BILL NUMBER:A8572

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 Asso-
ciation 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 home-
buyers, 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 home-
owners 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 securi-
ties 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 servic-
ing 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 environ-
ment, 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.