Powers of the state of New York mortgage agency

Section 2 of the bill conforms the definition of "mortgage" to that described above.

Section 3 of the bill provides for an immediate effective date.

Existing law

SONYMA currently has the authority to purchase and insure second lien mortgages. However, the definition of "mortgage" set forth in PAL §2402(5) does not allow SONYMA to purchase or insure second lien mortgage loans made simultaneously as first mortgages to be purchased by GSEs.

Justification

This bill would authorize SONYMA to purchase and insure second mortgages in the following limited circumstance: where the second mortgage is made simultaneously and with respect to the same secured property as a first or senior mortgage that is purchased by a GSE.

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 take advantage of GSE programs thereby generating an alternative source of mortgage funding.

SONYMA has entered into an agreement with Fannie Mae which will allow first time home buyers to take advantage of the special pricing and certain underwriting advantages offered by the GSE to state housing agencies like SONYMA. Unless SONYMA amends its statute to allow it to fund second loans made simultaneously as first loans purchased by GSEs, however, it will not be able to take advantage of the agreement reached with Fannie Mae or future programs with GSE involvement. Under the agreement with Fannie Mae, SONYMA can make closing cost and/or down payment assistance loans in connection with a non-SONYMA first mortgage loans made at the same time, and purchased by Fannie Mae. Under current law, SONYMA can only make second loans on loans that are made at the same time as first mortgages purchased by SONYMA. The GSEs will not accept loans which carry co-first liens for closing cost assistance or down payment assistance. They can only accept them if the assistance is made in the form of second liens.

Unless SONYMA amends its statute to allow it to fund second loans in connection with a first mortgage purchased by a GSE, it will not be able to take advantage of the agreement reached with Fannie Mae or future programs with GSE involvement. This is the case because closing cost or down payment assistance is a key component to any program that SONYMA offers. Under the current statutory language, SONYMA can fund closing cost or down payment assistance on a co-first lien basis only, since it cannot take a secondary position. They can only accept them if the assistance is made in the form of second liens. SONYMA would thus be shut out from offering a program for first-time homebuyers where a GSE will purchase the first mortgage and in cases where closing cost or down payment assistance is involved.

In order to be in position to take advantage of the increased role of GSEs, SONYMA will need to amend its statute to eliminate the prohibition on funding second lien mortgages. The amendment would authorize SONYMA to purchase second mortgages made simultaneously as a mortgage by a GSE.

Legislative history

During the 2003 through 2007 legislative sessions, respectively, a similar version of the bill (in the 2007 Legislative Session, S.375) was referred or committed to the Senate Corporations, Authorities and Commissions Committee. In 2009 legislation was passed that allowed for the SONYMA second lien but inadvertently excluded the GSE language.

Fiscal implications

None.

Local fiscal implications

None.

Effective date

The act takes effect immediately.