Relates to the credit for servicing certain mortgages

Section 2 of the bill provides for an immediate effective date.

Existing law

Section 1456(a) of the Tax Law provides that banks which shall have entered into a contract with the state of New York mortgage agency to service mortgages acquired by such agency pursuant to the state of New York mortgage agency act, shall be eligible to receive a tax credit.

Legislative history

None.

Justification

The ability of SONYMA, and other issuers of mortgage revenue bonds, to borrow in the tax-exempt markets to fund mortgage programs has been negatively impacted as a result of a loss of investor confidence as well as interest rate volatility associated with the market events of 2008. SONYMA's borrowing costs for its single family programs have increased as a result of the turbulent markets that have been with us since mid-2008, thus making it a less competitive provider of mortgage loan products to first time homebuyers. This is happening at a time when that customer base, low to moderate income first time homebuyers, is more than ever in need of safe, fixed rate mortgage loans with down payment or closing cost assistance. For the first time in its history, the Agency in the fall of 2008 was not able to access the capital markets. Since then, as the markets have slowly recovered, its ability to issue long-term fixed rate debt has become more costly, as housing bond investors demand higher yields in return for what they perceive (wrongly in the case of SONYMA) as the increased risks associated with housing. This impacts the mortgage rates on its products, since they are directly tied to its cost of funds. In the past, the Agency has taken advantage of the tax-exempt capital markets to both offer low interest rates to first-time homebuyers in New York State and to also offer additional benefits such as low down payments and closing cost assistance. The events of 2008 have thus led the Agency to look to alternative fixed rate funding sources beyond the capital markets. The Agency has been working with the GSEs, particularly Fannie Mae, to structure programs that would allow the Agency to pass through its mortgage products to the GSEs, thereby generating an alternative funding source. Rather than bonding to obtain funds to buy mortgages from participating lenders under its programs, SONYMA would enter into agreements with these GSEs to sell them the mortgages. SONYMA has entered into agreements with Fannie Mae that would allow it to structure programs that provide homeowners with the benefits of SONYMA'S down payment and closing assistance programs, and other benefits, in combination with Fannie Mae programs. This approach has gained heightened importance in recent weeks as the Homeowner Affordability and Stability Plan announced by the White House on February 18, 2009 included provisions to ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market. The White House plan, as well the plan proposed by the Treasury Department (the Financial Stability plan) both look to increase the size of the GSEs' retained mortgage portfolios so that they spend as much as $600 billion for purchasing GSE mortgage backed securities and GSE debt. This is part of the overall plan, announced as part of the Homeowner Affordability and Stability Plan, to have the GSEs support state housing finance agencies in serving homebuyers. The reason for the proposed amendment is to specifically permit servicing banks to take advantage of the tax credit offered under Section 1456(a) in situations where the mortgage loans would not be acquired by SONYMA directly from the originating lenders, but would instead be acquired pursuant to a SONYMA program that would involve Fannie Mae. It is crucial for SONYMA'S programs that its servicing banks are able to take advantage of the servicing tax credit. The savings are substantial and are reflected in SONYMA's mortgage rates. In the current environment, where Fannie Mae programs provide the only efficient method for SONYMA to access the capital markets, ensuring that the credit continues to be available is of great importance to SONYMA.

Fiscal implications

Additional tax revenue may be lost due to the expansion of the tax credit.

Effective date

The act takes effect immediately.