Authorizes the state of New York mortgage agency to purchase rehabilitation mortgages from banks within the state during periods when there is an inadequate supply of credit available for new residential mortgages or available for such loans at carrying charges within the financial means of persons and families of low and moderate income.
TITLE OF BILL: An act to amend the public authorities law, in relation to authorizing the state of New York mortgage agency to purchase rehabilitation mortgages
PURPOSE: To authorize the State of New York Mortgage Agency to purchase rehabilitation mortgages from banks within the State.
SUMMARY OF PROVISIONS: This bill adds a new subdivision (18) to Section 2402 of the Public Authorities law to define "rehabilitation" as the repair, alteration, or improvements of a housing accommodation designed to raise the housing standards therein, and a new subdivision (19) to Section 2402 of such law to define "rehabilitation mortgage" as a loan extended by a bank secured by a mortgage on real property improved by a residential structure for the financing and rehabilitation of such residential structure. It further adds a new Section 2405-f to the Public Authorities Law to authorize the State of New York Mortgage Agency (SONYMA) to purchase rehabilitation mortgages from banks within the State.
The bill also states that the agency shall require rehabilitation mortgages to provide that if the borrower is purchasing residential real property, the estimated cost of the repairs must be at least 25% of the mortgagor's adjusted basis in the residential real property, including land. The rehabilitation mortgages must also provide that if the borrower is purchasing residential real property, the purchase price plus the estimated cost of the repairs must fall within current SONYMA regulations pertaining to maximum purchase price. To be eligible for a rehabilitation mortgage, the residential structure must be at least 20 years old on the date of the mortgage application. In addition, any commitment issued by a bank for such rehabilitation mortgages must provide that the bank approve the cost and feasibility of the proposed repairs or rehabilitation to the residential structure and that the bank must monitor ongoing repairs and rehabilitation through periodic inspections. The lender would also have to undertake a final inspection. Furthermore, such mortgages would also have to provide that the borrower occupy the residential structure as his or her principal residence within 60 days of the completion of the repair or rehabilitation work.
The bill further grants SONYMA parallel powers given the agency under the forward commitment loan program. These powers include the ability to purchase rehabilitation mortgages from banks as the agency shall determine and the authority to set the interest rate to be borne by rehabilitation mortgages, provided that such rate is sufficient to provide for the payment of the agency's bonds and notes. The agency would also have to require that the lending bank certify that the mortgage is to an individual borrower and that such bank submit evidence of the making and, if needed, the servicing of such rehabilitation payment mortgages.
The bill further provides that the agency require as a condition of Purchase of any rehabilitation mortgage from a bank that the bank represent that, the mortgage was not made in satisfaction of an obligation of the bond under Section 2405 of the Public Authorities Law; the unpaid principal balance is justly due and owing; the bank has no notice of the existence of any counterclaim, offset or defense asserted by the mortgagor or any successor in interest; the mortgage is evidenced by a bond or promissory note and a mortgage document which has been properly recorded; and the mortgage constitutes a valid first lien on the real property. The agency must also require that, the mortgagor is not in default of any payment of principal and interest, escrow funds, or real property taxes; and the improvements to the mortgaged real property are covered by a valid homeowner's insurance policy.
In addition, each bank would be liable to the agency for any damages suffered by reason of the untruth of any representation or the breach of any warranty. Also, the agency need not require the recording of an assignment of any rehabilitation mortgage purchased by it from a bank. Finally, the agency is authorized to require restrictions upon assumability of the mortgage, default provisions, rights to accelerate, and other terms applicable to rehabilitation mortgages to assure the repayment of its bonds and notes and the exemption from federal income taxes of the interest payable on its bonds and notes.
JUSTIFICATION: Many communities across the State contain older homes which have fallen into disrepair. This housing stock represents a potential source of housing for many new low and moderate income homebuyers. It is often difficult, though, for these people to obtain financing from lending institutions to purchase such properties. This bill would authorize the State of New York Mortgage Agency to provide this type of financing which will not only help encourage increased homeownership opportunities but will also lead to the increased rehabilitation of many older homes throughout the State.
Although this program represents a new concept in lending for SONYMA, the agency does have experience with programs designed to provide for the rehabilitation of older structures through its mortgage insurance program. One should also note that this legislation is modeled after rehabilitation mortgage programs that currently exist in New Jersey and Rhode Island.
