hereto this ___th day 19

of ____________ 20___. 20

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ATTEST: 23

THOMAS O. FREEBURGER 24

Acting Secretary of the Board of Directors of the 25

California Housing Finance Agency 26

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71

State of California

M E M O R A N D U M


Tim Hsu, Director of Financing

From: CALIFORNIA HOUSING FINANCE AGENCY

Subject: Homeownership Loan Portfolio Report and Highlights for September 2017

The overall delinquency rate has decreased from a high of 17.94% in January 2010 to

6.66% in September 2017.

o The delinquency rate for FHA loans has decreased from a high of 19.86% in

January 2010 to 7.79% in September 2017.

o The delinquency rate for Conventional loans has decreased from a high of 16.31%

in January 2010 to 5.48% in September 2017.

Conventional MI loans with reinsurance have the highest delinquency rate at 9.80%

(comparing all conventional and FHA loans).

The REO inventory reached its peak of 1,391 loans, between the third and fourth quarters

of 2010 (315 FHA loans and 1,076 Conventional loans). The current REO inventory has

16 loans (5 FHA loans and 11 Conventional loans).

The annualized 2017 foreclosure rate for Conventional loans is under 1% compared to a

high of 10% in 2010.

As of September 2017, loans modified starting in 2011 have a lower default rate, which

parallels the introduction of the Keep Your Home California (KYHC) Program. The

loans modified starting in 2012 have an even lower default rate, which parallels the

increase in the principal reduction program (PRP) maximum payment from $50,000 to

$100,000.

72

HOMEOWNERSHIP LOAN PORTFOLIO

DELINQUENCY, REO & SHORT SALE, UNINSURED LOSS, AND

LOAN MODIFICATION REPORT

September 30, 2017

Reconciled Loan Delinquency Summary

All Active Loans By Insurance Type


All Active Loans By Loan Type

__________________________________ _______________________

DELINQUENCY RATIOS - % of Loan Count

Loan % of Loan Loan Loan

Count Balance Balance Count 30-Day Count 60-Day Count 90(+) Day Count %

Federal Guaranty

FHA 5,200 445,246,570$ 33.12% 243 4.67% 67 1.29% 95 1.83% 405 7.79%

VA 94 7,025,960 0.52% 4 4.26% 1 1.06% 4 4.26% 9 9.57%

RHS 63 9,787,971 0.73% 0 0.00% 2 3.17% 1 1.59% 3 4.76%

Total Government: 5,357 462,060,500 34.37% 247 4.61% 70 1.31% 100 1.87% 417 7.78%

Conventional loans

with MI

MI with Reinsurance 306 66,729,876 4.96% 18 5.88% 2 0.65% 10 3.27% 30 9.80%

No Reinsurance 891 209,608,612 15.59% 34 3.82% 5 0.56% 23 2.58% 62 6.96%

without MI

Originated with no MI 2,575 385,369,513 28.67% 82 3.18% 20 0.78% 34 1.32% 136 5.28%

MI Cancelled* 1,372 220,541,494 16.41% 30 2.19% 9 0.66% 15 1.09% 54 3.94%

Total Conventional: 5,144 882,249,495 65.63% 164 3.19% 36 0.70% 82 1.59% 282 5.48%

Total CalHFA 10,501 1,344,309,995$ 100.00% 411 3.91% 106 1.01% 182 1.73% 699 6.66%

*Cancelled per Federal Homeowner Protection Act of 1998, which grants the option to cancel the MI with 20% equity.

Note: In accordance with CalHFA's policy, no trustee sale is permitted between December 15 and January 5 of any year without CalHFA's prior written approval.

Totals



FHA 5,200 445,246,570$ 33.12% 243 4.67% 67 1.29% 95 1.83% 405 7.79%

VA 94 7,025,960 0.52% 4 4.26% 1 1.06% 4 4.26% 9 9.57%

RHS 63 9,787,971 0.73% 0 0.00% 2 3.17% 1 1.59% 3 4.76%

Conventional - with MI 418 83,771,686 6.23% 22 5.26% 2 0.48% 10 2.39% 34 8.13%

Conventional - w/o MI 3,462 505,435,385 37.60% 101 2.92% 22 0.64% 40 1.16% 163 4.71%


Conventional - w/o MI 140 24,988,754 1.86% 3 2.14% 3 2.14% 1 0.71% 7 5.00%


Conventional - w/o MI 345 75,486,868 5.62% 8 2.32% 4 1.16% 8 2.32% 20 5.80%

10,501 1,344,309,995$ 100.00% 411 3.91% 106 1.01% 182 1.73% 699 6.66%

Weighted average of conventional loans: 164 3.19% 36 0.70% 82 1.59% 282 5.48%

*All IOP loans were converted to fixed (amortizing) loans.


Totals

30-yr level amort

40-yr level amort

*5-yr IOP, 30-yr amort

Total CalHFA

1 of 8

73

September 30, 2017


All Active Loans By Servicer


All Active Loans By County

_____________________ ____ ________________________ ____



CALHFA - LOAN SERVICING

Federal Guaranty 1,996 207,379,216.02$ 15.43% 102 5.11% 24 1.20% 38 1.90% 164 8.22%

Conventional 3,588 654,729,540.80 48.70% 98 2.73% 32 0.89% 54 1.51% 184 5.13%

5,584 862,108,756.82$ 64.13% 200 3.58% 56 1.00% 92 1.65% 348 6.23%

GUILD MORTGAGE

Federal Guaranty 1,539 139,114,102.88$ 10.35% 69 4.48% 22 1.43% 26 1.69% 117 7.60%

Conventional 1,013 162,281,987.39 12.07% 48 4.74% 3 0.30% 17 1.68% 68 6.71%

2,552 301,396,090.27$ 22.42% 117 4.58% 25 0.98% 43 1.68% 185 7.25%

WELLS FARGO HOME MORTGAGE

Federal Guaranty 917 59,467,052.91$ 4.42% 34 3.71% 15 1.64% 22 2.40% 71 7.74%

Conventional 334 42,693,830.59 3.18% 12 3.59% - 0.00% 5 1.50% 17 5.09%

1,251 102,160,883.50$ 7.60% 46 3.68% 15 1.20% 27 2.16% 88 7.03%

NATIONSTAR MORTGAGE

Federal Guaranty 905 56,100,128.41$ 4.17% 42 4.64% 9 0.99% 14 1.55% 65 7.18%

Conventional 188 18,926,436.32 1.41% 6 3.19% - 0.00% 4 2.13% 10 5.32%

1,093 75,026,564.73$ 5.58% 48 4.39% 9 0.82% 18 1.65% 75 6.86%

CITIMORTGAGE, INC.

