Authorizes the state of New York mortgage agency to purchase construction mortgages from banks within the state during periods when there is an inadequate supply of credit available for new residential mortgages or available for such loans at carrying charges within the financial means of persons and families of low and moderate income.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A3675
SPONSOR: Fitzpatrick (MS) TITLE OF BILL:
An act to amend the public authorities law, in relation to authorizing
the state of New York mortgage agency to purchase construction mortgages
PURPOSE OR GENERAL IDEA OF BILL:
To help foster a secondary market for construction lending in New York
State.
SUMMARY OF PROVISIONS:
This bill adds a new Section 2405-g to the Public Authorities Law to
authorize the State of New York Mortgage Agency to purchase construction
mortgages from banks within the state. It further adds a new subdivision
(18) to Section 2402 of such law to define a construction mortgage as a
loan extended by a bank that is secured by a mortgage on real property
improved by a residential structure for the construction of such resi-
dential structure.
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 mort-
gages 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 indi-
vidual 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 repre-
sent 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 proper-
ly 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 require the recording of an
assignment of any construction mortgage purchased by it from a bank
Finally, the agency is authorized to require restrictions upon assuma-
bility 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.
DIFFERENCE BETWEEN ORIGINAL AND AMENDED VERSION (IF APPLICABLE):
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 Associ-
ation 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 authoriz-
ing 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.
PRIOR LEGISLATIVE HISTORY:
2022 - A5526 - Referred to Corporations, Authorities and Commissions
2020 - A6143 - Held in Corporations, Authorities and Commissions
2018 - A3839 - Held in Corporations, Authorities and Commissions
2016 - A3126 - Held in Corporations, Authorities and Commissions
2014 - A3200 - Held in Corporations, Authorities and Commissions
2012 - A2637 - Held in Corporations, Authorities and Commissions
2010 - A4284 - Held in Corporations, Authorities and Commissions
2008 - A4314 - Held in Corporations, Authorities and Commissions
2006 - A9604 - Held in Corporations, Authorities and Commissions
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None to the State.
EFFECTIVE DATE:
One hundred twenty days after the bill comes law.
