553 E. 169th Tenants Deserve Better!

Photo taken March, 2012 at 553 E. 169th St.
Photo taken March, 2012 at 553 E. 169th St.

553 E. 169th Street is a 18 unit building located right in the middle of the Bronx. It’s not necessarily easy to recognize — it lacks a building number, and is smashed between another building and a restaurant. But, right now, the building is the source of a tense argument between Valley National Bank and housing advocates, including UHAB.

The property was in foreclosure for many years, and during that time it fell into extreme disrepair. Right now, it’s listed as one of the 200 worst buildings in New York City. We’ve written about the building many times before on The Surreal Estate, and it was also featured in an article on The Atlantic Cities.

More recently, an HPD approved affordable housing developer – one with the skills to stabilize extremely distressed housing at no cost to tenants – put in a bid for the property. Hoping to correct the severe financial distress, the bid requires that bank to swallow a significant loss. Valley National Bank is unsurprisingly reluctant — they did not originate this loan, and they don’t want to pay for another bank’s mistake.

The catch is that Valley National Bank has a loss share agreement with the FDIC. Following the financial crisis, the FDIC compelled VNB to take over Liberty Pointe Bank. In exchange for absorbing Liberty’s bad assets, the FDIC agreed to take on 80% of the losses VNB suffered as a result. The FDIC, a government entity, supposedly answers to tax payers — i.e., tenants. Even though VNB will only be responsible for 20% of the discount given the bank remains reluctant.

Up until this point, Valley National Bank has been open to working with tenants, organizers and advocates at this building. While tenants certainly appreciate this, all the good-faith negotiating that VNB has done up to this point won’t matter very much if 553 E. 169th Street is simply sold to the highest bidder. As they say — the road to hell is paved with good intentions.

Valley National is a small bank, but they still hold $16 billion in assets, have a market value of $1.9 billion, and in 2012 boasted a net income of $143.5 million. $125,000 is a drop of the bucket to the bank, but it will improve the lives of the 18 families who live at 553 E. 169th Street exponentially.

We have been working with elected officials to express to both the bank and the FDIC the importance of not repeating the mistakes of the past by overleveraging this building again. We hope they listen.

Shelterforce: “Housing for People, Not for Profit”

At The Surreal Estate, we envision a better affordable housing policy that embodies an end to speculation. We hope to achieve it through encouraging tenants to unify and stake themselves in the future of their buildings. We have many allies in this fight, and Shelterforce: The Journal of Affordable Housing, has documented it well. In a recent article,  “Housing for People, Not for Profit”, Anita Sinha and Rachel Laforest imagine an approach to housing policy that differs substantially from policy today. In the excerpt below,  they write:

Affordable housing policy should be grounded in the following principles:

  • Suitable housing requires a suitable urban society, including physical and social environments designed to support the full development of each person’s individual and social human potential. Housing cannot be disconnected from the social context of the neighborhood and the city.
  • The profit motive should be evicted from housing. Housing should be valued as a place to live, not for the potential profit it can create.
  • Public investment is central to the provision of suitable housing for all. The role of the market should be limited to permitting those able to do so to provide their own housing, and only to the extent that such provision does not restrict the ability of all people to be housed.
  • The ownership and management of housing should be non-bureaucratic and support the individual freedom of all occupants to shape their own accommodations and immediate environment. Non-speculative ownership of housing is one means to that end, as is democratically-run public housing and other non-speculative forms of rental.

Predatory Equity is the quintessential example of “profit over people“. It is a phenomenon which encourages speculation and prevents investment in permanent affordable housing. By over-leveraging affordable housing through the false projection of higher rents and absurdly low maintenance estimates, it leads to displacement in communities, tenant harassment, and a lack of repairs which are severe enough to cause health and safety concerns in already marginalized communities.

As we continue the every-day fight to bring housing policy into this vision, it has become more and more apparent that we will only be successful if we strongly encourage bank regulators to step up and start actively regulating banks like New York Community Bank and Signature Bank, among others.(Sidenote:  Signature is now holding the debt on many of New York Community Bank’s most distressed portfolios. In taking over these distressed assets, Signature Bank has generally increased the level of debt.) 