Federal Guaranty - -$ 0.00% - - - -

Conventional 21 3,617,699.91 0.27% - 0.00% 1 4.76% 2 9.52% 3 14.29%

21 3,617,699.91$ 0.27% - 0.00% 1 4.76% 2 9.52% 3 14.29%

Total CalHFA 10,501 1,344,309,995.23$ 100.00% 411 3.91% 106 1.01% 182 1.73% 699 6.66%


Totals


Count Balance Balance Count 30-Day Count 60-Day Count 90-Day+ Count %

1 LOS ANGELES 1,691 274,017,967$ 20.38% 58 3.43% 17 1.01% 26 1.54% 101 5.97%

2 KERN 797 61,904,056 4.60% 50 6.27% 12 1.51% 15 1.88% 77 9.66%

3 SAN DIEGO 751 124,131,499 9.23% 29 3.86% 5 0.67% 14 1.86% 48 6.39%

4 FRESNO 715 48,890,718 3.64% 31 4.34% 8 1.12% 14 1.96% 53 7.41%

5 TULARE 690 45,004,322 3.35% 29 4.20% 11 1.59% 11 1.59% 51 7.39%

6 SANTA CLARA 539 101,678,154 7.56% 9 1.67% 4 0.74% 5 0.93% 18 3.34%

7 SAN BERNARDINO 470 60,162,667 4.48% 15 3.19% 3 0.64% 9 1.91% 27 5.74%

8 RIVERSIDE 461 53,857,186 4.01% 38 8.24% 12 2.60% 16 3.47% 66 14.32%

9 SACRAMENTO 429 59,979,838 4.46% 21 4.90% 3 0.70% 6 1.40% 30 6.99%

10 ALAMEDA 385 69,137,087 5.14% 8 2.08% 3 0.78% 7 1.82% 18 4.68%

11 ORANGE 367 59,699,459 4.44% 6 1.63% 3 0.82% 7 1.91% 16 4.36%

12 IMPERIAL 348 26,637,908 1.98% 19 5.46% 4 1.15% 4 1.15% 27 7.76%

13 CONTRA COSTA 319 55,817,816 4.15% 11 3.45% 3 0.94% 3 0.94% 17 5.33%

14 BUTTE 260 22,567,457 1.68% 8 3.08% 1 0.38% 2 0.77% 11 4.23%

15 SONOMA 240 38,869,945 2.89% 10 4.17% 0 0.00% 4 1.67% 14 5.83%

16 OTHER COUNTIES 2,039 241,953,917 18.00% 69 3.38% 17 0.83% 39 1.91% 125 6.13%

Total CalHFA 10,501 1,344,309,995$ 100.00% 411 3.91% 106 1.01% 182 1.73% 699 6.66%


Total

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74

CALHFA - LOAN SERVICING GUILD MORTGAGE WELLS FARGO HOME MORTGAGE NATIONSTAR MORTGAGE CITIMORTGAGE, INC.

% of Total Loan Count 37.26% 28.73% 17.12% 16.89% 0.00%

% of Total Delinquent Loan Count 39.33% 28.06% 17.03% 15.59% 0.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

CalHFA FHA Loan Portfolio Performance Comparison by Servicer(% of Total Loan Count vs. % of Total Delinquent Loan Count)

as of September 30, 2017

CALHFA - LOAN SERVICING GUILD MORTGAGE WELLS FARGO HOME MORTGAGE NATIONSTAR MORTGAGE CITIMORTGAGE, INC.

% of Total Loan Count 69.75% 19.69% 6.49% 3.65% 0.41%

% of Total Delinquent Loan Count 65.25% 24.11% 6.03% 3.55% 1.06%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

CalHFA Conventional Loan Portfolio Performance Comparison by Servicer(% of Total Loan Count vs. % of Total Delinquent Loan Count)


3 of 8

75

LOS ANGELES KERN TULARE FRESNOSAN

BERNARDINOIMPERIAL RIVERSIDE SAN DIEGO ORANGE KINGS BUTTE SACRAMENTO MONTEREY SANTA CLARA

SANTABARBARA

OTHERCOUNTIES

% of Total Loan Count 16.13% 12.88% 10.83% 9.22% 5.67% 5.56% 5.17% 4.39% 2.82% 2.76% 2.35% 2.26% 2.17% 1.98% 1.64% 14.17%

% of Total Delinquent Loan Count 13.91% 16.79% 10.07% 9.11% 4.80% 6.00% 10.55% 3.60% 1.20% 2.40% 1.92% 2.40% 1.44% 1.44% 1.20% 13.19%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

CalHFA FHA Loan Portfolio Performance Comparison by County(% of Total Loan Count vs. % of Total Delinquent Loan Count)


LOS ANGELES SAN DIEGO SANTA CLARA ALAMEDA SACRAMENTOCONTRACOSTA

FRESNO ORANGE SONOMA RIVERSIDE VENTURASAN

BERNARDINOBUTTE TULARE KERN

OTHERCOUNTIES

% of Total Loan Count 16.08% 10.03% 8.42% 7.19% 5.99% 4.80% 4.30% 4.20% 3.77% 3.58% 3.56% 3.23% 2.60% 2.14% 2.08% 18.04%

% of Total Delinquent Loan Count 15.25% 11.70% 4.26% 6.38% 7.09% 4.61% 5.32% 3.90% 4.26% 7.80% 1.77% 2.48% 1.06% 3.19% 2.48% 18.44%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

CalHFA Conventional Loan Portfolio Performance Comparison by County(% of Total Loan Count vs. % of Total Delinquent Loan Count)


4 of 8

76

90 day+ delinquent ratios for CalHFA’s FHA

and weighted average of all Conventional Loans

90 day+ delinquent ratios for CalHFA’s Three Conventional Loan Types

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

Sep-2013 Sep-2014 Sep-2015 Sep-2016 Sep-2017

90-d

ay+ d

elin

qu

en

t ra

tio

s (m

on

th-e

nd)

CalHFA's FHA fixed-rate

CalHFA's conventional loans(30/40/IOP)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

Sep-2015 Nov-2015 Jan-2016 Mar-2016 May-2016 Jul-2016 Sep-2016 Nov-2016 Jan-2017 Mar-2017 May-2017 Jul-2017 Sep-2017

90

-da

y+

de

lin

qu

en

cy r

ati

os

(m

on

th-e

nd

)

5-yr interest-only, 30-yr level (started in June '05)

40-yr level (started in June '06)

30-yr level

5 of 8

77

Beginning Prior Reverted Reverted Total Repurchased Market Repurchased Market Total Ending UPB

Loan Balance Calendar to CalHFA to CalHFA Trustee by Lender Sale(s) by Lender Sale(s) Disposition Balance of REO's

Type # of Loans Adj. Jan-Aug. September Sales Jan-Aug. Jan-Aug. September September of REO(s) # of Loans Owned

FHA/RHS/VA 3 0 8 1 9 7 0 7 5 572,517$

Conventional 19 0 27 1 28 34 2 36 11 1,693,919

Total 22 0 35 2 37 7 34 0 2 43 16 2,266,436$

Real Estate Owned

Calendar Year 2017 (As of September 30, 2017)

*Trustee Sales Disposition of REO(s)

*3rd party trustee sales are not shown in this table (title to these loans were never transferred to CalHFA). There were eight (8) 3rd party sales in calendar year 2008,

eighteen (18) 3rd party sales in calendar year 2009, thirty nine (39) 3rd party sales in calendar year 2010, twenty two (22) 3rd party sales in calendar year 2011, fourty one

(41) 3rd party sales in calendar year 2012, fifty nine (59) 3rd party sales in calendar year 2013, fourty three (43) 3rd party sales in calendar 2014, twenty-four (24) 3rd party

sales in calendar 2015, seventeen (17) 3rd party sales in calendar 2016, and there are twenty-three (23) 3rd party sales to date in calendar 2017.

