Senate Bill S5997

                                 BILL NUMBER:  S5997

 TITLE OF BILL :
An act to amend the tax law, in relation to the credit for serving
certain mortgages


 PURPOSE :
This bill would amend Section 1456(a) of the Tax Law to allow a bank
who acquires mortgages in connection with any State of New York
Mortgage Agency program for the sale of the mortgage to the Federal
National Mortgage Association or transfer of the mortgage for a
security issued by the Federal National Mortgage Association to have
credited to the bank certain amounts annually to apply upon or in lieu
of the payment of any tax to which it may be subject under Section
1456(a) of the Tax Law.

 SUMMARY OF PROVISIONS :
Section 1 of the bill amends Section 1456(a) of the Tax Law to provide
that the tax credit available to banks that service mortgages of the
State of New York Mortgage Agency shall be available in cases where
the mortgages are acquired by the servicing bank for the sale of the
mortgage to the Federal National Mortgage Association or transfer of
the mortgage for a security issued by the Federal National Mortgage
Association.

              

Section 2 of the bill provides for an immediate effective date.

 EXISTING LAW :
Section 1456(a) of the Tax Law provides that banks which shall have
entered into a contract with the state of New York mortgage agency to
service mortgages acquired by such agency pursuant to the state of New
York mortgage agency act, shall be eligible to receive a tax credit.

 LEGISLATIVE HISTORY :
None.

 JUSTIFICATION :
The ability of SONYMA, and other issuers of mortgage revenue bonds, to
borrow in the tax-exempt markets to fund mortgage programs has been
negatively impacted as a result of a loss of investor confidence as
well as interest rate volatility associated with the market events of
2008. SONYMA's borrowing costs for its single family programs have
increased as a result of the turbulent markets that have been with us
since mid-2008, thus making it a less competitive provider of mortgage
loan products to first time homebuyers. This is happening at a time
when that customer base, low to moderate income first time homebuyers,
is more than ever in need of safe, fixed rate mortgage loans with down
payment or closing cost assistance.  For the first time in its
history, the Agency in the fall of 2008 was not able to access the
capital markets. Since then, as the markets have slowly recovered, its
ability to issue long-term fixed rate debt has become more costly, as
housing bond investors demand higher yields in return for what they
perceive (wrongly in the case of SONYMA) as the increased risks
associated with housing. This impacts the mortgage rates on its
products, since they are directly tied to its cost of funds. In the
past, the Agency has taken advantage of the tax-exempt capital markets
to both offer low interest rates to first-time homebuyers in New York
State and to also offer additional benefits such as low down payments
and closing cost assistance.  The events of 2008 have thus led the
Agency to look to alternative fixed rate funding sources beyond the
capital markets. The Agency has been working with the GSEs,
particularly Fannie Mae, to structure programs that would allow the
Agency to pass through its mortgage products to the GSEs, thereby
generating an alternative funding source. Rather than bonding to
obtain funds to buy mortgages from participating lenders under its
programs, SONYMA would enter into agreements with these GSEs to sell
them the mortgages. SONYMA has entered into agreements with Fannie Mae
that would allow it to structure programs that provide homeowners with
the benefits of SONYMA'S down payment and closing assistance programs,
and other benefits, in combination with Fannie Mae programs.  This
approach has gained heightened importance in recent weeks as the
Homeowner Affordability and Stability Plan announced by the White
House on February 18, 2009 included provisions to ensure that Fannie
Mae and Freddie Mac can continue to provide assistance in addressing
problems in the housing market. The White House plan, as well the plan
proposed by the Treasury Department (the Financial Stability plan)
both look to increase the size of the GSEs' retained mortgage
portfolios so that they spend as much as $600 billion for purchasing
GSE mortgage backed securities and GSE debt. This is part of the
overall plan, announced as part of the Homeowner Affordability and
Stability Plan, to have the GSEs support state housing finance
agencies in serving homebuyers.  The reason for the proposed amendment
is to specifically permit servicing banks to take advantage of the tax
credit offered under Section 1456(a) in situations where the mortgage
loans would not be acquired by SONYMA directly from the originating
lenders, but would instead be acquired pursuant to a SONYMA program
that would involve Fannie Mae. It is crucial for SONYMA'S programs
that its servicing banks are able to take advantage of the servicing
tax credit. The savings are substantial and are reflected in SONYMA's
mortgage rates.  In the current environment, where Fannie Mae programs
provide the only efficient method for SONYMA to access the capital
markets, ensuring that the credit continues to be available is of
great importance to SONYMA.

 FISCAL IMPLICATIONS :
Additional tax revenue may be lost due to the expansion of the tax
credit.

 EFFECTIVE DATE :
The act takes effect immediately.