LEGISLATIVE HISTORY: 2009-10: S.4680 Referred to Corporations, Authorities & Commissions 2007-08: S.407/A.4027 Referred to Corporations, Authorities & Commissions 2006: S.6252/A.9607 Referred to Corporations, Authorities & Commissions 2005: A.2749 Referred to Housing 2003-04: A.4805 Held in Housing 2002: A.10122 Held in Housing 2001: A.3979 Referred to Housing 1999-00: A.3862 Held in Housing
FISCAL IMPLICATIONS: Minimal to the State.
EFFECTIVE DATE: One hundred twentieth day after the bill becomes a law.
STATE OF NEW YORK ________________________________________________________________________ 759 2011-2012 Regular Sessions IN SENATE (PREFILED) January 5, 2011 ___________Introduced by Sen. YOUNG -- read twice and ordered printed, and when printed to be committed to the Committee on Corporations, Authorities and Commissions AN ACT to amend the public authorities law, in relation to authorizing the state of New York mortgage agency to purchase rehabilitation mort- gages THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Section 2402 of the public authorities law is amended by adding two new subdivisions 18 and 19 to read as follows: (18) "REHABILITATION". REPAIRS, ALTERATIONS OR IMPROVEMENTS OF A HOUS- ING ACCOMMODATION DESIGNED TO RAISE THE HOUSING STANDARDS THEREIN. (19) "REHABILITATION MORTGAGE". A LOAN EXTENDED BY A BANK, SECURED BY A MORTGAGE ON REAL PROPERTY IMPROVED BY A RESIDENTIAL STRUCTURE FOR THE FINANCING AND REHABILITATION OF SUCH RESIDENTIAL STRUCTURE WHICH OTHER- WISE COMPLIES WITH THE CONDITIONS ESTABLISHED BY SECTION TWENTY-FOUR HUNDRED FIVE-F OF THIS PART. S 2. The public authorities law is amended by adding a new section 2405-f to read as follows: S 2405-F. PURCHASE OF REHABILITATION MORTGAGES. (1) A PURPOSE OF THE AGENCY SHALL BE TO PURCHASE REHABILITATION MORTGAGES FROM BANKS WITHIN THE STATE DURING PERIODS WHEN THERE IS AN INADEQUATE SUPPLY OF CREDIT AVAILABLE FOR NEW RESIDENTIAL MORTGAGES OR AVAILABLE FOR SUCH LOANS AT CARRYING CHARGES WITHIN THE FINANCIAL MEANS OF PERSONS AND FAMILIES OF LOW AND MODERATE INCOME. IT IS HEREBY FOUND AND DECLARED THAT SUCH ACTIVITIES BY THE AGENCY WILL ALLEVIATE A CONDITION IN THIS STATE WHICH IS CONTRARY TO THE PUBLIC HEALTH, SAFETY AND GENERAL WELFARE AND WHICH HAS CONSTITUTED IN THE PAST AND FROM TIME TO TIME IN THE FUTURE CAN BE EXPECTED TO CONSTITUTE A PUBLIC EMERGENCY. IT IS FURTHER FOUND AND DECLARED THAT SUCH PURPOSESEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD02628-01-1 S. 759 2
