Authorizes the state of New York mortgage agency to purchase construction 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.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A1789
SPONSOR: Fitzpatrick (MS) TITLE OF BILL:
An act to amend the public authorities law, in relation to authorizing
the state of New York mortgage agency to purchase construction mortgages
PURPOSE OR GENERAL IDEA OF BILL:
To help foster a secondary market for construction lending in New York
State.
SUMMARY OF PROVISIONS:
This bill adds a new Section 2405-g to the Public Authorities Law to
authorize the State of New York Mortgage Agency to purchase construction
mortgages from banks within the state. It further adds a new subdivision
(18) to Section 2402 of such law to define a construction mortgage as a
loan extended by a bank that is secured by a mortgage on real property
improved by a residential structure for the construction of such resi-
dential structure.
The bill also states that the agency shall require mortgages to provide
that the estimated cost of the construction must be at least 50 percent
of the mortgagor's adjusted basis in the residential real property,
including land. The mortgages must also provide that the purchase price
of the real property plus the estimated cost of the construction must
fall within current SONYMA regulations pertaining to maximum purchase
price.
In addition, any commitment issued by a bank for such construction mort-
gages must provide that the bank approves the cost of the proposed
construction of the residential structure and that the bank must monitor
ongoing construction through periodic inspections and a final
inspection.
The bill further grants SONYMA parallel powers given to the agency under
the forward commitment loan program. These powers include the ability to
purchase construction mortgages from banks as the agency shall determine
and the authority to set the interest rate to be borne by construction
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 indi-
vidual borrower and that such bank submits evidence of the making and,
if needed, the servicing, of such construction mortgages.
The bill further provides that the agency require as a condition of
purchase of any construction mortgage from a bank that the bank repre-
sent 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 mortgage is evidenced by
a bond or promissory note and a mortgage document which has been proper-
ly 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 on 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 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 construction mortgage purchased by it from a bank
Finally, the agency is authorized to require restrictions upon assuma-
bility of the mortgage, default provisions, rights to accelerate, and
other terms applicable to construction 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.
DIFFERENCE BETWEEN ORIGINAL AND AMENDED VERSION (IF APPLICABLE):
JUSTIFICATION:
According to the report of the bipartisan Millennial Housing Commission
issued in May 2002 one of the last major challenges for the nation's
housing finance system is the development of a strong secondary market
for construction loans. Capital for housing construction is generated by
commercial banks and thrift institutions that normally retain the loan
in their portfolios rather than selling them into the secondary mortgage
market. In fact, according to a recent survey by the National Associ-
ation of Home Builders 91% of single-family construction loans come from
commercial banks and thrifts. Thus, these loans do not benefit from the
lower rates and liquidity provided by the secondary market. By authoriz-
ing the State of New York Mortgage Agency to purchase construction loans
from banks and thrifts, this bill attempts to foster the creation of a
secondary market in construction loans to help reduce the costs of such
loans for residents of the state who are building their own homes.
PRIOR LEGISLATIVE HISTORY:
2024- A3675- Referred to Corporations, Authorities and Commissions
2022- A5526- Referred to Corporations, Authorities and Commissions
2020- A6143- Held in Corporations, Authorities and Commissions
2018- A3839- Held in Corporations, Authorities and Commissions
2016- A3126- Held in Corporations, Authorities and Commissions
2014- A3200- Held in Corporations, Authorities and Commissions
2012- A2637- Held in Corporations, Authorities and Commissions
2010- A4284- Held in Corporations, Authorities and Commissions
2008- A4314- Held in Corporations, Authorities and Commissions
2006- A9604- Held in Corporations, Authorities and Commissions
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
The bill will bring an undetermined amount of savings to the state and
localities by granting them greater flexibility to negotiate when an
agreement is failed to be reached, as employers will no longer be forced
to abide by the previous collective bargaining. agreement.
EFFECTIVE DATE:
This act shall take effect immediately.
