Introduction
The 2008 Legislature established the Kansas Housing Loan Deposit Program (Program) with the purpose of providing incentives for the making of housing construction development loans. The 2012 Legislature added adult care home construction development loans to the Program.
The Program allows an eligible lending institution that agrees to receive a housing loan deposit to accept and review applications for loans from eligible developer borrowers.
The State Treasurer is required to submit an annual report outlining the status of the Program to the Governor and the Legislature.
Definitions
“Eligible lending institutions” are defined as a depository bank that agrees to participate in the Program and is eligible to be a depository of state funds.
“Eligible developer borrower” means any person, firm, or corporation:
- Building new houses;
- Building not-for-profit adult care homes;
- Rehabilitating existing houses; or
- Rehabilitating not-for-profit adult care homes.
“House” means a single-family or multi-family dwelling that initially sells or is appraised at or below the area purchase price safe harbor for the State of Kansas as established by the State Treasurer through rules and regulations based on the requirements of section 143(e) of the Internal Revenue Code of 1986 for homes that are eligible for mortgage revenue bonds.
“Adult care home” means any nursing facility, nursing facility for mental health, intermediate care facility for people with intellectual disability, assisted living facility, residential health care facility, home plus, boarding care home, or adult day care facility, all of which are classifications of adult care homes and are required to be licensed by the Secretary for Aging and Disability Services. Such facilities are further defined in KSA 39-923.
Housing Loan Deposit Loan Package
To participate in the Program, an eligible developer borrower must complete the housing loan deposit loan package (loan package), or the forms provided by the State Treasurer, and submit the documentation to an eligible lending institution.
Eligible developer borrowers with approved loan packages are:
- Limited to $2.0 million at any one time;
- Prevented from amortizing a loan for a house for a period of more than five years;
- Prohibited from amortizing a loan for an adult care home for a period of more than 20 years; and
- Required to certify on its loan application that the reduced rate loan will be used exclusively for the expenses involved in building houses.
The program allows up to $60.0 million of unencumbered funds to be granted. Aggregate loans for adult care homes must not exceed $24.0 million, or 40.0 percent, of the amount available unless loans are being used for assisted living, residential health care, or home plus facilities which must not exceed $54.0 million, or 90.0 percent, of the amount available.
Eligible Lending Institution Approval
The eligible lending institution reviews the application, applying all usual lending standards to determine the credit worthiness of eligible developer borrowers. The decision to approve or reject a loan package is based on the:
- Lending institution’s evaluation of the eligible developer borrowers included in the loan package;
- The amount of the individual loan in the loan package; and
- Other appropriate considerations.
Approved loan packages are forwarded to the State Treasurer and must include information regarding the amount of the loan requested by each eligible developer borrower, a certificate by the applicant that the applicant is an eligible developer borrower, and anything else the State Treasurer requires.
State Treasurer Approval
The State Treasurer may accept or reject a loan package based on the State Treasurer’s evaluation of whether the loan to the eligible developer borrower meets the purpose of the program.
If sufficient funds are not available, then the application may be considered in the order received when funds are once again available, subject to a review by the lending institution.
The State Treasurer must certify to the Director of Investments the amount required for the loan package. The Director of Investments places a housing loan deposit in the amount certified with the eligible lending institution at an interest rate that is 2.0 percent below the market rate. The minimum interest rate must be 0.5 percent, if the market rate is below 2.5 percent.
Agreement
The eligible lending institution enters into a housing loan deposit agreement with the State Treasurer, which must include requirements necessary for implementation, including:
An agreement by the eligible lending institution to lend an amount equal to the housing loan deposit to eligible developer borrowers at an interest rate that is no more than 4.0 percent greater than the interest rate on housing loan deposits;
Provisions for the housing loan deposit to be placed for a maturity considered appropriate in coordination with the underlying housing loan; and
Provisions for the reduction of the housing loan deposit in an amount equal to any payment of loan principal by the eligible developer borrower.
Conclusion
Currently, there are 17 eligible lending institutions with current participation agreements throughout the state. The last active loan was paid out in FY 2024, and no further loans have been issued since that time.
By Chardae Caine and Mike Ditch
See Financial Institutions and Insurance for more.