California’s Department of Housing and Community Development has adopted its final Loan Portfolio Restructuring Guidelines, effective June 9, 2026, reshaping how affordable housing developers can refinance state loans.
The Guidelines were designed to create a workable path for owners and investors to refinance HCD loans originally made to finance affordable housing projects across California.
The stated aim is to enable developers to redeploy equity to create additional affordable housing while preserving long-term affordability on existing housing stock.
Despite these goals, many in the development community have questioned whether the Guidelines are fair and reasonable and achieve the intended goals.
A central feature is a 50 percent housing reinvestment fee, though owners who carefully allocate refinancing proceeds can avoid triggering it entirely through permitted categories.
The fee applies only to “other uses” falling outside six enumerated categories of Extracted Equity, meaning strategic allocation of proceeds is critical for any owner planning a restructuring transaction.
Importantly, a sale alone does not trigger the fee, as it attaches only to an HCD “Restructuring,” which includes a refinance, early payoff, subordination, extension, or LIHTC syndication and resyndication.
The Guidelines amend HCD’s 2019 LPR framework and incorporate statutory changes from AB 130, SB 686, AB 2562, and SB 21, with CCAH having sponsored SB 686.
Core concepts from SB 686 were later incorporated into AB 130, now codified at Health and Safety Code Section 50406, giving the framework a firm legislative foundation.
Covered transactions include HCD loan extensions, subordination to new senior debt, payoff before maturity, use of Extracted Equity, and LIHTC syndication or resyndication across HCD-funded multifamily housing loans.
Extracted Equity generally refers to new debt added to an HCD-regulated project through a Restructuring, after excluding proceeds used for specified Donor Project needs such as rehabilitation, reserve replenishment, or approved improvements.
Six permitted uses of Extracted Equity under Section 109 allow owners to avoid the 50 percent fee, covering other affordable housing projects, limited partner buyouts, sponsor advance reimbursements, deferred developer fees, and limited organisational activities.
For organisational activities, up to 10 percent of amounts requested under the first four categories may support verifiable, reasonably necessary Sponsor activities such as payroll and staff training, but not discretionary bonuses or incentive payments.
Where proceeds fall into the “other uses” category, HCD requires full repayment of the original programme loan including accrued interest, plus a fee equal to 50 percent of the relevant Extracted Equity, with the Sponsor retaining the remaining half.
The fee can materially reduce usable equity and may make otherwise reasonable portfolio-level decisions harder to justify economically, adding complexity to what might otherwise be straightforward refinancing decisions.
Extracted Equity transactions carry additional requirements including annual HCD monitoring fees, a 1.15 debt-service coverage ratio for the Donor Project for 15 years, and a 15-year bar on additional HCD funding for that project.
Misuse penalties are significant, including negative points and repayment of 110 percent of misused amounts before any future cash-out transactions can proceed.
A payoff before original maturity requires HCD’s prior written consent and must be processed through LPR, with fully paid-off projects potentially remaining subject to reporting, audit, and reserve governance requirements.
HCD recommends submitting a complete LPR application at least six months before the anticipated closing, making early engagement with the process essential for owners planning any restructuring activity.
Owners considering a refinance, early payoff, LIHTC resyndication, or other HCD loan transaction should engage counsel and submit a complete application well in advance of closing.