The publicly-owned Alaska Housing Finance Corporation, once a dependable cash cow for state government, lost millions of dollars again in 2013, the fourth year in a row with such a loss.
Operating losses for the fiscal year that ended June 30 amounted to $17.9 million, and were largely due to the corporation's troubled mortgage loan operations and low interest rates.
AHFC officials say they're taking steps, including some relatively aggressive ones, to return to profitability, but only so much can be done until interest rates increase.
AHFC Executive Director Bryan Butcher said the corporation's results in Fiscal Year 2013 were "better than they'd done the year before."
Butcher, a former AHFC staffer, rejoined the corporation this summer when Dan Fauske, the long-time executive director, left to head the newly-independent Alaska Gasline Development Corporation. Butcher had been the state's revenue commissioner in the interim.
Despite the financial losses and the leadership changes, one legislative leader said she still wants to see AHFC take over the Knik Arm Bridge and Toll Authority.
"I do think that leadership in an organization matters, but as far as AHFC and their history of working with the financial markets goes, that history won't go away just because one person leaves, so I still feel confident that AHFC is the best place to have this project land," said Rep. Mia Costello, R-Anchorage.
AHFC's operating profits come from two areas, interest earned on its investment portfolio and interest on the mortgages it holds. With short-term interest rates low, both of those areas are struggling, Butcher said.
"As long as short-term rates are low, and most of our money is in short-term investments for the obvious reason that they have to be available for mortgages, (profits) are going to be lower than optimal," he said.
The losses come because those smaller profits have not been enough to cover the corporation's administrative and other costs.
Turning things around
Since Butcher returned to AHFC during the summer, he's been looking for ways to turn things around, he said.
"Coming in, I really have reached out to a lot of different states, taking a look at what other states are doing, seeing if there are things that could be done that are not being done, and trying to take those steps," he said.
The size of AHFC's loan portfolio has fallen from $3.5 billion in 2008 to $2.3 billion in 2013, leading to the decline in mortgage interest income. The decline has come from fewer new mortgages being sold to AHFC, while existing higher-profit mortgages are being refinanced elsewhere.
That's good for the Alaskans who hold those mortgages -- they see their payments go down -- but bad for AHFC's budget.
It will take higher interest rates to turn around AHFC's finances, but the irony is that such higher rates may not be good for Alaskans.
"Even though AHFC has had some lean years in the past few years, I'd be remiss in not pointing out that these lowest-interest-rates-in-a-generation, or multiple generations, have benefited Alaskans as a whole and allowed them to get into homes that they might not have been able to afford at higher interest rates," Butcher said.
The decline in new loans appears to be slowing, he said, with things looking better in the future.
Another step they've taken is a new "closing cost assistance" program that can help borrowers afford the down payment on a new house. That's something that some potential borrowers struggle with, even if they have stellar credit scores and strong income, he said.
That program began before Butcher arrived to his new role, but he said a strong marketing push is planned for early next year in anticipation of the home-buying season later in the year.
Offering home loans with little or no money down played a leading role in the housing industry collapse that took the economy down with it a few years ago, but Butcher said there were some significant differences with what AHFC is doing now.
First, he said, those problematic no-money-down loans that wound up in default were not the fault of the lack of a down payment, but instead due to escalating interest rates, balloon payments and other provisions that made them difficult to pay back. In addition, they were often subprime loans offered to unqualified borrowers.
Alaskans who take advantage of the new closing cost assistance will have to be qualified borrowers, he said.
"It can be an effective tool if used responsibly," Butcher said.
Even with more aggressive management, it will still take higher interest rates before AHFC sees profits return, he said.
An AHFC-KABATA Connection
Despite the housing corporation's problems, Costello said she still sees AHFC as the solution to get a bridge built across Knik Arm.
"I'm for the bridge and I'd like to see a bridge, but not at any cost and not unless it pencils out," she said.
After a legislative audit earlier this year raised questions about the Knik Arm Bridge And Toll Authority's (KABATA) traffic and revenue estimates, legislators lost confidence in the authority, she said. Legislation she sponsored transferring KABATA's duties to AHFC passed the House of Representatives last session, but was still under consideration in the Senate when the legislative session ended.
Costello said she'll resume work on that bill next session, and she expects that AHFC's involvement will give the bridge the best chance at success.
The audit raised questions for lawmakers, and will likely raise questions among potential lenders for the $1 billion-plus project.
"I think KABATA has taken it as far as KABATA can," she said. "I think the best way forward is a new set of eyes that are willing to ask those hard questions and answer them," she said.
Butcher said AHFC had not sought to take over KABATA, but if it is good for the state it is willing to do so. It would not hinder AHFC's ability to handle its housing duties, he said.
"If you work hard and you do a good job, I think people seek you out, so we see that as a positive," he said.
Contact Pat Forgey at pat(at)alaskadispatch.com