California Housing Finance Agency: credit enhancement mechanisms study

Construction loans can be costly and volatile for housing developments. The study will assess whether state-backed guarantees, insurance, reserves, or similar tools could lower financing costs and attract capital.

What the law does ​

• Requires the California Housing Finance Agency to comprehensively assess credit-enhancement options for construction and permanent housing financing.
• Prioritizes ways to reduce construction-loan interest rates, manage lender risk, and limit financing volatility.
• Requires evaluation of loan-loss reserves, partial state guarantees, construction insurance or backstops, and links to federal insurance or risk-sharing programs.
• Requires financial, risk, governance, eligibility, pricing, claims, and state-credit-rating analysis.
• Requires consultation with lenders, housing developers, financial experts, insurers, rating advisers, and other housing finance agencies.
• Requires an interim report to the Legislature and Department of Finance by January 1, 2028, and a final report by July 1, 2028.

Who it affects ​

• Developers of housing projects receiving state financial assistance.
• Construction and permanent lenders, investors, housing trusts, pension funds, and local or regional bond-financed housing projects.
• State housing-finance programs and projects administered by the Department of Housing and Community Development, the California Housing Finance Agency, and the Housing Development and Finance Committee.

Context ​

The study particularly considers projects that do not use available federal mortgage-insurance or risk-sharing programs.