STATE OF NEW YORK
________________________________________________________________________
1789
2025-2026 Regular Sessions
IN ASSEMBLY
January 14, 2025
___________
Introduced by M. of A. FITZPATRICK, TAGUE -- Multi-Sponsored by -- M. of
A. DeSTEFANO, MANKTELOW -- read once and referred 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 construction mort-
gages
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Section 2402 of the public authorities law is amended by
2 adding a new subdivision 18 to read as follows:
3 (18) "Construction mortgage". A loan extended by a bank secured by a
4 mortgage on real property improved by a residential structure for the
5 construction of such structure.
6 § 2. The public authorities law is amended by adding a new section
7 2405-g to read as follows:
8 § 2405-g. Purchase of construction mortgages. (1) A purpose of the
9 agency shall be to purchase construction mortgages from banks within the
10 state during periods when there is an inadequate supply of credit avail-
11 able for new residential mortgages or available for such loans at carry-
12 ing charges within the financial means of persons and families of low
13 and moderate income.
14 It is hereby found and declared that such activities by the agency
15 will alleviate a condition in this state which is contrary to the public
16 health, safety and general welfare and which has constituted in the past
17 and from time to time in the future can be expected to constitute a
18 public emergency. It is further found and declared that such purposes
19 are in all respects for the benefit of the people of the state of New
20 York and the agency shall be regarded as performing an essential govern-
21 mental function in carrying out its purposes and in exercising the
22 powers granted by this title.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD04002-01-5
A. 1789 2
1 (2) (a) The agency shall require construction mortgages provide that
2 the estimated cost of the construction shall be at least fifty percent
3 of the mortgagor's adjusted basis in the residential real property
4 (including land).
5 (b) Such construction mortgages shall also provide that the purchase
6 price of the real property plus the estimated cost of the construction
7 shall fall within current agency regulations pertaining to maximum
8 purchase price. Any commitment issued by a bank for such construction
9 mortgage shall provide that the bank shall certify the cost of the
10 construction of the residential structure and that the bank shall moni-
11 tor ongoing construction through periodic inspections and shall perform
12 a final inspection.
13 (3) The agency shall purchase construction mortgages from banks at
14 such prices and upon such terms and conditions as it shall determine;
15 provided, however, that the total purchase price, exclusive of any
16 amounts representing a refund of commitment or other fees paid by a bank
17 to the agency, for all mortgages which the agency commits to purchase
18 from a bank at any one time shall in no event be more than the total of
19 the unpaid principal balances thereof, plus accrued interest thereon.
20 (4) In conducting its program of purchasing construction mortgages,
21 the agency shall be governed by the provisions of paragraph (b) of
22 subdivision three of section twenty-four hundred five of this part.
23 (5) The agency shall require as a condition of purchase of
24 construction mortgages from banks that each such bank certify that each
25 such construction mortgage is to an individual borrower and is in addi-
26 tion to the mortgages such certifying bank otherwise would have made.
27 (6) Notwithstanding the maximum interest rate, if any, fixed by
28 section 5-501 of the general obligations law or any other law not
29 specifically amending or applicable to this section, the agency may set
30 the interest rate to be borne by construction mortgages purchased by the
31 agency from banks at a rate or rates which the agency from time to time
32 shall determine to be at least sufficient, together with any other
33 available monies, to provide for the payment of its bonds and notes, and
34 construction mortgages bearing such interest rate shall not be deemed to
35 violate any such law or to be unenforceable if originated by a bank in
36 good faith pursuant to an undertaking with the agency with respect to
37 the sale thereof notwithstanding any subsequent failure of the agency to
38 purchase the mortgage or any subsequent sale or disposition of the mort-
39 gage by the agency to such bank or any other person.
40 (7) The agency shall require the submission to it by each bank from
41 which the agency has purchased construction mortgages evidence satisfac-
42 tory to the agency of the making, and if applicable, the servicing, of
43 such construction mortgages in conformity with such bank's undertaking
44 with the agency and in connection therewith may, through its employees
45 or agents or those of the department of financial services, inspect the
46 books and records of any such bank.
