Enacts the "home mortgage bridge loan assistance act of 2014"

Summary of provisions of bill

Section 1 of the bill amends the private housing finance law to add a new article 28, which establishes the Home Mortgage Bridge Loan Assistance Act of 2014 by amending the private housing finance law to add a new Article 28.

Bridge loans under this Act would be available for the payment of mortgages on one to four-family residences and for single-family residences in condominiums, housing cooperatives or manufactured homes located in New York. The mortgaged property would also have to be the mortgagor's principal residence; the mortgagor could not own other residential property subject to a mortgage lien. The mortgagor must be suffering temporary financial hardship due to unemployment, underemployment, or other circumstances beyond his or her control. Furthermore, the mortgagor must not have been more than sixty days delinquent on any residential mortgage within five years preceding the delinquency for which assistance is requested or within five years prior to filing for unemployment insurance, which is one of triggers for the bridge loan assistance application process.

Bridge loan assistance will only be available to mortgagors whose income prior to the triggering financial hardship was less than one hundred twenty percent of the median family income in the area where the property is located, and the aggregate amount of bridge loan assistance provided to any qualified mortgagor will not be greater than sixty thousand dollars. Additionally, mortgagors who receive bridge loan assistance will be carefully screened to ensure that they will be able to resume their own mortgage payments and to pay off their bridge loans after overcoming the temporary financial hardship.

Section 2 of the bill amends the state finance law to add a new section 89-h, which establishes the Home Mortgage Bridge Loan Assistance Fund. This fund consists of initial appropriations but will eventually be funded primarily by repayments of bridge loan assistance loans. Additionally, the program will be funded by moneys received as grants and provisions from financial institutions for purposes of receiving Community Reinvestment Act credits.

Justification

In 2008 New York and the nation experienced a devastating collapse in the real estate market due to the sub-prime mortgage crisis. One consequence of that collapse was been an extended economic downturn in which many businesses reduced investments and employment, which reduced income levels and made it difficult for many homeowners to keep up with their mortgage payments. Foreclosures further depressed home prices, which kept the economic recovery sluggish. Depressed housing prices and continued high unemployment lead to more abandoned houses and buildings, loss of tax base, and various related social problems like homelessness and crime.

Whereas the initial wave of foreclosures during the mortgage crisis were due to sub-prime mortgage defaults, temporary loss of homeowner income is now the primary cause of foreclosure. Thousands of New Yorkers have been become temporarily and involuntarily unemployed or underemployed and have either fallen into or come close to mortgage delinquency as a result.

While the sluggish aftermath of the most recent economic crisis demand immediate action to avoid unnecessary foreclosures, to help stabilize and revitalize our communities, and to reinvigorate mortgage lending, it is important to note that business cycles are a normal part of the economy. Therefore, establishing a temporary bridge loan mortgage payment assistance program will benefit homeowners, mortgage lenders, and neighborhoods and communities-not only in the current economic downturn, but also in future conventional downturns.

One of the major benefits of a home mortgage bridge loan assistance program is that it helps to avoid both unnecessary foreclosures and other restructuring. related complications by eliminating the need to negotiate loan modification terms with lenders and loan servicers at all. More broadly, such a program avoids unnecessary foreclosures precisely by capitalizing upon the fact that many foreclosures stem not from unsound mortgage loan structures or the fundamental non-creditworthiness of borrowers, but simply from temporary income loss. For the same reason, moreover, a well-structured bridge loan assistance program can also become substantially self-perpetuating through borrower repayment of principal and interest on underlying loans once regular incomes are restored.

Empirical evidence demonstrates that many temporarily troubled mortgage borrowers prove able to retain their homes and pay off their mortgages in full, without a loan agreement modification, when offered bridge loan assistance. Pennsylvania's Homeowners' Emergency Mortgage Assistance Program (HEMAP) has proved highly successful, over the course of three decades, in cost-effectively limiting foreclosures and the economic and social problems that come from high foreclosure rates. This bill will improve upon the HEMAP model and will extend a bridge back to stability to thousands of struggling New York homeowners who are experiencing a temporary loss of income through no fault of their own.

Legislative history

New bill.

Fiscal implications for state and local governments

It is estimated that the Home Mortgage Bridge Loan Assistance Program will require startup funding of up to approximately $130 million, depending upon how many mortgagors qualify, when the respective loans are originated, and what the respective loan terms are. Thereafter, the Program will be funded with (1) all moneys paid by mortgagors in repayment of home mortgage bridge loan assistance payments made on their behalves; (2) state appropriations, in an amount to be determined and to the extent the Program has not become fully self-funding; (3) any grant or other provision of funds by a financial institution for the purpose of receiving Community Reinvestment Act credit; (4) any contributions made by business firms or other entities to the Program in return for tax credits, to the extent such tax credits are available; and (5) any contributions made by any other person or entity to provide funding for the Program.

Effective date

This act shall take effect immediately.