ARE IN ALL RESPECTS FOR THE BENEFIT OF THE PEOPLE OF THE STATE OF NEW YORK AND THE AGENCY SHALL BE REGARDED AS PERFORMING AN ESSENTIAL GOVERN- MENTAL FUNCTION IN CARRYING OUT ITS PURPOSES AND IN EXERCISING THE POWERS GRANTED BY THIS TITLE. (2) (A) THE AGENCY SHALL REQUIRE THAT REHABILITATION MORTGAGES PROVIDE THAT THE ESTIMATED COST OF THE REPAIRS MUST BE AT LEAST TWENTY-FIVE PERCENT OF THE MORTGAGOR'S ADJUSTED BASIS IN THE RESIDENTIAL REAL PROP- ERTY (INCLUDING LAND). (B) SUCH REHABILITATION MORTGAGES SHALL ALSO PROVIDE THAT THE PURCHASE PRICE PLUS THE ESTIMATED COST OF THE REPAIRS MUST FALL WITHIN CURRENT AGENCY REGULATIONS PERTAINING TO MAXIMUM PURCHASE PRICE. TO BE ELIGIBLE FOR SUCH MORTGAGES AT LEAST TWENTY YEARS MUST HAVE ELAPSED BETWEEN THE DATE THE RESIDENTIAL REAL PROPERTY WAS FIRST USED AND THE COMMENCEMENT OF PHYSICAL WORK ON SUCH REHABILITATION. TO BE ELIGIBLE FOR SUCH MORT- GAGES, (I) AT LEAST FIFTY PERCENT OF THE EXISTING EXTERNAL WALLS OF THE RESIDENTIAL STRUCTURE MUST BE RETAINED IN PLACE AS EXTERNAL WALLS, (II) AT LEAST SEVENTY-FIVE PERCENT OF THE EXISTING WALLS ARE RETAINED IN PLACE AS INTERNAL OR EXTERNAL WALLS, AND (III) AT LEAST SEVENTY-FIVE PERCENT OF THE EXISTING INTERNAL STRUCTURAL FRAMEWORK MUST REMAIN INTACT. ANY COMMITMENT ISSUED BY A BANK FOR SUCH REHABILITATION MORT- GAGES SHALL PROVIDE THAT THE BANK SHALL CERTIFY THE COST AND FEASIBILITY OF THE PROPOSED REPAIRS OR REHABILITATION TO THE RESIDENTIAL STRUCTURE AND THAT THE BANK SHALL MONITOR ONGOING REPAIRS AND REHABILITATION THROUGH PERIODIC INSPECTIONS AND SHALL PERFORM A FINAL INSPECTION. SUCH MORTGAGES SHALL ALSO PROVIDE THAT THE BORROWER MUST OCCUPY THE RESIDEN- TIAL STRUCTURE AS HIS OR HER PRINCIPAL RESIDENCE WITHIN SIXTY DAYS OF THE COMPLETION OF THE REPAIR OR REHABILITATION WORK. (3) THE AGENCY SHALL PURCHASE REHABILITATION MORTGAGES FROM BANKS AT SUCH PRICES AND UPON SUCH TERMS AND CONDITIONS AS IT SHALL DETERMINE; PROVIDED, HOWEVER, THAT THE TOTAL PURCHASE PRICE, EXCLUSIVE OF ANY AMOUNTS REPRESENTING A REFUND OF COMMITMENT OR OTHER FEES PAID BY A BANK TO THE AGENCY, FOR ALL MORTGAGES WHICH THE AGENCY COMMITS TO PURCHASE FROM A BANK AT ANY ONE TIME SHALL IN NO EVENT BE MORE THAN THE TOTAL OF THE UNPAID PRINCIPAL BALANCES THEREOF, PLUS ACCRUED INTEREST THEREON. (4) IN CONDUCTING ITS PROGRAM OF PURCHASING REHABILITATION MORTGAGES, THE AGENCY SHALL BE GOVERNED BY THE PROVISIONS OF PARAGRAPH (B) OF SUBDIVISION THREE OF SECTION TWENTY-FOUR HUNDRED FIVE OF THIS PART. (5) THE AGENCY SHALL REQUIRE AS A CONDITION OF PURCHASE OF REHABILI- TATION MORTGAGES FROM BANKS THAT EACH SUCH BANK CERTIFY THAT EACH SUCH REHABILITATION MORTGAGE IS TO AN INDIVIDUAL BORROWER AND IS IN ADDITION TO THE MORTGAGES SUCH CERTIFYING BANK OTHERWISE WOULD HAVE MADE. (6) NOTWITHSTANDING THE MAXIMUM INTEREST RATE, IF ANY, FIXED BY SECTION 5-501 OF THE GENERAL OBLIGATIONS LAW OR ANY OTHER LAW NOT SPECIFICALLY AMENDING OR APPLICABLE TO THIS SECTION, THE AGENCY MAY SET THE INTEREST RATE TO BE BORNE BY REHABILITATION MORTGAGES PURCHASED BY THE AGENCY FROM BANKS AT A RATE OR RATES WHICH THE AGENCY FROM TIME TO TIME SHALL