Request By:
Mr. A. Wallace Grafton, Jr., Esq.
Attorney at Law
Wyatt, Grafton & Sloss
28th Floor, Citizens Plaza
Louisville, KY 40202
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas C. Jacobs, Deputy Attorney General
As counsel to the Kentucky Housing Corporation (the "Corporation"), you have requested our opinion as to whether a course of action which the Corporation now proposes to follow will be in compliance with KRS 198A.040. This statute is part of the Mae Street Kidd Kentucky Housing Corporation Act, KRS Chapter 198A, which created the Corporation and sets forth its powers and responsibilities.
Your question has arisen because of certain amendments made to KRS 198A.040 by Section 4 of House Bill 157 (1978 Acts Chapter 220). The relevant portion of Section 4 of House Bill 157 is set forth below, with the language added by the 1978 amendments underlined, and the language deleted by the 1978 amendments within brackets:
Section 4. KRS 198A.040 is amended to read as follows:
The corporation shall have all of the powers necessary or convenient to carry out and effectuate the purpose and provisions of this chapter including, but without limiting the generality of the foregoing, the power:
(1) To make or participate in the making of insured construction loans to sponsors of land development or residential housing; provided, however, that such loans shall be made only upon the determination by the corporation that construction loans have been refused in writing [are not otherwise available], wholly or in part, from private lenders in the Commonwealth of Kentucky upon reasonably equivalent terms and conditions;
(2) To make or participate in the making of insured mortgage loans to sponsors of residential housing; provided, however, that such loans shall be made only upon the determination by the corporation that mortgage loans have been refused in writing [are not otherwise available], wholly or in part, from private lenders in the Commonwealth of Kentucky upon reasonably equivalent terms and conditions;
(3) To purchase or participate in the purpose of insured mortgage loans made to sponsors of residential housing or to persons of lower income for residential housing; provided, however, that any such purchase shall be made only upon the determination by the corporation that mortgage loans have been refused in writing [were not otherwise available], wholly or in part, from private lenders in the Commonwealth of Kentucky upon reasonably equivalent terms and conditions;. . .
Your question relates to the factual determination that the Corporation must make with respect to refusals to make mortgage loans by private lenders as a condition precedent to the Corporation's making, purchasing or participating in the making or purchasing of insured construction mortgage loans under KRS 198A.040(1), (2) and (3).
The 1978 amendments did not change the requirement in subsections (1), (2) and (3) that some type of determination be made as to the availability of "loans" in the plural, but only changed the nature of the determination. Prior to 1978, the Kentucky Housing Corporation was directed to determine that insured construction/mortgage loans in the plural were "not otherwise available." The 1978 General Assembly has now directed the Kentucky Housing Corporation to determine that such "loans" in the plural "have been refused in writing." After 1978, the only change in this procedure is that the determination now relates to the existence of a "writing." Since the "writing" that is to be determined by the Kentucky Housing Corporation to exist is a writing that refers to "loans" in the plural, it necessarily follows that the General Assembly must have contemplated that the "writing" in question would refer to more than one loan.
It is significant for purposes of comparison with KRS 198A.040(1), (2) and (3), that many federal statutes and regulations dealing with loans or loan insurance or loan guarantees contain provisions which require the Secretary of the Department of Housing and Urban Development or some other federal official to make certain determinations with regard to the availability of private funds before approving government loans or insurance or guarantees. These statutes expressly state that such a determination shall be made on an individual basis as to each applicant [Missing Page] purpose, showing whether or not they will make a loan to the applicant on reasonable terms and conditions without guarantee or insurance.
The foregoing federal statutes and regulations add weight to the conclusion that, if the General Assembly had intended -- either before or after the 1978 amendments to KRS 198A.040(1), (2) and (3) -- to require an individual determination as to each loan, it would have said so in plain language similar to that used in the federal statutes and regulations quoted above. Instead, the General Assembly provided in those three subsections that the Corporation should make a determination as to "loans."
From the foregoing, it can easily be concluded that the legislature did not intend that the Kentucky Housing Corporation require, as a condition precedent to the making of a loan, that the applicant tender a statement as part of his application establishing that he had been turned down by a private lender for a loan of the same type. It is, on the other hand, very clear that the legislature did not intend for the Kentucky Housing Corporation to compete with the private sector in the mortgage lending business and it has, therefore, imposed a requirement that the Corporation determine that the loans it proposes to make have been refused "in writing" by those operating in the private sector. While the action of the legislature of 1978 is significant in its intent, in practical terms it no more than formalizes that which was the law prior to the 1978 amendment.
The question simply becomes one of how the Corporation makes the determinations mandated by the 1978 amendment. You have suggested that a letter be mailed by the Corporation to all recognized lenders in a given geographical area describing the type of loans proposed to be made by the Corporation and inquiring of the private lenders as to whether or not they wish to make loans on similar terms and conditions. Written response in the negative from the private lenders would constitute a refusal in writing as contemplated by the 1978 amendment and would, in the opinion of this office, satisfy the intent of the legislature.
A determination of the geographical area which should be sampled for each market would obviously be different in different regions of the Commonwealth. There are many more originators and servicers in the Louisville/Jefferson Co. area than there are in Eastern or far Western Kentucky for example. For many other governmental purposes the Area Development Districts have become a useful tool for geographical analysis, and it is suggested that these districts might be useful in the determinations the Corporation must now make.
The ancillary question presented in that of what constitutes a sufficient analysis of the market so as to determine whether or not the intent of the legislature has been met. It would appear that, if more than two lenders in a given market (Area Development District) have refused in writing to make the type of loans that the Corporation proposes to make, and the Corporation subsequently makes such loans, then the burden of proof would shift to the lenders in the private sector to come forward and state that either conditions have changed or their attitudes have changed and that they are now willing to make the type of loans that the Corporation is making.
I trust that this answers the questions you have presented.