Our success at convincing banks to stop lending to slumlords and speculating on multi-family housing has been limited. Consequently, we now must target the Federal Reserve and the FDIC and force them to impose penalties on banks who continue to generate exorbitant profits while communities suffer.

“Housing for People, Not for Profit” is our consistent cry here and it should be heard louder and clearer, by all of us together. It’s time to move from imagining a different future to fighting for it, with the energy and excitement that comes from knowing that we needed better regulation yesterday.

NYT: “Sheila Bair’s Bank Shot”

This past Sunday, The New York Times ran a terrific article on the career and departure of Sheila Bair from the FDIC.

Bair favored “market discipline” — meaning shareholders and debt holders would take losses ahead of depositors and taxpayers — over bailouts, which she abhorred. She didn’t spend a lot of time fretting over bank profitability; if banks had to become less profitable, postcrisis, in order to reduce the threat they posed to the system, so be it. (“Our job is to protect bank customers, not banks,” she told me.) And she was a fierce, and often lonely, proponent of widespread mortgage modification, for reasons both compassionate (to help struggling homeowners stay in their homes) and economic (fewer foreclosures would help the troubled housing market recover more quickly).

UHAB Organizing has reached out to the FDIC recently because we also want banks to responsibly modify and sell mortgages. It has been surprising to see how little they have responded to the Predatory Equity crisis, even under the Bair’s leadership.

The regulators in this fight should be our greatest allies. They are one of the few bodies that can force the banks to ensure the “safeness and soundness” of properties and prevent them from continuing to lend in a predatory way. So why is it that they turn a blind eye when it comes to multi-family lending?

If – god forbid – another tenant dies as a result of a faulty elevator shaft, or a kid falls out a window due to loose window panes, we will have to add the FDIC to the list of parties to blame for this phenomenon. They have been informed of what is happening and they have rejected their role in regulating the banks that are making predatory multi-family loans in New York.

As Bair steps down and Martin Gruenberg steps up, we must continue to collectively encourage the FDIC to take a strong stance in this fight against bad bank behavior.  They are potential ally with an extraordinary ability to have a positive impact on the future of this crisis. They must expand their “tough stance” on banks and bondholders to include provisions for modifying multi-family loans that affect housing conditions. They need to regulate lenders so that new and existing mortgages reflect the real value of the physical asset.

“Tenants Turn to Lenders to Repair Buildings” Wall Street Journal

As published in the Wall Street Journal by Eliot Brown

Housing advocacy groups and the Bloomberg administration are asking bank regulators for help in fixing up deteriorating apartment buildings.

Tenants in a foreclosed Bronx building at 735 Bryant Ave. say the mortgage holder should make repairs.
Photo courtesy of Joel Cairo of The Wall Street Journal

Advocates say that hundreds of buildings in New York City are falling into disrepair because their owners took on too much debt to buy them in the boom years leading up to the recession. With many of these properties now in foreclosure proceedings and building-code violations stacking up, banks and other debtholders will help decide their future.

Housing advocates, who used to target landlords and opportunistic buyers to fix up aging buildings, have been pressuring lenders in recent months to sell troubled mortgages at discounts so the new owners will be able to afford repairs. They’ve also been pressuring lenders to fix up properties themselves.

Lenders, however, have rejected the notion that they should sell foreclosed properties or distressed mortgages for less than what buyers will pay. They say they have an obligation to maximize returns for their investors. The onus is on buyers to pay a price that makes sense, they say.

To raise pressure on the banks, advocates and Bloomberg officials earlier this month met with Federal Deposit Insurance Corp. officials to convince the bank regulators to intervene on the issue. The meetings were informational and the FDIC didn’t make specific commitments on the issue, attendees said.