DETERMINE TO BE AT LEAST SUFFICIENT, TOGETHER WITH ANY OTHER AVAILABLE MONIES, TO PROVIDE FOR THE PAYMENT OF ITS BONDS AND NOTES, AND REHABILITATION MORTGAGES BEARING SUCH INTEREST RATE SHALL NOT BE DEEMED TO VIOLATE ANY SUCH LAW OR TO BE UNENFORCEABLE IF ORIGINATED BY A BANK IN GOOD FAITH PURSUANT TO AN UNDERTAKING WITH THE AGENCY WITH RESPECT TO THE SALE THEREOF NOTWITHSTANDING ANY SUBSEQUENT FAILURE OF THE AGENCY TO PURCHASE THE MORTGAGE OR ANY SUBSEQUENT SALE OR DISPOSITION OF THE MORT- GAGE BY THE AGENCY TO SUCH BANK OR ANY OTHER PERSON. (7) THE AGENCY SHALL REQUIRE THE SUBMISSION TO IT BY EACH BANK FROM WHICH THE AGENCY HAS PURCHASED REHABILITATION MORTGAGES EVIDENCE SATIS-S. 759 3
FACTORY TO THE AGENCY OF THE MAKING, AND IF APPLICABLE, THE SERVICING, OF SUCH REHABILITATION MORTGAGES IN CONFORMITY WITH SUCH BANK'S UNDER- TAKING WITH THE AGENCY AND IN CONNECTION THEREWITH MAY, THROUGH ITS EMPLOYEES OR AGENTS OR THOSE OF THE BANKING DEPARTMENT, INSPECT THE BOOKS AND RECORDS OF ANY SUCH BANK. (8) COMPLIANCE BY ANY BANK WITH THE TERMS OF ITS AGREEMENT WITH OR UNDERTAKING TO THE AGENCY WITH RESPECT TO THE SALE AND, IF APPLICABLE, THE SERVICING OF REHABILITATION MORTGAGES MAY BE ENFORCED BY DECREE OF THE SUPREME COURT. THE AGENCY MAY REQUIRE AS A CONDITION OF PURCHASE OF REHABILITATION MORTGAGES FROM ANY BANK THE CONSENT OF SUCH BANK TO THE JURISDICTION OF THE SUPREME COURT OVER ANY SUCH PROCEEDING. THE AGENCY MAY ALSO REQUIRE AGREEMENT BY ANY BANK, AS A CONDITION OF THE AGENCY'S PURCHASE OF REHABILITATION MORTGAGES FROM SUCH BANK, TO THE PAYMENT OF PENALTIES TO THE AGENCY FOR VIOLATION BY THE BANK OF ITS UNDERTAKINGS TO THE AGENCY, AND SUCH PENALTIES SHALL BE RECOVERABLE AT THE SUIT OF THE AGENCY. (9) THE AGENCY SHALL REQUIRE AS A CONDITION OF PURCHASE OF ANY REHA- BILITATION MORTGAGE FROM A BANK THAT THE BANK REPRESENT AND WARRANT TO THE AGENCY THAT: (A) THE MORTGAGE WAS NOT MADE IN SATISFACTION OF AN OBLIGATION OF THE BANK UNDER SECTION TWENTY-FOUR HUNDRED FIVE OF THIS PART; (B) THE UNPAID PRINCIPAL BALANCE OF THE MORTGAGE AND THE INTEREST RATE THEREON HAVE BEEN ACCURATELY STATED TO THE AGENCY; (C) THE AMOUNT OF THE UNPAID PRINCIPAL BALANCE IS JUSTLY DUE AND OWING; (D) THE BANK HAS NO NOTICE OF THE EXISTENCE OF ANY COUNTERCLAIM, OFFSET OR DEFENSE ASSERTED BY THE MORTGAGOR OR ANY SUCCESSOR IN INTER- EST; (E) THE MORTGAGE IS EVIDENCED BY A BOND OR PROMISSORY NOTE AND A MORT- GAGE DOCUMENT WHICH HAS BEEN PROPERLY RECORDED WITH THE APPROPRIATE PUBLIC OFFICIAL; (F) THE MORTGAGE CONSTITUTES A VALID FIRST LIEN ON THE REAL PROPERTY DESCRIBED TO THE AGENCY SUBJECT ONLY TO REAL PROPERTY TAXES NOT YET DUE, INSTALLMENTS OF ASSESSMENTS NOT YET DUE, AND EASEMENTS AND RESTRICTIONS OF RECORD WHICH DO NOT ADVERSELY AFFECT, TO A MATERIAL DEGREE, THE USE OR VALUE OF THE REAL