AB 454

This bill establishes a workforce home loan fund under the jurisdiction and control of the Wisconsin Housing and Economic Development Authority for the purpose of issuing loans, which the bill terms “workforce home loans,” to eligible applicants to provide gap financing to supplement a conventional mortgage for the purchase of a single-family residence in Wisconsin that is either a new construction or an existing construction that has undergone substantial rehabilitation and that will be the eligible applicant’s primary residence. Under the bill, “substantial rehabilitation” means either of the following:

1. The repair, restoration, construction, improvement, or remodeling of a building for which the cost exceeds 35 percent of the building’s value for purposes of taxation under ch. 70 for the year preceding the year in which the work was begun.

2. A change in zoning classification from nonresidential to residential.

The bill requires WHEDA to use repayments of workforce home loans to fund additional loans under the program.

The bill prohibits WHEDA from charging any interest for a workforce home loan, and workforce home loans are not forgivable in whole or in part. Each workforce home loan must be secured as a second lien real estate mortgage. The loan term is 15 years, if the applicant has an annual household income that is more than 80 percent of the area median income, or 30 years, if the applicant has an annual household income that is 80 percent or less of the the area median income. The loan term may be extended to 40 years for certain applicants who qualify for limited workforce home loan payment deferral, as provided in the bill, and a workforce home loan may be prepaid in whole or in part at any time without penalty. Under the bill, the total amount of unpaid principal on a workforce home loan becomes due and payable upon the occurrence of any of the following:

1. The recipient of the workforce home loan sells the home.

2. No recipient of the workforce home loan continues to reside in the home as a primary residence.

Under the bill, a lender authorized by WHEDA or a local housing authority or community-based organization or other qualified local organization, as determined by WHEDA, certifies that a loan applicant is eligible to receive a workforce home loan, subject to WHEDA’s approval. An applicant is eligible for a workforce home loan under the bill if all of the following are satisfied:

1. The applicant has not had any ownership interest in residential real property for the three consecutive years immediately preceding the date of the application.

2. The applicant’s annual household compliance income equals 100 percent or less of the area median family income for the county in which the home is located, not adjusted for family size, as established by the Federal Housing Finance Agency. Under the bill, household compliance income means the anticipated combined income, as determined by WHEDA according to its conventional first-time home buyer first mortgage program underwriting guidelines (underwriting guidelines), of all individuals age 18 or older who intend to occupy the residence subject to a workforce home loan, regardless of whether the individual is an applicant for the workforce home loan and regardless of the individual’s relationship to the applicant for the workforce home loan.

3. The applicant’s debt-to-income ratio, calculated by WHEDA as provided in the bill, satisfies WHEDA’s underwriting guidelines.

4. The applicant’s credit score, rating, or other classification, as determined by WHEDA, satisfies WHEDA’s underwriting guidelines.

5. Unless payments on a workforce home loan are deferred for at least 60 months, the applicant’s minimum financial reserves after down payment and closing costs for the applicant’s conventional mortgage for the purchase of the residence subject to the workforce home loan satisfy WHEDA’s underwriting guidelines.

6. The applicant’s conventional first mortgage for the purchase of the residence subject to the workforce home loan is a fully amortizing, fixed-rate qualified mortgage loan with a term of 30 or fewer years.

7. The applicant satisfies all eligibility requirements with respect to citizenship or resident alien status, social security number validity, home buyer education and counseling, and payment of child support or maintenance if owed, as provided in WHEDA’s underwriting guidelines.

Under the bill, WHEDA may not issue a workforce home loan that exceeds the lesser of the following:

1. $60,000, adjusted annually beginning on the effective date of the bill by the average compounded annual percentage increase in the sale price of all residential housing in this state, as determined by WHEDA.

2. Twenty-five percent of the purchase price or fair market value of the home, whichever is less.

The bill establishes different repayment rules for workforce home loans depending on an eligible applicant’s household compliance income. Specifically, if WHEDA issues a workforce home loan to an eligible applicant whose household compliance income is 80 percent or less, but more than 60 percent, of the area median income, the repayment of principal on the loan must be deferred for 60 months following the issuance date of the workforce home loan after which time the repayment of principal on a monthly basis commences, amortized over 25 years. However, if WHEDA issues a workforce home loan to an eligible applicant whose household compliance income is 60 percent or less of the area median income, the repayment of principal on the loan must be deferred until the first-lien real estate mortgage loan on the home is paid in full after which time the repayment of principal on a monthly basis commences, amortized over 10 years.

The bill requires that WHEDA subordinate an outstanding workforce home loan to a new first mortgage loan obtained by the recipient of the workforce home loan on the basis of rules provided in the bill.

Finally, the bill permits WHEDA to allocate up to $10,000,000 in the 2025-27 fiscal biennium to the fund created in the bill from the housing funds for the Infrastructure Access Program, Restore Main Street Program, and Vacancy-to-Vitality Program.

Because this bill may increase or decrease, directly or indirectly, the cost of the development, construction, financing, purchasing, sale, ownership, or availability of housing in this state, the Department of Administration, as required by law, will prepare a report to be printed as an appendix to this bill.