Provides that the term "mortgage" shall also include a loan owed to a bank secured by a second lien on a fee simple or leasehold estate in real property located in the state

Bill §2 amends PAL §2402(5) as described in Bill §1 in the event of the expiration of the amendment to PAL §2402(5) set forth in Bill §1.

Bill §3 amends PAL §2405(7)(e) to conform the definition of mortgage as set forth in Bill §1 with respect to bank covenants to SONYMA in connection with SONYMA's forward commitment program.

Bill §4 amends PAL §2405(7)(e) as described in Bill §3 in the event of the expiration of the amendment to PAL §2405(7)(e) set forth in Bill §3.

Bill §5 amends PAL §2405-b(8)(f) to conform the definition of mortgage as set forth in Bill §1 with respect to bank covenants to SONYMA in connection with SONYMA's purchase-out-of-portfolio program.

Bill §6 amends PAL §2428(4) to allow the Mortgage Insurance Fund (MIF) to insure second mortgages purchased by SONYMA.

Bill §7 amends PAL §2428(4) as described in Bill §6 in the event of the expiration of the amendment to PAL §2428(4) set forth in Bill §6.

Bill §8 provides for an immediate effective date.

Existing law

SONYMA does not currently have the authority to purchase mortgages for second lien purposes or to insure such mortgages. Under the definition of "mortgage" set forth in PAL §2402(5), the definition of mortgage in SONYMA's programs is limited to mortgages secured by first liens.

Legislative history

A9037 of the 2001/02 legislative session A8029 of the 2003/04 legislative session A8266 of the 2005/06 legislative session A6999 of the 2007/08 legislative session

Statement in support

SONYMA is seeking the authority to purchase second mortgages in the following limited circumstance: (1) the second mortgage secures a loan purchased by SONYMA; (2) the second mortgage is made at the same time and with respect to the same secured property as a first or senior mortgage that is secured by a loan purchased by SONYMA pursuant to its programs; and (3) the borrower shall contribute from his or her own verifiable funds an amount not less than such percentage as the Agency shall determine, of the lower of the purchase price or appraised value of the property subject to the first lien. It has been a requirement of SONYMA's programs that eligible borrowers contribute from his or her own verifiable funds an amount not less than three percent of the lower of the purchase price or appraised value of the property subject to the first lien.

This amendment will permit SONYMA to more efficiently structure programs which feature closing cost and or down-payment assistance to borrowers whose underlying mortgage loans are financed by SONYMA under its various programs. Down-payment and closing cost assistance-type programs would represent an important adjunct of SONYMA's below market interest rate financing and are intended to address the critical problem of the limited cash resources available to otherwise qualified low and moderate income SONYMA applicants.

This amendment would facilitate the operation of SONYMA products which which have provided closing cost and/or down payment assistance to low-income first time home buyers with limited cash reserves. These loans would be secured by a second lien on the homeowner's property.

SONYMA's flexibility in offering these programs is currently hindered by the fact that SONYMA has no statutory authority to offer second lien financing, except in connection with home improvement loans. This forces SONYMA to configure its down-payment or closing cost assistance programs using a burdensome and administratively cumbersome co-first lien mortgage structure. Such a structure adds unnecessary complexity which is confusing to many borrowers, county clerks and lenders. In some cases, county clerks have refused to record such instruments unless altered to their satisfaction. Also, because the co-first lien and the underlying first mortgage have different term lengths, extinguishing the co-first lien at maturity has proved troublesome. As such, borrowers have difficulty obtaining second and home equity mortgages due to the co-first lien not being removed from the public record. Additionally, the legal and procedural complexities inherent in structuring co-first mortgage arrangements makes it more difficult for SONYMA to put together and manage.

Budget implications

None.

Effective date

Immediate upon passage of the bill.