Elected officials and advocates are hoping regulators would be able to push banks to sell properties to buyers with strong track records at sustainable prices. A spokesman for the city’s Department of Housing Preservation and Development said the agency was encouraged by the initial talks with the banking regulators and it expects to follow up in coming days. Still, it is unclear how much ability and willingness regulators have to intervene in this regard.

In a statement, FDIC spokesman Andrew Gray didn’t comment on specific properties. He noted that the agency has requirements for banks to mark loans to their actual values, and standards for banks to make new loans based on “prudent” expectations. “The standards require prudent underwriting, including consideration of the borrower’s ability to repay personally or through cash flow from the property,” he said.

Since 2006, foreclosure filings have been made on more than 2,100 multifamily properties in the city, the highest level since the early 1990s, according to a study by New York University’s Furman Center for Real Estate and Urban Policy released earlier this month. Many expect filings to continue to grow in coming years as more mortgages made during the peak of 2006 and 2007 mature.

Housing advocates and officials charge that lenders have a responsibility to see that foreclosed properties and distressed mortgages are sold for sustainable prices that are in the long-term interest of tenants. “They’re just getting their money and running,” said Dina Levy, an organizer at advocacy group Urban Homesteading Assistance Board.

Generally, the groups tend to have little leverage and the lenders are able to sell defaulted mortgages and foreclosed properties as they please. The efforts have had some effect, however. Earlier this month, a troubled loan tied to a set of buildings in the Bronx known as the Milbank portfolio sold for about $28 million. The company that oversaw the mortgage, LNR Property, had initially found a bidder willing to pay close to $35 million, but the selling price was lowered after significant pressure from advocates and a wave of code violations were issued by the Bloomberg administration.

The meeting with FDIC officials followed a news conference held by community groups and elected officials including City Council Speaker Christine Quinn in which they criticized large multifamily lender New York Community Bank. The bank, they said, owns a large set of foreclosed properties in which physical conditions have deteriorated, with more foreclosures in the works. “By holding banks accountable now, there is a chance that the next landlord might actually be responsible—not just out to make a quick buck,” Ms. Quinn said in a statement.

Lenders point out that they often don’t have the ability to fix up deteriorating properties because they don’t have control of them. It can often take more than a year to take hold of a property given New York foreclosure laws, lenders say.

“It is truly unfortunate when economic conditions lead to foreclosures, and even more so when they cause a borrower to neglect his responsibilities to his building and his tenants,” a New York Community Bank spokeswoman said in a statement. “On the rare occasions when this does occur to someone we have lent to, we intervene to the extent we are permitted to do so but, as lenders, there are limits to what we can do.”

“Sen. Schumer, Christine Quinn Push Feds To Pressure Bank That Owns Shoddy Housing”: The Village Voice

As published in the The Village Voice by Elizabeth Dwoskin

Image courtesy of The Village Voice

A consequence of our sucky economy: The city estimates that around 125,000 housing units will go into foreclosure over the next two years.

In many cases, owners (including banks) are trying to unload these buildings, and while they wait, living conditions deteriorate drastically for tenants, with landlords racking up housing code violations for lack of heat and hot water, for toxic mold outbreaks, leaky roofs, and rodent infestations.

Conditions have gotten so bad, in some cases, that city officials have taken a lot of flak from advocates (and from journalists), and these buildings have become PR problems for the city. And so, over the past year, officials have been playing a bigger role, by being a middleman between tenants, banks, older landlords and prospective ones.

Today, city and state officials, and Senator Chuck Schumer, took things a step further by asking the federal government to force a big bank that owns many foreclosed and distressed properties to come clean about their finances and sell the properties to a responsible buyer.

New York Community Bank is one of the most active providers of loans to landlords that buy multi-family dwellings in the city. According to the Urban Homesteading Assistance Board, the bank controls the mortgages on 34 foreclosed buildings, which are home to 800 families. 328 buildings that are owned by the bank and home to 6,000 families are in very shaky condition: they have more than three hazardous health and safety violations per apartment. Until recently, the bank owned five properties that were on the city’s worst buildings list.

