Housing programs: financing.

Senator Reyes, with Assembly Member Ward serving as principal coauthor and Senators Grayson and Seyarto as collaborators, advances a measure that revises the department’s framework for financing affordable-housing developments by tying the ability to incur additional debt to quantitative feasibility metrics and clarifying how extracted equity is defined and used.

At the core, any new debt must be underwritten to a debt-service coverage ratio of at least 1.15 and show positive cash flow for a 15-year horizon, with “hard debt” defined as debt that must be repaid through amortizing payments or a defined maturity. New debt generally remains subordinate to the department’s lien and regulatory agreement unless the department reasonably determines that subordination is necessary for project feasibility and to fund rehabilitation or improvements, including soft costs. The bill expands the categories that count as extracted equity to include reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits, and it defines extracted equity as distributed funds financed with debt secured by a department-regulated property that are not used for prescribed purposes. When extracted equity is used for the enumerated purposes, the department’s regulatory agreement is recorded in a senior position, and the department retains monitoring fees to oversee compliance.

Key mechanisms include the refined definitions and uses of extracted equity, the subordination framework for new debt, and the senior-position consequence tied to certain extracted-equity activities. The measure also preserves the department’s ongoing authority to collect monitoring fees and confirms that actions remain within the broader housing-finance program structure, with the department’s determinations guided by existing regulatory authorities and parallel guidelines referenced to related program provisions.

Implementation considerations center on departmental rulemaking and procedures: underwriting templates and methods for calculating the debt-service coverage ratio and long-term cash flow, criteria for when subordination waivers are appropriate, and the process for recording senior regulatory agreements when extracted-equity uses trigger that provision. Fiscal effects noted in discussions include no new appropriation within the bill text, but potential changes to project financing dynamics, workload for oversight, and alignment with guidelines governing tax-credit investments. The measure operates within the state’s housing-finance framework and relies on coordination with related guidelines and cross-referenced program provisions to ensure consistency across affordable-housing financing instruments.