ALBANY, N.Y. – The Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, has joined efforts to get credit unions exempt from the mortgage recording tax in New York, ratcheting up the fight against the state tax.
The FHFA has requested permission from the credit union challenging the tax, Poughkeepsie’s Hudson Valley FCU, to join the appeal. On Friday the agency was approved by the state’s high court, the Court of Appeals, to file an amicus brief in the case in which the $3-billion credit union argues the federal tax exemption for federally chartered credit unions exempts it from all state taxes.
Two lower courts have sided with the New York State Department of Taxation and Finance, which is being sued by Hudson Valley FCU, formerly an IBM employees credit union, ruling the mortgage recording tax amounts to a levy on the act of recording the deed for the buyer of a home and not on the property of the federally chartered credit union. If credit unions are successful in overturning the lower court ruling it would cost the state millions of dollars in back taxes paid by credit unions, and also give the state’s federally chartered credit unions a major advantage in the state’s hyper-competitive mortgage market.
In its brief, the regulator for Fannie Mae and Freddie Mac, who together buy more than half of all credit union mortgages, argues that federally chartered credit unions should be unencumbered by state taxes.
The U.S. Department of Justice also has filed a brief supporting the credit union’s case, arguing the state court should consider the tax on federally chartered credit unions in violation of the Federal CU Act, which states that credit unions “shall be exempt from all taxation,” except on real and tangible personal property.
CUNA, NAFCU and the New York CU Association all have filed briefs in the case.
The stakes in the case are enormous, as credit unions and their attorneys have indicated if they win the exemption they will seek to challenge other states’ ability to assess their mortgage tax on federally chartered credit unions. At least 10 other states charge a recording tax. About two-thirds of the nation’s 7,200 credit unions are federally chartered, and about 90% of the 350 or so credit unions in New York are federally chartered.
The amount of the tax, which is paid by the borrower but added to the costs of a mortgage, varies from county to county, but generally amounts to 1% to 2% of the total loan amount. The mortgage recording tax in New York City is 2.05% of the total loan amount, up to $500,000, and 2.175% on loans of $500,000 or more. On a $500,000 loan, that would add $10,875 to the closing costs. In Westchester, by contrast, the rate is 1.3% for a single-family home; in Nassau and Suffolk County, the rate is 1.05%.