Last month, Mutual Housing Association of New York, a real estate company that has the support of the city’s housing agency and tenant advocates made a bid to buy the 34 foreclosed properties. According to City Council Speaker Christine Quinn, New York Community Bank turned the company down, saying the offer was too low.

Schumer, along with Quinn and Congresswoman Nydia Velazquez, say that the FDIC — the federal agency that supervises financial institutions — should force New York Community Bank to come clean to buyers about the actual state of the finances, living conditions, and repairs needs of the buildings. Though no one has said it outright, the implication here is that the bank is fudging the numbers to make the distressed buildings more attractive to a higher bidder. The other implication is that the city has not had the pull with the bank that it would have wished.

The New York pols say that what they are asking for is well within the power of the federal agency. Because many of these mortgages were securitized by Wall Street, and are therefore implicated in the wider economic crisis, Schumer and Velazquez had inserted a section into the Dodd-Frank financial reform bill — passed by Congress last summer — that makes the federal government take some responsibility for the problem of distressed mortgages on multi-family dwellings, which afflict big cites like New York.

Schumer said today in a press release: “Here is a perfect example for the FDIC to take into consideration as they help build a framework for this program. The message here should be clear: residents of affordable buildings throughout the City should not be the victims of never-ending cycles of overleveraged gambling by predatory equity investors.”

“Congressman Serrano Urges FDIC to Examine Bank Sales of Mortgages for Distressed Multifamily Buildings”

April 7, 2011 – Washington, DC – Today, Congressman José E. Serrano sent a letter to the FDIC Chairman Sheila Bair, asking her to examine how banks value and sell mortgages held on distressed multi-family buildings, and the impact this has on the health and safety of building residents.  The full text of the letter is below:

 

 

 

Dear Chairman Bair:

I am writing to register my concern about an ongoing banking issue which is having a severe impact on the health and safety of a great number of families in my Congressional District and across New York City, and which impacts the accuracy of how banking institutions in New York City and elsewhere report the value of their assets.  Specifically, I am concerned about how banks are valuing the mortgages they hold for severely distressed multifamily buildings, and whether those valuations honestly reflect the physical condition of the properties.

As you are probably aware, the credit boom and subsequent housing crisis that dominated the early part of the last decade has played out somewhat differently in New York City—where approximately 64 percent of the population rent homes in multi-family apartment buildings—than it has in the rest of the nation.  Between 2003 and 2008, hundreds of apartment buildings were purchased at substantially inflated prices by real-estate investors and private equity firms across New York City. These transactions were fueled by a number of banks and investment firms who provided as much as 80 percent of the capital for each of these deals in the form of short-term mortgages.  According to New York City’s Department of Housing Preservation and Development (HPD), there are now more than 110,000 occupied apartments in multifamily buildings that may be overleveraged and at serious risk of disinvestment and/or foreclosure.  Often these properties carry hundreds, if not thousands, of violations of New York City’s Housing Maintenance Code, including many that are considered hazardous.

To date, no area of New York City has experienced the negative consequences of this trend more than the Bronx.  In 2008, my office worked with HPD, Senator Charles Schumer, Fannie Mae and their regulator, the Federal Housing Finance Agency (FHFA), to bring relief to residents living in a portfolio of 14 buildings which were facing foreclosure and had descended into nearly uninhabitable physical condition.  In that case, known as the Ocelot portfolio, Fannie Mae and its regulator recognized that the poor physical condition of the portfolio had reduced the value of the loan. Additionally, the agencies recognized the substantial cost associated with restoring the portfolio back to decent, safe and sanitary conditions and accepted, in part, a revaluation of the loan to reflect its true value.  The revaluation allowed for a sale to a responsible landlord who was able to provide the building with the repairs it desperately needed.

Presently, there are hundreds of distressed properties across the city whose mortgages are held by banks.  If a property is facing foreclosure, in many cases, the bank simply seeks to sell the loans as quickly as possible, with seemingly little regard for the buyer’s intention for the properties.  The vital issue is how these loans are valued by banks at the point of sale.