315

5

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

Nu

mb

er

of R

EOs

Quarterly by Calendar Year

FHA REO Inventory

REO Inventory

New REOs

Sold REOs

1076

11

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

Nu

mb

er

of R

EOs


Conventional REO Inventory

REO Inventory

New REOs

Sold REOs

6 of 8

78

Repurchased

by Lender

Market

Sales

Short

Sales

Loan Balance

at Sales

FHA/RHS/VA 7 4 2,097,517$

Conventional 36 13 10,465,779 (1,372,417)$

7 36 17 12,563,296$ (1,372,417)$

2017 Year to Date Composition of 1st Trust Deed Loss

(As of September 30, 2017)

Loan Type

Disposition

Principal

Write-Offs

$246,957,555.34

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

$200,000,000

$220,000,000

$240,000,000

$260,000,000

$280,000,000

$300,000,000

Short Sale - Loan Loss

REO - Loan Loss


$A

mo

un

t of P

rin

cip

al W

rite

Off

s

Accumulated Uninsured Loss from Sale of Conventional REOs & Short Sales(by Escrow Closing Date)

$ 28,213,386.13

$349,864.84

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

Short Sale - Loan Loss

REO - Loan Loss


$A

mo

un

t of P

rin

cip

al W

rite

Off

s

Comparison of Quarterly Uninsured Loss from Sale of Conventional REOs & Short Sales(by Escrow Closing Date)

7 of 8

79

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

Yr1-Q1 Yr1-Q3 Yr2-Q1 Yr2-Q3 Yr3-Q1 Yr3-Q3 Yr4-Q1 Yr4-Q3 Yr5-Q1 Yr5-Q3 Yr6-Q1 Yr6-Q3 Yr7-Q1 Yr7-Q3 Yr8-Q1

Cu

mu

lati

ve D

efa

ult

Rat

e

Quarters From Modification

2011

2009

2010

2012

Cumulative Default Rate For Conventional Modified Loans By Year of Modification

2014 2013

As of September 2017, loans modified starting in 2011 have a lower default rate, which parallels the introduction of

the Keep Your Home California (KYHC) Program. The loans modified starting in 2012 have an even lower default rate, which parallels an increase in the Principal Reduction Program (PRP) maximum payment from $50,000 to $100,000.

20152016

2009: 87 2009: 36.78%

2010 330 2010 35.45%

2011 285 2011 44.21%

2012 191 2012 59.16%

2013 403 2013 74.19%

2014 283 2014 84.81%

2015 118 2015 88.98%

2016 62 2016 96.77%

Number of Loans By

Year of Modification

Percent of Loans

Remaining By Year

8 of 8

80

State of California

M E M O R A N D U M To: CalHFA Board of Directors Date: December 12, 2017

From: Donald Cavier, Chief Deputy Director CALIFORNIA HOUSING FINANCE AGENCY

Subject: Agenda Item: 2017-18 Quarterly Report

Background

This memorandum provides the Board with a quarterly update on the status of the production

goals adopted for the Single Family Lending and Multifamily Lending programs in the fiscal year

2017-18 Strategic Business Plan. Additionally, the report provides budget-to-actual information

for resources and operating expenses through September 30, 2017.

2017-18 Business Plan (Lending Update)

Overall, Single Family Lending production is on pace to exceed business plan goals for both lending volume and revenue generation:

With a goal of $1.5 billion in 1st mortgage loan purchases for the fiscal year, Single Family Lending has securitized $555 million or 37% of the business plan goal through the first quarter of the fiscal year. Similarly, net revenues are $6.8 million or 40% of business plan targets.

Subordinate lending for the Single Family program has a goal of $108 million and a

revenue target of $2.7 million in administrative fees. Through the first quarter of the fiscal year, $38 million in subordinate loans have been purchased and $900,000 of administrative fees earned representing 35% and 33% of business plan goals respectively.

Overall, Multifamily Lending production is on pace to meet business plan goals for lending

volume, but is trailing expectations in revenue generation:

81

With a goal of $200 million in 1st lien multifamily lending and $11.4 million in present

value revenues, Multifamily Lending has closed $53 million in lending representing $2.5

million in present value revenues, or 27% and 22% of business plan goals respectively.

Lending programs include Permanent Take-out, Acquisition/Rehab,

Modifications/Refinance, and Small Loan Program.

The Conduit Issuance goal is $300 million with revenue generation of $825,000 for the

fiscal year. The program closed $76 million in Conduit Issuance generating $336,809 in

revenue as of September 30, 2017.

The Special Needs Housing Program (SNHP) goal is $30 million for the fiscal year. In

the fiscal year first quarter, the program has closed $3 million in transactions and earned

$173,729 in revenue.

Resource and Operating Budget Update

Agency resources are primarily generated from loan origination fees, principal and interest

payments on loans, compliance monitoring fees, etc. Overall, the Agency recorded $20.5 million

in resources through the first three months of the fiscal year and is therefore on track to exceed

the approved budget of $77.5 million. Conversely, Agency operating expenses for the period

were $9.5 million or 6% below budget projections.

The Agency’s resource generation and operating expenses are on track for another great year

provided that the potential negative impacts of federal tax reform legislation do not materialize.

