BILL NUMBER:S5396

TITLE OF BILL:
An act
to amend the private housing finance law, in relation to powers of the
agency

PURPOSE OR GENERAL IDEA OF BILL:
To provide statutory authority for HDC and HFA to issue unrated
bonds for private placement beyond the provision of financing to
entities separately regulated under the Private Housing Finance Law.

SUMMARY OF SPECIFIC PROVISIONS:

Sections 1 & 2: Expands the statutory authority beyond the provisions
of financing to entities already regulated by current law.

Section 3: Effective Date

JUSTIFICATION:
Changes in the 421(a) real estate tax abatement program in New York
City have made the tax-exempt bond program the only viable way to
finance much needed mixed-income and affordable rental housing. Not
only is the use of this below-market financing critical to creating
much needed housing in New York City, but these large new
construction projects create numerous construction and permanent jobs.
              

Currently, in order to use tax-exempt bond financing, long term credit
enhancement and variable rate bond liquidity must be provided. To
date, Fannie Mae and Freddie Mac have been the primary providers of
this credit enhancement and liquidity.

This type of credit enhancement enables the underlying bonds to obtain
greater than an investment grade rating which is the minimum rating
currently required under the applicable provisions of the mixed
income and affordable program powers of the New York State Housing
Finance Agency ("HFA") and the New York City Housing Development
Corporation ("HDC"). In light of the current uncertainty regarding
the future operations of both Fannie Mae and Freddie Mac, it may be
necessary to utilize alternative structures to obtain credit
enhancement for the bonds issued to finance this much needed rental
housing. One current financing structure that is used by other
issuers in New York State and other states permits the issuance of
unrated bonds which are purchased by a financial institution.

Under this structure, the real estate credit risk is assumed by the
financial institution as is the case with a Fannie Mae or Freddie Mac
credit enhancement. Consequently, the financial institution is
incentivized to carefully underwrite the viability of the project to
ensure that its investment remains stable. By amending
the powers of HFA and HDC as set forth in this bill, both HFA and
HDC would have the flexibility to issue bonds in accordance with this
structure which would enable the developers of these type of
projects to have an additional financing alternative without imposing
credit risks on HFA and HDC.


More importantly, should Fannie Mae or Freddie Mac no longer provide
bond credit enhancements, this structure may provide the only viable
financing option.

Loans financed with proceeds of unrated HFA and HDC bonds issued for
private placement offer cost efficiencies to their borrowers. Without
the involvement of rating agencies, outside underwriters, credit
enhancers and their respective legal counsels, private placement
transactions can be completed at a substantially lower cost to the
borrower. These savings are particularly important to smaller 100%
affordable projects, for which the cost of issuance of a public
offering are often prohibitively expensive.
Additionally, by continuing to find vehicles to encourage the
development of housing, this method of financing will stimulate job
creation throughout the State.

Private placement of bonds to finance affordable housing is a proven
method of financing for certain local banks in New York. However,
HFA and HDC do not currently have statutory authority to issue unrated
bonds for private placement beyond the provision of financing to
entities separately regulated under the Private Housing Finance Law.

PRIOR LEGISLATIVE HISTORY:
New Bill.

EFFECTIVE DATE:
This act shall take effect immediately, with provisions.