Senate Bill S5718

                                 BILL NUMBER:  S5718

 TITLE OF BILL :

An act to amend the tax law, in relation to the credit for servicing
certain mortgages

 PURPOSE :

This bill would amend Section 1456(a) of the Tax Law to permit banks
who shall have entered into a contract with the state of New York
mortgage agency to service mortgages acquired by such agency or by a
master servicer acting on its behalf pursuant to the state of New York
mortgage agency act or in connection with any agency program, to be
have credited to it 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 on behalf of the
state of New York mortgage agency or in connection with any agency
program.
              

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 the tax credit
available thereunder.

 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 by the Master Servicer on behalf of SONYMA or
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.

 LEGISLATIVE HISTORY :
None.

 FISCAL IMPLICATIONS :
None.

 EFFECTIVE DATE :
The act takes effect immediately.