Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 1374 entitled:

begs leave to report as follows:

The purpose of this measure is to exempt pre-development loans made from the Rental Housing Trust Fund from loan-to-value ratio and debt-coverage ratio restrictions.

The Pacific Housing Assistance Corporation testified in support of the measure. The Housing and Community Development Corporation of Hawaii (HCDCH) and Rental Housing Trust Fund Advisory Commission testified in opposition to the measure.

Currently, the law establishes underwriting requirements for loans and grants made from the Rental Housing Trust Fund (Fund) for the pre-development, construction, acquisition, preservation, and substantial rehabilitation of rental housing units. These restrictions require the debtor to give security for loans and grants made from the Fund.

The collateralization requirement extends to pre-development loans that are used to finance, among other activities, preliminary site acquisition activities and feasibility studies. Pre-development activities are critical to providing the developer with an understanding of the issues and risks involved in the development of the project.

Your Committee finds that the collateralization requirement makes it difficult for nonprofit developers to qualify for a pre-development loan and may inhibit the development of affordable housing projects. Because pre-development activities are undertaken prior to site acquisition, the developer cannot use the property site to secure the loan. Further, nonprofits are often precluded from pledging other assets as collateral under the terms of the contracts under which these assets were received.

Your Committee further finds that a collateralization requirement as to grants is incongruous since grants do not require repayment. Additionally, the only type of grant normally made from the Fund is a capacity building grant.

This measure facilitates the use of Fund moneys for pre-development activities by exempting pre-development loans from the specific underwriting requirements of section 201G-432(h), Hawaii Revised Statutes. Further, the measure clarifies that grants are not subject to these restrictions by deleting a reference to grants from the statute.

While your Committee understands that existing underwriting requirements may hinder the ability of a nonprofit developer to undertake pre-development activities, your Committee also notes that the lack of any underwriting requirements for pre-development loans would put the Fund at risk if a developer abandoned a project. Therefore, your Committee has amended this measure to require that HCDCH establish underwriting requirements for pre-development loans.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1374, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1374, S.D. 1, and be referred to the Committee on Ways and Means.