47 (8) Compliance by any bank with the terms of its agreement with or
48 undertaking to the agency with respect to the sale, and if applicable,
49 the servicing, of construction mortgages may be enforced by decree of
50 the supreme court. The agency may require as a condition of purchase of
51 construction mortgages from any bank the consent of such bank to the
52 jurisdiction of the supreme court over any such proceeding. The agency
53 may also require agreement by any bank, as a condition of the agency's
54 purchase of construction mortgages from such bank, to the payment of
55 penalties to the agency for violation by the bank of its undertakings to
A. 1789 3
1 the agency, and such penalties shall be recoverable at the suit of the
2 agency.
3 (9) The agency shall require as a condition of purchase of any
4 construction mortgage from a bank that the bank represent and warrant to
5 the agency that:
6 (a) the mortgage was not made in satisfaction of an obligation of the
7 bank under section twenty-four hundred five of this part;
8 (b) the unpaid principal balance of the mortgage and the interest rate
9 thereon have been accurately stated to the agency;
10 (c) the amount of the unpaid principal balance is justly due and
11 owing;
12 (d) the bank has no notice of the existence of any counterclaim,
13 offset or defense asserted by the mortgagor or any successor in inter-
14 est;
15 (e) the mortgage is evidenced by a bond or promissory note and a mort-
16 gage document which has been properly recorded with the appropriate
17 public official;
18 (f) the mortgage constitutes a valid first lien on the real property
19 described to the agency subject only to real property taxes not yet due,
20 installments of assessments not yet due, and easements and restrictions
21 of record which do not adversely affect, to a material degree, the use
22 or value of the real property or improvements thereon;
23 (g) the mortgagor is not, at such time, in default in the payment of
24 any installment of principal or interest, escrow funds, real property
25 taxes or otherwise in the performance of such mortgagor's obligations
26 under the mortgage documents and has not to the knowledge of the bank
27 been in default in the performance of any such obligation for a period
28 of longer than sixty days during the life of the mortgage; and
29 (h) the improvements to the mortgaged real property are covered by a
30 valid and subsisting policy of insurance issued by a company authorized
31 by the superintendent of financial services to issue such policies in
32 the state and providing fire and extended coverage to an amount not less
33 than eighty percent of the insurable value of the improvements to the
34 mortgaged real property.
35 (10) Each bank shall be liable to the agency for any damages suffered
36 by the agency by reason of the untruth of any representation or the
37 breach of any warranty and, in the event that any representation shall
38 prove to be untrue when made or in the event of any breach of warranty,
39 the bank shall, at the option of the agency, repurchase the mortgage for
40 the original purchase price adjusted for amounts subsequently paid ther-
41 eon, as the agency shall determine.
42 (11) The agency need not require the recording of an assignment of any
43 construction mortgage purchased by it from a bank pursuant to this
44 section and shall not be required to notify the mortgagor of its
45 purchase of the mortgage. The agency shall not be required to inspect or
46 take possession of the mortgage documents if the bank from which the
47 construction mortgage is purchased by the agency shall enter a contract
48 to service such mortgage and account to the agency therefor.
49 (12) Notwithstanding any other provision of law, the agency is author-
50 ized to require, as a condition to the purchase from banks of any
51 construction mortgage, such restrictions upon assumability of the mort-
52 gage, default provisions, rights to accelerate, and other terms applica-
53 ble to such construction mortgages made by the bank pursuant to under-
54 takings with the agency with respect to the sale thereof as the agency
55 may determine to be necessary or desirable to assure the repayment of
56 its bonds and notes and the exemption from federal income taxes of the
A. 1789 4
1 interest payable on its bonds and notes. All such terms shall be
2 enforceable by the originating bank, the agency, and any successor hold-
3 er of the mortgage unless expressly waived in writing by or on behalf of
4 the agency.
5 § 3. This act shall take effect on the one hundred twentieth day after
6 it shall have become a law. Effective immediately, the addition, amend-
7 ment and/or repeal of any rule or regulation necessary for the implemen-
8 tation of this act on its effective date are authorized to be made on or
9 before such date.