82


2017/18 Quarterly Report

Approved FY Quarter FY Quarter FY Quarter FY Quarter Totals*

CURRENT YEAR PRODUCTION Budget 1 2 3 4 To Date

RESOURCES

Single Family Lending

First Mortgage Programs* 1,500,000,000$ 555,232,085$ -$ -$ -$ 555,232,085$

Down Payment Programs 108,000,000$ 38,164,874$ -$ -$ -$ 38,164,874$

Mortgage Credit Certificates -$ 82,026,740$ -$ -$ -$ 82,026,740$

Total SF Volume 1,608,000,000$ 675,423,699$ -$ -$ -$ 675,423,699$

Single Family Revenue

First Mortgage Programs 16,800,000$ 6,807,140$ -$ -$ -$ 6,807,140$

Down Payment Programs 2,700,000$ 917,533$ -$ -$ -$ 917,533$

Mortgage Credit Certificates -$ 420,830$ -$ -$ -$ 420,830$

Other Fee Income -$ 50,068$ -$ -$ -$ 50,068$

Total SF Revenue 19,500,000$ 8,195,571$ -$ -$ -$ 8,195,571$

Multifamily Programs

Acquisition/Rehabilitation Program 20,000,000$ 1,280,000$ -$ -$ -$ 1,280,000$

Mod/Refinance Loan Program 60,000,000$ 34,000,000$ -$ -$ -$ 34,000,000$

Small Perm 20,000,000$ 2,180,000$ -$ -$ -$ 2,180,000$

Permanent Take-Out 100,000,000$ 15,490,000$ -$ -$ -$ 15,490,000$

Conduit Issuance Program 300,000,000$ 75,885,000$ -$ -$ -$ 75,885,000$

MHSA/SNHP 30,000,000$ 3,064,150$ -$ -$ -$ 3,064,150$

Total MF Volume 530,000,000$ 131,899,150$ -$ -$ -$ 131,899,150$

Multifamily Revenue

Acquisition/Rehabilitation Program 1,200,000$ 27,800$ -$ -$ -$ 27,800$

Mod/Refinance Loan Program 3,300,000$ 1,120,000$ -$ -$ -$ 1,120,000$

Small Perm 1,400,000$ 146,600$ -$ -$ -$ 146,600$

Permanent Take-Out 5,500,000$ 1,251,550$ -$ -$ -$ 1,251,550$

Conduit Issuance Program 825,000$ 336,809$ -$ -$ -$ 336,809$

MHSA/SNHP 3,500,000$ 173,729$ -$ -$ -$ 173,729$

Total MF Revenue 15,725,000$ 3,056,487$ -$ -$ -$ 3,056,487$

TOTAL AGENCY VOLUME 2,138,000,000$ 807,322,849$ -$ -$ -$ 807,322,849$

TOTAL AGENCY REVENUE 35,225,000$ 11,252,058$ -$ -$ -$ 11,252,058$

* Securitized lending.

Report Date: November 2017

83


2017/18 Quarterly Report

Approved FY Quarter FY Quarter FY Quarter FY Quarter Totals*

TOTAL AGENCY Budget 1 2 3 4 To Date

RESOURCES**

Loan Servicing 2,200,000$ -$ -$ -$ -$ -$

Insurance Release 513,000$ 261,228$ -$ -$ -$ 261,228$

Loan Repayments 25,524,000$ 6,111,213$ -$ -$ -$ 6,111,213$

Interest (mortgages/securities/cash) 13,611,000$ 3,657,521$ -$ -$ -$ 3,657,521$

Fee Income 35,612,000$ 9,429,528$ -$ -$ -$ 9,429,528$

Extraordinary Items -$ 1,047,843$ -$ -$ -$ 1,047,843$

TOTAL RESOURCES 77,460,000$ 20,507,333$ -$ -$ -$ 20,507,333$

OPERATING BUDGET

Salaries and Benefits 29,132,000$ 6,773,757$ -$ -$ -$ 6,773,757$

Reimbursements (512,000)$ (141,809)$ -$ -$ -$ (141,809)$

Temp Services/Other 290,000$ 147,328$ -$ -$ -$ 147,328$

Personal Services 28,910,000$ 6,779,276$ -$ -$ -$ 6,779,276$

General Expense 827,000$ 173,952$ -$ -$ -$ 173,952$

Communications 440,000$ 93,351$ -$ -$ -$ 93,351$

Travel 553,000$ 63,165$ -$ -$ -$ 63,165$

Training 203,000$ 20,953$ -$ -$ -$ 20,953$

Facilities Operation 2,919,000$ 670,229$ -$ -$ -$ 670,229$

Consulting & Professional Services 3,460,000$ 650,864$ -$ -$ -$ 650,864$

Central Administrative Services 2,254,000$ 971,286$ -$ -$ -$ 971,286$

Information Technology 813,000$ 123,037$ -$ -$ -$ 123,037$

Equipment 130,000$ 1,784$ -$ -$ -$ 1,784$

Operating Expenses 11,599,000$ 2,768,621$ -$ -$ -$ 2,768,621$

TOTAL EXPENSES 40,509,000$ 9,547,897$ -$ -$ -$ 9,547,897$

NET SURPLUS/(EXPENDITURE) 36,951,000$ 10,959,436$ -$ -$ -$ 10,959,436$

* Unaudited numbers

**Represents resources from current & legacy lending activites.


84

Fiscal Year 2017/2018 - Quarterly Report

$1

.50

B

$1

08

.0 M

$5

55

.2 M

$3

8.2

M

$0.00 B

$0.20 B

$0.40 B

$0.60 B

$0.80 B

$1.00 B

$1.20 B

$1.40 B

$1.60 B

1st Mortgages Down Payment

Single Family Volume

ApprovedBudget

Current ToDate

$1

6.8

M

$2

.7 M

$6

.8 M

$0

.9 M

$0.0 M

$2.0 M

$4.0 M

$6.0 M

$8.0 M

$10.0 M

$12.0 M

$14.0 M

$16.0 M

$18.0 M

1st Mortgages Down Payment

Single Family Revenue

ApprovedBudget

Current ToDate

$2

00

.0 M

$3

00

.0 M

$3

0.0

M

$5

3.0

M

$7

5.9

M

$3

.1 M

$0.0 M

$50.0 M

$100.0 M

$150.0 M

$200.0 M

$250.0 M

$300.0 M

$350.0 M

Lending Conduit SNHP/MHSA

Multifamily Volume

ApprovedBudget

Current ToDate

$1

1.4

M

$0

.8 M

$3

.5 M

$2

.5 M

$0

.3 M

$0

.2 M

$0.0 M

$2.0 M

$4.0 M

$6.0 M

$8.0 M

$10.0 M

$12.0 M

Lending Conduit SNHP/MHSA

Multifamily Revenue

ApprovedBudget

Current ToDate


85

Fiscal Year 2017/2018 - Quarterly Report

$7

7.5

M

$4

0.5

M

$3

7.0

M

$2

0.5

M

$9

.5 M

$1

1.0

M

$0.0 M

$10.0 M

$20.0 M

$30.0 M

$40.0 M

$50.0 M

$60.0 M

$70.0 M

$80.0 M

$90.0 M

Revenue Operating Net Surplus

Agency Resources

Approved Budget

Current To Date


86

State of California

MEMORANDUM


MichacFrom: CALIFORNIA HOUSING FINANCE AGENCY

Subject: UPDATE OF CONDUIT ISSUANCE PROGRAM

The CalHFA Conduit Issuer Program (Conduit Program) is designed to facilitate both for- profit and non-profit developers in accessing tax-exempt and taxable bonds for the financing of family and senior affordable and mixed-income housing developments. The goals of the program are to increase and preserve the supply of affordable rental housing, maintain a quality living environment, leverage private sector funds to the greatest extent possible, and to cooperate with local jurisdictions to advance affordable housing goals.

