CalHFA approves $3.7M loan increase amid rising interest rates and construction costs

The CalHFA General Board Meeting held on May 22, 2025, addressed several significant financial matters impacting housing development and funding strategies in California. The meeting began with a discussion on a construction loan that experienced a substantial increase in its variable interest rate, rising from an initial 1.95% to approximately 6.7%. This shift resulted in an additional $3.5 million in total development costs. To address these budgetary challenges, the developer requested a $3.7 million increase in the permanent loan commitment, bringing the total to $21.25 million—a 21% increase requiring board approval. The board approved this resolution after confirming that updated appraisals and underwriting supported the increase.

Following this, Erwin Tam, Director of Financing, provided a capital markets update, highlighting the volatility in the market and its implications for CalHFA's lending programs. He noted that the recent downgrade of the U.S. sovereign rating by Moody's had a direct impact on the agency's mortgage revenue bonds, which were downgraded from AAA to AA1. Despite these challenges, Tam reassured the board that the agency's financial strategies, including a financial risk management policy, would help mitigate risks associated with market fluctuations.

The board also discussed the agency's new bond issuance for single-family programs, marking the first such issuance since 2011. This initiative aims to support low and moderate-income Californians seeking to purchase their first homes. The bond issuance was well-received, with demand exceeding supply, leading to a successful marketing campaign.

In conclusion, the meeting underscored CalHFA's commitment to adapting its financial strategies in response to market conditions while continuing to support housing development in California. The board's approval of increased loan commitments and the successful bond issuance reflect ongoing efforts to navigate the complexities of the current economic landscape.