NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7833
SPONSOR: Wright TITLE OF BILL: An act to amend the public authorities law, in
relation to the powers of the state of New York mortgage agency
PURPOSE OR GENERAL IDEA OF BILL:
This bill would be to authorize 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 circum-
stances. This bill would also amend the definition of "government spon-
sored enterprise" (GSE)
SUMMARY OF SPECIFIC PROVISIONS:
Section 1 expands the definition of "mortgage" to include loans made by
SONYMA and secured mortgages by a second lien where the second lien:
*Secures a mortgage loan purchased by SONYMA, and;
*Is made at the same time as a first lien securing a mortgage loan
purchased by SONYMA pursuant to its programs or by the GSE.
Section 2 amends the definition of "government sponsored enterprise"
(GSE) to include the federally created Government National Mortgage
Association also known as "Ginnie Mae."
JUSTIFICATION:
This bill would authorize SONYMA to originate mortgages subordinate to a
first lien where a 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 expand the
definition of GSE to include 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 FHA fixed-rate mortgage products.
These events have led the Agency to look to alternative fixed-rate fund-
ing sources beyond 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 mort-
gage 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 hous-
ing 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 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's SONMYA can only purchase loans, not originate them does
not, in Frups'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 SON).PMA subsequent-
ly purchases.
Unless SONYMA is given authority to make second loans in conjunction
with the program 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 statue to include Ginnie Mae. This defi-
nition was inserted in SONYMA's statue when SONMYA received legislative
approval in 2010 to purchased 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 corpo-
ration whose mortgage-backed securities are backed by the full faith and
credit guaranty of the United States government.
PRIOR LEGISLATIVE HISTORY:
New legislation
FISCAL IMPLICATIONS:
None to the State.
EFFECTIVE DATE:
Immediately.