CalHFA made numerous program changes in March 2015 to be more competitive on fees and added a locality review process in place to address any of the locality concerns. In addition to generating fee income for the Agency, the Conduit Program is an entry point for developers, lenders, bond counsels, and financial advisors to become more familiar with all of CalHFA multifamily programs and resources.

Due to the uncertainty around the elimination of private activity bonds proposed in federal tax reform legislation, we opened a window for new conduit applications through November 27, 2017. As a result, we received 11 applications. One of the applications was withdrawn. We will submit 10 applications for approximately $319 million by December 5, 2017 for the proposed California Debt Limit Allocation Committee (CDLAC) emergency allocation committee meeting, tentatively scheduled for December 20, 2017.

The Strategic Business Plan and Operating Budget for FY 17-18 estimated $300 million in new conduit issuance for the year. Projected issuances are now skewed by the extra CDLAC round. The fate of tax reform will be a major determinant of whether the projects actually issue bonds by year end.

87

Conduits Program -FY17-18: -J----------- -----..... ..

Project Name (City Project Type Units Closing Date Loan Amount(Closed)

1 i Verdes Del Oriente I San Pedro Family 113 7/13/2017 $ 43,000,0002 i Oak Creek Family Apartments l Oakley Family _75j 8/17/2017 17,885,0003 ! Premier Apartments (Los Angeles Family 120’ 8/22/2017 15,000,0004 (Woods Grove (Pittsburg Family 80! 10/25/2017 10,750,000

3881 $ 86,635,000

(In Process to Close in 2017)5 (Riverside Street Apartments (Ventura Family 231 11/30/2017 $ 7.000.0006! iKottinger Gardens (Pleasanton Family 54! 12/22/2017 22,911,518

77 $ 29,911,518

December 13,2017 CDLAC Meeting- CDLAC Due 10/13/177 (Market Street (Redding Family 82 1/15/2018 $ 18,630,9248 (Truckee Artist Lofts (Tmckee Family 90 1/15/2018 20,157,9879 ] Sus anville Gardens i Sus anville Family 64 1/31/2018 4,150,000

io: i Summer Park (Fresno Family 248 4/1/2018 23,845,000484 $ 66,783,911

Emergency CDLAC Meeting December 20,2017- CDLAC Due 12/1/1711 i Village at Burlingame (Burlingame Family 132 12/31/2017 $ 56,292,50012 (University District Affordable Housing (Rohnert Park Family 218 12/31/2017 65,000,00013 (Danbury Park Apartments (Antelope Family 140 12/31/2017 19,000,00014 (Bay Point Family Apartments (Bay Point Family 193 12/31/2017 42,000,00015 (Mulberry Gardens Apartments (Sacramento Family 126 12/31/2017 14,000,00016 i St Regis Park (Chula Vista Family 119 12/31/2017 19,100,00017 • Villa Serena (Chula Vista Senior 132 12/31/2017 20,250,00018 (Leigh Avenue Senior iSan Jose Senior/Special Needs 64 12/31/2017 27,000,00019 (Curtis Johnson Apartments (Los Angeles Family 48 12/31/2017 7,000,00020 i Pioneer Gardens i Santa Fe Springs Family 141 12/31/2017 49,000,000

1,313 l $ 318,642,500

(In Process to Close in 2018)21 (Coy D. Estes (Upland Senior 202! 12/31/2017 $ 12,000,00022, ! 800 Block i Sacramento Family 150 1/10/2018 55,344,53623' (North San Pedro Apartments (San Jose Family 135! 10/18/2018 44,000,000

1 487 | $ 111,344,536

88

State of California M E M O R A N D U M To: CalHFA Board of Directors Date: October 17, 2017

From: Di Richardson, Director of Legislation CALIFORNIA HOUSING FINANCE AGENCY Subject: Legislative Report

Attached please find your final Legislative Update for the year. There has been so much going on in the housing arena this year, and so much press coverage, there is probably very little here that you don’t already know. But just in case there is that one bill you were not sure about…you will find all final outcomes below. Please let me know if you have any questions.

Accessory Dwelling Units

AB 494 (Bloom D) Land use: accessory dwelling units. Last Amend: 9/8/2017 Location: 10/8/2017-A. CHAPTERED

Summary: This bill revises some rental conditions of the Planning and Zoning Law related to Accessory Dwelling Units (ADUs) and makes definitional changes to parking requirements and accessory structures.

SB 229 (Wieckowski D) Accessory dwelling units. Last Amend: 9/8/2017 Location: 10/8/2017-S. CHAPTERED

Summary: SB 229 serves as cleanup legislation clarifying portions of the Planning and Zoning Law related to accessory dwelling units (ADUs). Notably, SB 229 clarifies fee adjustments and parking provisions.

Affordable Housing

AB 56 (Holden D) California Infrastructure and Economic Development Bank: housing. Last Amend: 4/19/2017 Location: 9/26/2017-A. CHAPTERED

89

Legislative Report October 17, 2017 Page 2

Summary: AB 56 specifically authorizes the Infrastructure and Economic Development Bank (IBank) to provide financial assistance to activities defined as “housing-related infrastructure,” which is not explicitly allowed under existing state law. Housing units themselves remain ineligible for financing under these provisions.

AB 74 (Chiu D) Housing. Last Amend: 9/1/2017 Location: 10/14/2017-A. CHAPTERED

Summary: Current law establishes the Department of Housing and Community Development in the Business, Consumer Services, and Housing Agency. This bill would require the department, on or before January 1, 2019, to establish the Housing for a Healthy California Program to create supportive housing opportunities through grants to counties for capital and operating assistance, as specified, or operating reserve grants and capital loans to developers, or both. The bill would require the department to award grants to counties on a competitive basis pursuant to rating and ranking criteria, as specified. The bill would require the county to use grant funds in a specified manner and to comply with federal Housing Trust Fund regulations.

AB 678 (Bocanegra D) Housing Accountability Act. Last Amend: 7/13/2017 Location: 9/29/2017-A. CHAPTERED

Summary: Increases the burden of proof a city or county must meet to deny a housing project, awards damages to developers if local governments act in bad faith, and requires courts to fine cities and counties for not complying with the Housing Accountability Act.

AB 1515 (Daly D) Planning and zoning: housing. Last Amend: 7/13/2017 Location: 9/29/2017-A. CHAPTERED

Summary: Requires courts to give less deference to local governments in legal challenges when a city or county determines a housing project is inconsistent with its general plan and zoning standards.

