Relates to the credit for servicing certain mortgages.
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: 2009-10: S.5997 Referred to Investigations & Government Operations
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.
STATE OF NEW YORK ________________________________________________________________________ 1774 2011-2012 Regular Sessions IN SENATE January 12, 2011 ___________Introduced by Sen. PERKINS -- read twice and ordered printed, and when printed to be committed to the Committee on Investigations and Govern- ment Operations AN ACT to amend the tax law, in relation to the credit for serving certain mortgages THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subsection (a) of section 1456 of the tax law, as added by chapter 167 of the laws of 1972, is amended to read as follows: (a) Credit for servicing certain mortgages. Every bank, as defined in section two thousand four hundred two of the public authorities law, 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 OR MORTGAGES ACQUIRED BY A BANK IN CONNECTION WITH ANY PROGRAM OF THE AGENCY, FOR SALE TO OR TRANS- FER IN EXCHANGE FOR A MORTGAGE BACKED SECURITY TO BE ISSUED BY THE FEDERAL NATIONAL MORTGAGE ASSOCIATION, shall have credited to it annual- ly to apply upon or in lieu of the payment of any tax to which it may be subject under this article an amount equal to two and ninety-three one hundredths percentum of the total principal and interest collected by the bank during its taxable year on each such mortgage secured by a lien on real estate improved by a one-family to four-family residential structure and an amount equal to the interest collected by the bank during its taxable year on each such mortgage secured by a lien on real property improved by a structure occupied as the residence of five or more families living independently of each other, multiplied by a frac- tion the denominator of which shall be the interest rate payable on the mortgage (computed to five decimal places) and the numerator of which shall be .00125 in the case of such a mortgage acquired by such agency for less than one million dollars, and .00100 in the case of such a mortgage acquired by such agency for one million dollars or more;EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD06751-01-1 S. 1774 2
provided, however, that there shall in no case be credited to any such bank an amount in excess of the amount due from such bank for taxes payable to the state under this article for the taxable year for which such credit is given. In computing such tax credit for the servicing of mortgages on one-family to four-family residential structures, the bank shall be entitled to no credit for the collection of curtailments or payments in discharge of any such mortgage. For the purposes of this section, (a) a "curtailment" shall mean amounts paid by mortgagors (1) in excess of the monthly constant due during the month of collection and (2) in reduction of the unpaid principal balance of the mortgage; in the absence of clear evidence to the contrary, amounts paid in excess of the monthly constant due during the month of collection shall be deemed to be in reduction of the unpaid principal balance of the mortgage; and (b) "monthly constant" shall mean the amount of principal and interest which is due and payable according to the mortgage documents on each periodic payment date. S 2. This act shall take effect immediately.