PROPERTY OR IMPROVEMENTS THEREON; (G) THE MORTGAGOR IS NOT NOW IN DEFAULT IN THE PAYMENT OF ANY INSTALL- MENT OF PRINCIPAL OR INTEREST, ESCROW FUNDS, REAL PROPERTY TAXES OR OTHERWISE IN THE PERFORMANCE OF HIS OBLIGATIONS UNDER THE MORTGAGE DOCU- MENTS AND HAS NOT TO THE KNOWLEDGE OF THE BANK BEEN IN DEFAULT IN THE PERFORMANCE OF ANY SUCH OBLIGATION FOR A PERIOD OF LONGER THAN SIXTY DAYS DURING THE LIFE OF THE MORTGAGE; AND (H) THE IMPROVEMENTS TO THE MORTGAGED REAL PROPERTY ARE COVERED BY A VALID AND SUBSISTING POLICY OF INSURANCE ISSUED BY A COMPANY AUTHORIZED BY THE SUPERINTENDENT OF INSURANCE TO ISSUE SUCH POLICIES IN THE STATE OF NEW YORK AND PROVIDING FIRE AND EXTENDED COVERAGE TO AN AMOUNT NOT LESS THAN EIGHTY PERCENT OF THE INSURABLE VALUE OF THE IMPROVEMENTS TO THE MORTGAGED REAL PROPERTY. (10) EACH BANK SHALL BE LIABLE TO THE AGENCY FOR ANY DAMAGES SUFFERED BY THE AGENCY BY REASON OF THE UNTRUTH OF ANY REPRESENTATION OR THE BREACH OF ANY WARRANTY AND, IN THE EVENT THAT ANY REPRESENTATION SHALL PROVE TO BE UNTRUE WHEN MADE OR IN THE EVENT OF ANY BREACH OF WARRANTY, THE BANK SHALL, AT THE OPTION OF THE AGENCY, REPURCHASE THE MORTGAGE FOR THE ORIGINAL PURCHASE PRICE ADJUSTED FOR AMOUNTS SUBSEQUENTLY PAID THER- EON, AS THE AGENCY SHALL DETERMINE.S. 759 4
(11) THE AGENCY NEED NOT REQUIRE THE RECORDING OF AN ASSIGNMENT OF ANY REHABILITATION MORTGAGE PURCHASED BY IT FROM A BANK PURSUANT TO THIS SECTION AND SHALL NOT BE REQUIRED TO NOTIFY THE MORTGAGOR OF ITS PURCHASE OF THE MORTGAGE. THE AGENCY SHALL NOT BE REQUIRED TO INSPECT OR TAKE POSSESSION OF THE MORTGAGE DOCUMENTS IF THE BANK FROM WHICH THE REHABILITATION MORTGAGE IS PURCHASED BY THE AGENCY SHALL ENTER A CONTRACT TO SERVICE SUCH MORTGAGE AND ACCOUNT TO THE AGENCY THEREFOR. (12) NOTWITHSTANDING ANY OTHER PROVISION OF LAW, THE AGENCY IS AUTHOR- IZED TO REQUIRE, AS A CONDITION TO THE PURCHASE FROM BANKS OF ANY REHA- BILITATION MORTGAGE, SUCH RESTRICTIONS UPON ASSUMABILITY OF THE MORT- GAGE, DEFAULT PROVISIONS, RIGHTS TO ACCELERATE, AND OTHER TERMS APPLICABLE TO SUCH REHABILITATION MORTGAGES MADE BY THE BANK PURSUANT TO UNDERTAKINGS WITH THE AGENCY WITH RESPECT TO THE SALE THEREOF AS THE AGENCY MAY DETERMINE TO BE NECESSARY OR DESIRABLE TO ASSURE THE REPAY- MENT OF ITS BONDS AND NOTES AND THE EXEMPTION FROM FEDERAL INCOME TAXES OF THE INTEREST PAYABLE ON ITS BONDS AND NOTES. ALL SUCH TERMS SHALL BE ENFORCEABLE BY THE ORIGINATING BANK, THE AGENCY, AND ANY SUCCESSOR HOLD- ER OF THE MORTGAGE UNLESS EXPRESSLY WAIVED IN WRITING BY OR ON BEHALF OF THE AGENCY. S 3. This act shall take effect on the one hundred twentieth day after it shall have become a law, except that any rules and regulations neces- sary for the timely implementation of this act on its effective date shall be promulgated on or before such date.