Affordable Housing and Sustainable Communities Program

AB 863 (Cervantes D) Affordable Housing and Sustainable Communities Program. Last Amend: 6/22/2017 Location: 10/14/2017-A. VETOED

Summary: Current law continuously appropriates specified portions of the annual proceeds in the Greenhouse Gas Reduction Fund to various programs, including 20% for the Affordable Housing and Sustainable Communities Program administered by the

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Strategic Growth Council. Current law provides for that program to fund projects that implement land use, housing, transportation, and agricultural land preservation practices to support infill and compact development and that support other related and coordinated public policy objectives. This bill would provide that a project receiving funding pursuant to the program shall be encouraged, among other things, to employ local entrepreneurs and workers utilizing appropriate workforce training programs. The bill would make related revisions to the policy objectives for the program. VETO MESSAGE: To the Members of the California State Assembly: I am returning Assembly Bill 863 without my signature. This bill encourages projects that receive funding from the Affordable Housing and Sustainable Communities Program to employ local entrepreneurs and workers from training programs. The Affordable Housing and Sustainable Communities Program, funded by the Cap and Trade Program, already focuses on improving the economic conditions within disadvantaged communities. In fact, the Strategic Growth Council recently updated the program's guidelines to prioritize projects that focus on local entrepreneurs and workforce training programs. I believe any additional refinements would be best addressed through the Strategic Growth Council's process. Sincerely, Edmund G. Brown Jr.

Bonds

SB 3 (Beall D) Veterans and Affordable Housing Bond Act of 2018. Last Amend: 8/29/2017 Location: 9/29/2017-S. CHAPTERED

Summary: Enacts the Veterans and Affordable Housing Bond Act of 2018 and authorizes the issuance of $4 billion in general obligation (GO) bonds for affordable housing, subject to approval by the voters in the November 6, 2018 election. If approved by the voters, those funds would be distributed as follows:

$1.5 billion to the HCD’s Housing Rehabilitation Loan Fund for MHP, to assist in the new construction, rehabilitation and preservation of permanent and transitional rental housing for persons with incomes up to 60% of the Area Median Income.

$150 million would be available, upon appropriation by the Legislature, to the Transit-Oriented Development Implementation Fund. Any funds not used by November 2028 (or sooner if determined by HCD) would revert to MHP.

$300 million to the Regional Planning, Housing and Infill Incentive account which would be available, upon appropriation by the Legislature, for the Infill Incentive Grant Program to assist in the new construction and rehabilitation of infrastructure that supports high density and affordable mixed use infill housing. Any funds not used by November 2028 (or sooner if determined by HCD) would revert to MHP.

$150 million would be continuously appropriated into HCD’s Self Help Housing Fund, and then transferred to CalHFA for purposes of the Home Purchase Assistance Program (downpayment assistance).

$300 million would be deposited into the Joe Serna, Jr. Farmworker Housing Grant

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Fund for grants and or loans for the construction or rehabilitation of housing for agricultural employees and their families. Any funds not used by November 2028 (or sooner if determined by HCD) would revert to MHP.

$300 million would be made available, upon appropriation by the Legislature, to the Affordable Housing Innovation Fund for the Local Housing Trust Fund Matching Grant Program. Any funds not used by November 2028 (or sooner if determined by HCD) would revert to MHP.

$300 million would be deposited into the Self Help Housing Fund to fund the CalHOME program. Any funds not used by November 2028 (or sooner if determined by HCD) would revert to MHP.

$1 billion to the Department of Veterans Affairs to support its homeownership program.

Building Standards/Codes

AB 352 (Santiago D) State Housing Law: efficiency units. Last Amend: 7/17/2017 Location: 10/2/2017-A. CHAPTERED

Summary: Current law, the State Housing Law, authorizes a city, county, or city and county to permit the construction and occupancy of efficiency units that have a minimum area of 150 square feet if they meet certain specified criteria. This bill would prohibit a city, county, or city and county from limiting the number of efficiency units in certain locations near public transit or university campuses, as specified.

Greenhouse Gas Reductions

AB 398 (Garcia, Eduardo D) California Global Warming Solutions Act of 2006: market-based compliance mechanisms: fire prevention fees: sales and use tax manufacturing exemption.

Last Amend: 7/14/2017 Location: 7/25/2017-A. CHAPTERED

Summary: The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to prepare and approve a scoping plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions and to update the scoping plan at least once every 5 years. The act authorizes the state board to adopt a regulation that establishes a system of market-based declining annual aggregate emissions limits for sources or categories of sources that emit greenhouse gases, applicable from January 1, 2012, to December 31, 2020, inclusive, as specified. This bill

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would require the state board, no later than January 1, 2018, to update the scoping plan, as specified.

Homeless

AB 10 (Garcia, Cristina D) Feminine hygiene products: public school restrooms. Last Amend: 9/1/2017 Location: 10/12/2017 – A. CHAPTERED

Summary: Would require a public school maintaining any combination of classes from grade 6 to grade 12, inclusive, that meets a 40% pupil poverty threshold specified in federal law to stock 50% of the school’s restrooms with feminine hygiene products, as defined. The bill would prohibit a public school from charging for any menstrual products, including feminine hygiene products, provided to pupils. By imposing additional duties on public schools, the bill would impose a state-mandated local program.

AB 346 (Daly D) Redevelopment: housing successor: Low and Moderate Income Housing Asset Fund.


Summary: Current law requires the housing successor to expend funds received from the successor agency to meet its enforceable obligations, and for specified administrative and monitoring costs relating to ensuring the long-term affordability of units subject to affordability restrictions. The housing successor may then expend a specified amount per fiscal year for homeless prevention and rapid rehousing services, including specified types of services described in that provision, and must use all funds remaining thereafter for the development of affordable housing, as specified. This bill would expand the specified types of services included within permissible homeless prevention and rapid rehousing services to include contributions toward the construction of local or regional homeless shelters.

AB 932 (Ting D) Shelter crisis: homeless shelters. Last Amend: 9/8/2017 Location: 10/14/2017-A. CHAPTERED

Summary: Current law authorizes a governing body of a political subdivision, as defined, to declare a shelter crisis if the governing body makes a specified finding. This bill, until January 1, 2021, upon a declaration of a shelter crisis by the City of Berkeley, Emeryville, Los Angeles, Oakland, or San Diego, the County of Santa Clara, or the City and County of San Francisco, would authorize emergency housing to include homeless shelters in the City of Berkeley, Emeryville, Los Angeles, Oakland, or San Diego, the County of Santa Clara, or the City and County of San Francisco, respectively. The bill, in lieu of compliance with local building approval procedures or state housing, health, habitability, planning and zoning, or safety standards, procedures, and laws, would authorize those jurisdictions to adopt by ordinance reasonable local standards for homeless shelters, as specified.

