SCHUMER WANTS TO STABILIZE MULTIFAMILY HOUSING

Schumer Legislation Would Direct HUD and Treasury To Help Restructure Troubled Loans that Could Open the Door to Predatory Developers Looking to Turn a Quick Profit by Flipping Affordable Housing Complexes

At Least 60,000 Units in NYC Buildings in Danger of Foreclosure - If Entire Complexes Default, Apartments and Buildings Fall in to Grave Disrepair and Affordable Housing Would be Vulnerable to Quick-Flip Developers Looking to Turn a Profit

Schumer: This is Subprime Crisis 2.0; Through No Fault of Their Own, Tens of Thousands of New Yorkers Face Prospect of Losing Their Homes or Quality of Life

Last week, U.S. Senator Charles E. Schumer unveiled legislation that would require the Department of Housing and Urban Development and the Treasury Department to draw up a plan to ensure major affordable housing complexes in New York City and across the country are preserved. The plan would help keep them from defaulting on their mortgages and falling into disrepair.

More than 60,000 housing units in New York City are in buildings in danger of foreclosure due to developers over-eager to profiteer and irresponsible lending and underwriting standards on the part of banks. Similar to subprime mortgages for single family homes, owners of major affordable housing complexes took out unrealistic mortgages, often in cahoots with irresponsible lenders with loose standards, on which they could not afford to pay the debt service. Now, as the economy has slowed and they failed to displace current tenants with others paying higher rents, those developers are facing the prospect of defaulting on those mortgages, which could send the buildings in to serious disrepair or even abandonment. Under Schumer's amendment, HUD and Treasury would be required to develop a program to stabilize multifamily apartment buildings at risk of default, disinvestment and foreclosure.

"This is the subprime crisis 2.0. Through no fault of their own, tens of thousands of New Yorkers are facing the prospect of having their building foreclosed upon and the place where they live rapidly deteriorate," Schumer said. "Owners of these properties took out mortgages they could not afford, often in cahoots with irresponsible bank lenders with weak standards, and unless the federal government finds a way to restructure those loans, these properties will either go into default and decay, or they will be targeted by predatory developers looking to flip it for an easy profit. In the end it's going to be the working families and seniors who live in these buildings who are going to suffer. The hard working families and seniors who live in affordable housing complexes now facing foreclosure got caught in a scam, through no fault of their own, that may cost them their home or their quality of life."

Schumer said HUD and Treasury must develop a plan for multi-family homes because the same excesses that occurred in the single family mortgage market also occurred in the multifamily market, leading to buildings that are significantly overleveraged, with rent rolls that are unable to support basic operating expenses and maintenance. As a result, upkeep and repair for these properties has fallen by the wayside. Tenants of these buildings had absolutely no input into the misguided decisions of the owners and lenders who mortgaged the properties beyond supportable levels, but they are the ones who will face the consequences of disinvestment and foreclosure as owners are unable to meet monthly mortgage payments and maintain the properties. Schumer emphasized he is strongly supportive of the steps that the Administration has taken to improve the single family market, but believes that a similar initiative should be put in place to stabilize the multifamily market.

In New York City alone, estimates of the numbers of units at risk ranges from 60,000 to 90,000. Additionally, a Deutsche Bank study of multifamily mortgage performance indicates that Tennessee, Georgia, Florida, Michigan, Nevada, Texas, Illinois, Ohio, Indiana, Connecticut, Oklahoma, New York, Kentucky, Missouri and Mississippi are currently the hardest hit states. Housing advocates have also identified overleveraged properties in California and Massachusetts.

Schumer's amendment, which is already included in the House-passed version of financial regulatory reform legislative package and is now being considered in the Senate, directs the Secretary of the Treasury, in consultation with the Secretary of HUD, and other government officials, to develop a program to stabilize multifamily apartment buildings at risk of default, disinvestment and foreclosure.

In December 2008, Schumer, a member of the Senate Committee on Banking, Housing and Urban Affairs, called on the Securities and Exchange Commission to investigate whether the loans were based on false or misleading financial assumptions before being sold to investors as securities. He also asked state and federal regulators to issue lending guidelines intended to ensure that certain apartment complexes remain affordable for low- and middle-income people.  Last August, 2009 leadership at HUD and Treasury conducted a stakeholders meeting to highlight the issue of overleveraged multifamily properties at Schumer's request.

"The entire predatory equity enterprise is a house of cards built on foundation of fantasy and greed," said Schumer, who noted that, "The whole thing collapses when there is any depreciation -- or even leveling -- in the property's value, which is the reality we now face. It is a dangerous trend that is damaging both the quantity and quality of our stock of affordable housing, and we must take aggressive action to stomp it out."