Relates to the powers of the State of New York Mortgage Agency

This bill would (i) authorize the State of New York Mortgage Agency (SONYMA) to originate second mortgage loans that provide borrowers of SONYMA first mortgage loans with down payment and/or closing cost assistance under certain limited circumstances, and (ii) amend the definition of government sponsored enterprise (GSE).

Summary of provisions:

Section 1 of the bill expands the definition of "mortgage" in Public Authorities Law (PAL) § 2402(5) to include loans made by SONYMA and secured by mortgages secured by a second lien in cases where the second lien: (i) secures a mortgage loan purchased by SONYMA, and (ii) is made at the same time as a first lien securing a mortgage loan purchased by SONYMA pursuant to its programs or by a government sponsored enterprise.

Section 2 of the bill amends the definition of "government sponsored enterprise" set forth in PAL § 2402 (17) to include Government National Mortgage Association (Ginnie Mae).

Section 5 of the bill amends PAL § 2404 to renumber subsection (30) as subsection (31) and to add a new subdivision (30) to grant SONYMA the power to originate loans secured by mortgages secured by a second lien in cases where the second lien: (i) secures a mortgage loan purchased by SONYMA, and (ii) is made at the same time as a first lien securing a mortgage loan purchased by SONYMA pursuant to its programs or by a government sponsored enterprise.

Section 6 of the bill provides for an immediate effective date.

Existing law:

SONYMA is only authorized to purchase second mortgages where the loan purchased by SONYMA and secured by mortgages secured by a second lien: (i) secures a mortgage loan purchased by SONYMA; and (ii) is made at the same time as a first lien securing a mortgage loan purchased by SONYMA pursuant to its programs or by a government sponsored enterprise. SONYMA does not currently have the authority to originate mortgages for second lien purposes.

Prior Legislative history:

Chapter 327 of the Laws of 2012 (S.6900/A.10049); Chapter 208 of the Laws of 2010 (S.6150-A/A.9149-A); and Chapter 432 of the Laws of 2009 (S.5551/A.5753).

Statement in support:

This bill would: (i) authorize SONYMA to originate mortgages subordinate to a first lien where the second mortgage is made

simultaneously and with respect to the same secured property as a first mortgage that is purchased by SONYMA or purchased or securitized by a GSE; and (ii) expand the definition of GSE to include the Ginnie Mae.

The ability of SONYMA, and other issuers of mortgage revenue bonds, to fund mortgage programs by borrowing in the tax-exempt markets has been negatively impacted by the Federal Reserve Board's (FRB) ongoing policy of subsidizing interest rates through the purchase of mortgage-backed securities (MBS) to support the US economic recovery. Thus, the FRB's policy has eliminated SONYMA's traditional interest rate advantage over conventional and FHA fixed-rate mortgage products.

These events have led the Agency to look to alternative fixed-rate funding sources beyond the capital markets. In 2010, legislation was passed authorizing SONYMA to purchase second loans made simultaneously as first loans purchased by GSEs. SONYMA can now purchase closing cost and/or down payment assistance loans in connection with non-SONYMA first mortgage loans made at the same time, and purchased or securitized by the GSEs. The legislation has enabled the Agency to launch a conventional mortgage program in partnership with Fannie Mae, whereby eligible New York home buyers and home owners can take advantage of special pricing and certain underwriting advantages offered by Fannie Mae to state housing agencies like SONYMA. The program features a second mortgage where SONYMA provides down payment and/or closing cost assistance.

SONYMA would like to expand its conventional rate program to include loans insured by FHA and securitized by Ginnie Mae. FHA-insured loans offer lower interest rates and more flexible underwriting than the Fannie Mae loans. When offered with SONYMA down payment and/or closing cost assistance, the FHA product will be extremely attractive to New Yorkers. However, HUD interprets the Housing and Economic Recovery Act of 2008 (HERA) as prohibiting SONYMA from providing secondary financing on FHA loans when "agents, including nonprofit or for-profit enterprises, make the second lien, regardless of the source of funds". Thus, under current law SONYMA can only purchase loans, not originate them does not, in HUD's view, permit SONYMA to expand its conventional rate program to include FHA insured loans, since under SONYMA's current law, the lender must originate the secondary loan, which SONYMA subsequently purchases.

Unless SONYMA is given authority to make second loans in conjunction with the programs it offers, it will not be able to take advantage of the FHA program to assist New York homebuyers and homeowners.

Further, to make the FHA program economically feasible, SONYMA needs the ability to sell loans to or securitize loans with Ginnie Mae. In order to do this, the Agency needs to expand the definition of "government sponsored enterprise" in its statute to include Ginnie Mae. This definition was inserted in SONYMA's statute when SONYMA received legislative approval in 2010 to purchase second loans in connection with programs involving government sponsored enterprises, such as Fannie Mae, which though privately owned are publicly chartered. Ginnie Mae does not fit within this definition, since it is a wholly owned government corporation whose mortgage-backed securities

are backed by the full faith and credit guaranty of the United States government.

Budget implications:

None.

Local Impact:

None.

Effective Date:

The bill would take effect immediately.