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Housing Element

AB 72 (Santiago D) Housing. Last Amend: 7/12/2017 Location: 9/29/2017-A. CHAPTERED

Summary: Requires the Department of Housing and Community Development to review local governments' general plans and actions on housing proposals for compliance with state law, and allows it to report violations to the Attorney General.

AB 879 (Grayson D) Planning and zoning: housing element. Last Amend: 7/13/2017 Location: 9/29/2017-A. CHAPTERED

Summary: Requires local governments to include an expanded analysis of nongovernmental constraints on housing development in the housing elements of their general plans.

AB 1397 (Low D) Local planning: housing element: inventory of land for residential development.


Summary: Limits cities and counties from counting locations without a realistic capacity for new housing toward their general plan's inventory of potential housing units. Requires the Department of Housing and Community Development to review local governments' general plans and actions on housing proposals for compliance with state law, and allows it to report violations to the Attorney General.

Housing Finance

AB 1637 (Gloria D) City of San Diego: County of Santa Clara: housing authority: middle-income housing projects.

Last Amend: 9/5/2017 Location: 10/14/2017-A. CHAPTRED

Summary: This bill authorizes a housing authority located in the City of San Diego or the County of Santa Clara to implement a pilot program to develop and finance middle-income housing projects subject to certain conditions.

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Land Use Planning

AB 73 (Chiu D) Planning and zoning: housing sustainability districts. Last Amend: 7/13/2017 Location: 9/29/2017-A. CHAPTERED

Summary: Would provide state incentive payments to cities that rezone more densely with a certain level of affordability, particularly around transit, and improve environmental reviews.

AB 1505 (Bloom D) Land use: zoning regulations. Last Amend: 9/8/2017 Location: 9/29/2017-A. CHAPTERED

Summary: Restores the right of cities and counties to apply inclusionary housing policies to rental developments, overturning a 2009 appellate court ruling.

SB 35 (Wiener D) Planning and zoning: affordable housing: streamlined approval process. Last Amend: 9/1/2017 Location: 9/29/2017-S. CHAPTERED

Summary: Forces cities and counties that fail to meet state-mandated housing production goals to approve multi-family, urban development projects that meet certain requirements, such as paying construction workers a prevailing wage.

SB 167 (Skinner D) Housing Accountability Act. Last Amend: 7/13/2017 Location: 9/29/2017-S. CHAPTERED

Summary: Increases the burden of proof a city or county must meet to deny a housing project, awards damages to developers if local governments act in bad faith, and requires courts to fine cities and counties for not complying with the Housing Accountability Act.

SB 540 (Roth D) Workforce Housing Opportunity Zone. Last Amend: 7/14/2017 Location: 9/29/2017-S. CHAPTERED

Summary: Allows cities to create priority housing zones with front-loaded planning and environmental reviews so that development projects that meet certain requirements would win expedited approval.

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Landlord/Tenant/Rent Control

AB 299 (Calderon D) Hiring of real property: immigration or citizenship status. Last Amend: 9/5/2017 Location: 10/5/2017-A. CHAPTERED

Summary: This bill revises existing law by barring all public entities from compelling rental property owners and managers to compile, disclose, report, provide any information, or otherwise take any action based on the immigration or citizenship status of a tenant or prospective tenant. AB 299 defines a public entity as including the state, a city, county, city and county, district, public authority, public agency, and any other political subdivision or public corporation in the state.

Local Finance Mechanisms

AB 346 (Daly D) Redevelopment: housing successor: Low and Moderate Income Housing Asset Fund.


Summary: Current law requires the housing successor to expend funds received from the successor agency to meet its enforceable obligations, and for specified administrative and monitoring costs relating to ensuring the long-term affordability of units subject to affordability restrictions. The housing successor may then expend a specified amount per fiscal year for homeless prevention and rapid rehousing services, including specified types of services described in that provision, and must use all funds remaining thereafter for the development of affordable housing, as specified. This bill would expand the specified types of services included within permissible homeless prevention and rapid rehousing services to include contributions toward the construction of local or regional homeless shelters.

AB 1568 (Bloom D) Enhanced infrastructure financing districts. Last Amend: 9/8/2017 Location: 10/7/2017-A. CHAPTERED

Summary: Would enact the Neighborhood Infill Finance and Transit Improvements Act, which would authorize a city, county, or city and county to adopt a resolution, at any time before or after the adoption of the infrastructure refinancing plan, to allocate specified tax revenues to the district under specified circumstances. This bill would require the legislative body of a city or county establishing an enhanced infrastructure financing district that will allocate those revenues, as described, to adopt an ordinance to establish the procedure by

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which the city or county will calculate the amount of revenues that will be dedicated to the proposed district.

AB 1598 (Mullin D) Affordable housing authorities. Last Amend: 8/21/2017 Location: 10/13/2017-A CHAPTERED

Summary: Would authorize a city, county, or city and county to adopt a resolution creating an affordable housing authority with power limited to providing low- and moderate-income housing and affordable workforce housing, as defined, funded through a low- and moderate-income housing fund, as specified. The bill would prohibit certain local government entities from participating in the authority. The bill would authorize an authority created pursuant to those provisions to have boundaries that are identical to the boundaries of the city, county, or city and county that created the authority.

Manufactured Housing

SB 329 (Leyva D) Manufactured homes: financial assistance programs. Last Amend: 6/29/2017 Location: 10/12/2017-S. CHAPTERED

Summary: This bill requires all state and local programs designed to facilitate home ownership to include manufactured housing, to the extent feasible.

Mental Health Services Act

AB 727 (Nazarian D) Mental Health Services Act: housing assistance. Last Amend: 9/5/2017 Location: 10/2/2017-A. CHAPTERED

Summary: Current law specifies the manner in which counties are to use the funds distributed from the Mental Health Services Fund, including using the majority of the funds for services provided by county mental health programs. Current law specifies a target population for these programs, including seriously emotionally disturbed children or adolescents and adults or older adults who have a serious mental disorder. This bill would clarify that counties may spend MHSA moneys on housing assistance, as defined, for people in the target population.

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Miscellaneous

AB 1137 (Maienschein R) Housing developments: pet permissibility. Last Amend: 9/1/2017 Location: 10/14/2017-A. CHAPTERED

Summary: This bill, known as the Pet Friendly Housing Act of 2017, requires future housing developments financed through the Department of Housing and Community Development (HCD) to authorize a resident to own one or more common household pets.

AJR 4 (Cervantes D) Home Ownership. Location: 9/13/2017-A. CHAPTERED

Summary: This measure would call upon the President of the United States to reinstate the mortgage fee reduction promulgated by the Department of Housing and Urban Development under the previous administration.

