The California Department of Housing and Community Development (HCD) has released amended and final Loan Portfolio Restructuring Guidelines, offering regulations on what affordable property owners who wish to refinance or pay out HCD loans early can do with their earned equity.
You may recall that CCAH sponsored SB 686 which ultimately passed last year and was signed by the Governor with an urgency clause, taking effect in June of 2025. Many of the provisions that were originally included in SB 686 were picked up and included in a budget trailer bill which became AB 130 (Health and Safety Code Section 50406.4). These provisions establish a formal pathway for leveraging value from existing HCD-regulated projects to support broader affordable housing investment—an approach that reflects both the fiscal realities of the current environment and the need to stretch limited public resources further.
In the new set of LPRs, HCD outlines a set of permitted uses as outlined below:
- Rehabilitation of, and reserves for, the Donee Project, including capitalized operating and replacement reserves
- Limited partner buyout and exit taxes on a tax credit Donor Project, with a July 1, 2025 lookback
- Reimbursement of documented Sponsor or related-party advances for predevelopment costs, capital improvements, or operating deficits (with a 60-month lookback for Notices of Acceptance issued on or before December 31, 2028, and 36 months thereafter)
- Repayment of qualifying deferred developer fees on the Donor Project
- Sponsor organizational activities, capped at 10% of the qualifying uses above and limited to verifiable, necessary expenses such as payroll and staff training (excluding discretionary bonuses)
- Other uses as approved by the Department
It is the final category, “other uses” approved by HCD, where the guidelines introduce a significant new constraint. For any use that falls outside the explicitly listed categories, the Department requires full repayment of original program loans with accrued interest and imposes a “housing reinvestment fee” equal to 50 % of the earned equity associated with that use. The collected fee is redirected by HCD “into other affordable housing developments statewide.”
While the intent behind this provision is understandable, the scale of the fee is a point of real concern. A 50% fee materially reduces the value of earned equity for any non-enumerated use. In many cases, it may discourage developers or owners from pursuing otherwise reasonable or strategic activities simply because the economics no longer pencil. This matters because not all legitimate portfolio needs fit neatly within the predefined categories. The flexibility to respond to changing operating conditions, reinvest in organizational stability, or pursue innovative approaches can be critical to long-term success. When that flexibility is paired with a cost that cuts usable proceeds in half, it risks narrowing the tool’s usefulness more than intended. As written, the 50 percent fee may go further than necessary to achieve that balance, particularly if it discourages participation or limits the number of viable transactions.
HCD has taken an important step in formalizing how HCD loans may be paid off early or refinanced, and the field is eager to put this tool to work. The next step is ensuring that it can actually be used in the dynamic, real-world conditions developers are facing. Without that adjustment, the state risks limiting the impact of a policy designed to unlock much-needed capital across California’s affordable housing landscape. Stay tuned.