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

Summary of provisions

This bill adds a new subdivision (18) to section 2402 of the Public Authorities law to define "rehabilitation" as the repair, alteration, or improvements of a housing accommodation designed to raise the housing standards therein, and a new subdivision (19) to Section 2402 of such law to define "rehabilitation mortgage" as a loan extended by a bank secured by a mortgage on real property improved by a residential structure for the financing and rehabilitation of such residential structure. It further adds a new Section 2405-f to the Public Authorities Law to authorize the State of New York Mortgage Agency (SONYMA) to purchase rehabilitation mortgages from banks within the State.

The bill also states that the agency shall require rehabilitation mortgages to provide that if the borrower is purchasing residential real property, the estimated cost of the repairs must be at least 25% of the mortgagor's adjusted basis in the residential real property, including land. The rehabilitation mortgages must also provide that if the borrower is purchasing residential real property, the purchase price plus the estimated cost of the repairs must fall within current SONYMA regulations pertaining to maximum purchase price. To be eligible for a rehabilitation mortgage, the residential structure must be at least 20 years old on the date of the mortgage application. In addition, any commitment issued by a bank for such rehabilitation mortgages must provide that the bank approve the cost and feasibility of the proposed repairs or rehabilitation to the residential structure and that the bank must monitor ongoing repairs and rehabilitation through periodic inspections. The lender would also have to undertake a final inspection. Furthermore, such mortgages would also have to provide that the borrower occupy the residential structure as his or her principal residence within 60 days of the completion of the repair or rehabilitation work.

The bill further grants SONYMA parallel powers given the agency under the forward commitment loan program. These powers include the ability to purchase rehabilitation mortgages from banks as the agency shall determine and the authority to set the interest rate to be borne by rehabilitation 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 rehabilitation payment mortgages.

The bill further provides that the agency require as a condition of purchase of any rehabilitation 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 bank has no notice of the existence of any counterclaim, offset or defense asserted by the mortgagor or any successor in interest; 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 homeowner's 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 require the recording of an assignment of any rehabilitation 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 rehabilitation 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

Many communities across the State contain older homes which have fallen into disrepair. This housing stock represents a potential source of housing for many new low and moderate income home-buyers. It is often difficult, though, for these people to obtain financing from lending institutions to purchase such properties. This bill would authorize the State of New York Mortgage Agency to provide this type of financing which will not only help encourage increased homeownership opportunities but will also lead to the increased rehabilitation of many older homes throughout the State.

Although this program represents a new concept in lending for SONYMA, the agency does have experience with programs designed to provide for the rehabilitation of older structures through its mortgage insurance program. One should also note that this legislation is modeled after rehabilitation mortgage programs that currently exist in New Jersey and Rhode Island.

Legislative history

2013-2014 S. 2046/A.3317 Held in Housing 2011,2012: S.759/A.2512 Referred to Corporations, Authorities and Commissions 2009,2010: S.4680 Referred to Corporations, Authorities & Commissions 2007,2008: S.407/A.4027 Referred to Corporations, Authorities & Commissions 2006: S.6252/A.9607 Referred to Corporations, Authorities & Commissions 2005: A.2749 Referred to Housing 2003,2004: A.4805-A Referred to Housing 2002: A.10122 Held in Housing

2001: A.3979 Referred to Housing 1999,2000: A.3862 Held in Housing

Fiscal implications

Minimal to the State

Effective date

One hundred twentieth day after the bill becomes a law.