Permanent Source

SB 2 (Atkins D) Building Homes and Jobs Act. Last Amend: 8/29/2017 Location: 9/29/2017-S. CHAPTERED

Summary: This bill creates a permanent source of funding for affordable housing by imposing a $75 fee on real estate transactions, excluding new home purchases, up to 3 ($225) per transaction. It is estimated that the fee would generate approximately $250 million per year. Those funds would be distributed as follows:

Any money collected in 2018 (the first year) would be distributed as follows: o 50% to local government to update planning documents and environmental

reports, with 5% being made available for technical assistance. Any request for funds from this source would include a description of how the fund will be used to accelerate housing production, and the proposed use must be included in the local governments funding plan and specified annual reports. Any funds remaining in this pot two years after being made available would revert to HCD’s Multifamily Housing Program (MHP).

o 50% to HCD to combat homelessness and fund programs such as rapid rehousing, rental assistance, navigation centers, and the new construction, rehabilitation and preservation of permanent supportive housing.

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Any money collected after January 1, 2019, would be allocated as follows: o The bill is not drafted well on this point, but the intent is that 20% of the funds

overall must be spent on affordable workforce housing. o 70% of the money, upon appropriation by the Legislature, would be

distributed to local governments. 90% of those funds would be formula based, and 10% for non-

entitlement jurisdiction. To receive these funds, local governments must have a compliant

housing element and submit a plan to HCD detailing how the funds will be used to meet the jurisdiction’s unmet share of its regional housing needs allocation.

The bill specifies what local governments may use that funding for, including multifamily housing, affordable rental and ownership housing serving up to 150% AMI, regional housing trust funds; capitalized reserves for services connected to new permanent supportive housing, housing to serve homeless or those at risk of being homeless; accessibility modifications; efforts to acquire and rehabilitate foreclosed or vacant homes; homeownership opportunities (including downpayment assistance); and fiscal incentives or matching funds.

o 30% of the funds would be made available to HCD for the following purposes: 5%, upon appropriation by the Legislature, for state incentive

programs, including loan and grant programs. If insufficient applications are received, these funds will revert to the MHP program.

10%, upon appropriation by the Legislature; to address affordable homeownership and rental housing opportunities for agricultural workers and their families.

15% would be continuously appropriated to CalHFA for the purposes of creating and funding a mixed income multifamily residential housing program.

Preservation

AB 1521 (Bloom D) Land use: notice of proposed change: assisted housing developments. Last Amend: 7/13/2017 Location: 9/29/2017-A. CHAPTERED

Summary: This bill changes the law regarding the preservation of assisted housing developments by creating a right of first refusal for housing organizations that have experience and the capacity to purchase affordable housing developments and keep the units affordable. To ensure that the seller is able to recoup the fair market value of the development, the bill requires that the value be determined through an appraisal process that allows both parties to acquire a separate appraisal. The Department of Housing and Community Development (HCD) is responsible for certifying potential purchasers and monitoring notification requirements. The existing and proposed notice to seller provisions do not apply to affordable housing created through density bonus provisions or local

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inclusionary ordinances in which 25 percent or fewer of the units are subject to affordability restrictions.

Prevailing Wage

AB 199 (Chu D) Public works: private residential projects. Last Amend: 9/8/2017 Location: 10/9/2017-A. CHAPTERED

Summary: This bill clarifies that private residential projects built on private property are subject to certain prevailing wage requirements when they are built pursuant to an agreement with a redevelopment agency (RDA), or a successor agency that acts in that capacity.

Regional Housing Needs Assessment

AB 1086 (Daly D) Housing: regional housing needs. Last Amend: 7/5/2017 Location: 9/1/2017-A. CHAPTERED

Summary: The Planning and Zoning Law requires the housing element, in turn, to include, among other things, an assessment of housing needs and an inventory of resources and constraints relevant to the meeting of those needs. That law further requires the Department of Housing and Community Development, for the 4th and subsequent revisions of the housing element, to determine the existing and projected need for housing for each region, based upon population projections produced by the Department of Finance and regional population forecasts used in preparing regional transportation plans, in consultation with each council of governments. Current law includes a declaration of legislative intent regarding the allocation of regional housing need. This bill would make additional findings regarding the relationship between the shortage of housing and the state’s environmental policies.

SB 166 (Skinner D) Residential density and affordability. Last Amend: 7/3/2017 Location: 9/29/2017-S. CHAPTERED

Summary: Requires city and county general plans to always include enough potential development sites to meet their unmet housing needs.

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Tax Credits

AB 571 (Garcia, Eduardo D) Farmworker housing: income taxes: insurance tax: credits: low-income housing: migrant farm labor centers.


Summary: Expands a state income tax credit intended to encourage developers to build farmworker housing projects.

AB 1714 (Committee on Housing and Community Development) Income taxes: credits: low-income housing: farmworker housing: building standards: housing and home finance.


Summary: Would, under the law governing the taxation of insurers, the Personal Income Tax Law, and the Corporation Tax Law, modify specified criteria necessary for an existing property to qualify as being “at risk of conversion” by expanding the eligible government assistance programs to include an additional federal program and also receiving state loans or grants through programs administered by the Department of Housing and Community Development.

Teacher Housing

AB 45 (Thurmond D) California School Employee Housing Assistance Grant Program. Last Amend: 9/1/2017 Location: 10/16/2017-A. VETOED

Summary: This bill requires the Department of Housing and Community Development (HCD) to administer a newly created program to provide predevelopment grants and loans to developers that partner with school districts for the creation of affordable rental housing for school employees, including teachers. The implementation of this program is subject to appropriation by the Legislature. No dollar amount is specified in AB 45. VETO MESSAGE: To the Members of the California State Assembly: I am returning Assembly Bill 45 without my signature. This bill establishes a new program under the Department of Housing and Community Development for the purpose of providing predevelopment grants and loans to developers for the creation of affordable rental

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housing for school district employees. I recently signed Senate Bill 2 into law which provides an ongoing funding source for housing. In the first year, SB 2 directs fifty percent of the funding to be made available to local governments for planning purposes. In subsequent years, seventy percent of the funding is directly allocated to local governments so they can address their own unique housing needs and fifteen percent of the funding will be targeted towards workforce housing through the California Housing Financing Authority. Rather than creating a new program at this time, I encourage the author to work with the local governments in his district and collaborate with the California Housing Financing Authority to maximize the funding in SB 2. Sincerely, Edmund G. Brown Jr.

Welfare Exemption

AB 1193 (Gloria D) Property tax: welfare exemption: low-income housing. Last Amend: 9/1/2017 Location: 10/13/2017-A. CHAPTERED

Summary: This bill increases the income threshold eligible to qualify for a property tax exemption for affordable properties from 80 percent area median income (AMI) to 140 percent AMI, as long as the unit is rent restricted. Its provisions are operative only from the 2018-19 fiscal year through the 2027-28 fiscal year.

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