Authorizes the purchase of construction mortgages by the state of New York mortgage agency

The bill also states that the agency shall require mortgages to provide that the estimated cost of the construction must be at least 50 percent of the mortgagor's adjusted basis in the residential real property, including land. The mortgages must also provide that the purchase price of the real property plus the estimated cost of the construction must fall within current SONYMA regulations pertaining to maximum purchase price.

In addition, any commitment issued by a bank for such construction mortgages must provide that the bank approve the cost of the proposed construction of the residential structure and that the bank must monitor ongoing construction through periodic inspections and a final inspection.

The bill further grants SONYMA parallel powers given the agency under the forward commitment loan program. These powers include the ability to purchase construction mortgages from banks as the agency shall determine and the authority to set the interest rate to be borne by construction mortgages, provided that such rate is sufficient to provide for the payment of the agency's bonds and notes. The agency would also have to require that the lending bank certify that the mortgage is to an individual borrower and that such bank submit evidence of the making and, if needed, the servicing, of such construction mortgages.

The bill further provides that the agency require as a condition of purchase of any construction mortgage from a bank that the bank represent that: the mortgage was not made in satisfaction of an obligation of the bond under Section 2405 of the public Authorities Law; the unpaid principal balance is justly due and owing; the mortgage is evidenced by a bond or promissory note and a mortgage document which has been properly recorded; and the mortgage constitutes a valid first lien on the real property. The agency must also require that: the mortgagor is not in default of any payment of principal and interest, escrow funds, or real property taxes; and the improvements to the mortgaged real property are covered by a valid insurance policy.

In addition, each bank would be liable to the agency for any damages suffered by reason of the untruth of any representation or the breach of any warranty. Also, the agency need not re~ire the recording of an assignment of any construction mortgage purchased by it from a bank. Finally, the agency is authorized to require restrictions upon assumability of the mortgage, default provisions, rights to accelerate, and other terms applicable to construction mortgages to assure the repayment of its bonds and notes and the exemption from federal income taxes of the interest payable on its bonds and notes.

Justification

According to the report of the bipartisan Millennial Housing Commission issued in May 2002 one of the last major challenges for the nation's housing finance system is the development of a strong secondary market for construction loans. Capital for housing construction is generated by commercial banks and thrift institutions that normally retain the loan in their portfolios rather than selling them into the secondary mortgage market. In fact, according to a recent survey by the National Association of Home Builders 91 % of single family construction loans come from commercial banks and thrifts. Thus, these loans do not benefit from the lower rates and liquidity provided by the secondary market. By authorizing the State of New York Mortgage Agency to purchase construction loans from banks and thrifts, this bill attempts to foster the creation of a secondary market in construction loans to help reduce the costs of such loans for residents of the state who are building their own homes.

Legislative history

2009,2010: S.1154/A.4284 Referred to Corporations, Authorities and Commissions 2007,2008: S.370/A.4314 Referred to Corporations, Authorities and commissions 2006: S.6256/A.5687, A.9604 Referred to Corporations, Authorities and Commissions 2005: A.5687 Referred to Corporations, Authorities and Commissions 2003,2004: A.6485 Referred to Corporations, Authorities and Commissions

Fiscal implications

None.

Effective date

This act shall take effect one hundred twenty days after the bill becomes law.