In my view, the value of a distressed property must reflect the cost associated with making that property livable and nonhazardous again.  As these loans are based on using multifamily buildings as collateral, to the extent that such collateral deteriorates, the value of the loan should also decline.  Unfortunately, the practice we see from banks does not account for the impaired physical condition at the point of sale.  Instead, severely distressed properties are being sold at prices far in excess of their true value.  Not only can this demonstrably put the life, health and safety of tenants at risk—who face the prospect of further disinvestment—it also puts enormous financial strain on municipal government, which is often left having to bear the cost of major capital and rehabilitation work.

I believe the FDIC has an important role to play in addressing this issue.  As part of the FDIC’s authority to preserve the safety and soundness of the institutions it oversees, I believe the FDIC should investigate how banks are valuing multifamily mortgages and properties in their financial reporting and statements, specifically with a focus on how impaired physical condition affects the value of these loans.  To the extent the FDIC has not already done so, I would ask that the FDIC develop safeguards to ensure that real estate asset values, especially in the multifamily market, are more closely scrutinized for possible changes in valuation based on deferred maintenance and/or substantial outstanding capital needs.

According to research on New York City’s housing and real estate market, New York Community Bank (NYCB), a state bank under the FDIC’s regulatory authority, holds the mortgages of more physically and/or financially distressed properties than any other lender in New York City.  Currently, NYCB has 34 properties in foreclosure across the city, which have a combined total of just under 5,000 code violations.  Of that number, 16 of these buildings are located in the Bronx and have a combined 2,635 outstanding code violations.  Because of NYCB’s central role in many of the issues described above, I would ask that the FDIC begin its investigation into these loan valuation issues by making inquiries with NYCB.  My hope is that the FDIC can work with banks under its regulatory authority to develop standards that would help determine a more accurate value for banks’ multifamily real estate assets, and prevent further harm from coming to residents of my community and others.

Thank you for your kind consideration and I look forward to your reply.

Sincerely,

José E. Serrano

Member of Congress

Congressman José E. Serrano has represented the Bronx in Congress since 1990.

“Politicians Call on FDIC to Protect Affordable Housing”: Huffington Post

As published in the Huffington Post by Yepoka Yeebo

NEW YORK — City politicians are calling on federal regulators to start making use of a little-known provision in the sweeping financial reform bill passed last year that could help protect housing for low-income residents.

Local politicians, residents and housing activists gathered outside a dilapidated Bronx building Thursday to launch the opening salvo in a battle against New York State’s biggest savings and loan — which, they say, is exacerbating the growing threat to affordable housing in New York City.

Photo courtesy of Huffington Post

New York Community Bank has been accused of trying to profit from the seizure of foreclosed apartment buildings in the area, selling the buildings at prices reminiscent of the height of the housing boom. But property prices have taken a hit, and tenants say conditions at the buildings — run-down even during the market’s flush years — have deteriorated further.

The bank’s representatives did not respond to calls for comment.

Politicians have accused the bank of trying to claw back every penny of the bad mortgages it initiated while the housing bubble inflated, regardless of the consequences.

“Instead of selling them at the price that they’re worth, making it clear that major repairs need to be done, New York Community Bank was only trying to make a quick buck,” New York City Council Speaker Christine Quinn said, adding that regulators like the Federal Deposit Insurance Corporation should examine the “inflated fake numbers faceless, greedy bankers use to make a profit.”

A provision in the Dodd-Frank financial reform bill passed last year calls on federal agencies to protect apartment buildings in foreclosure. Politicians said they are still unsure what form the provision will take, but said the law gave the FDIC the power to intervene in bad deals.

Specifically, Quinn said, the FDIC should force New York Community Bank to disclose its finances and the buildings’ repair costs.

At the height of the financial crisis, roughly 100,000 apartments in low-income neighborhoods in New York were bought by investors who planned to raise the rents or flip the properties, according to affordable housing advocates. Many of the apartment buildings fell into foreclosure, leaving tenants in limbo — a situation politicians tried to address in the financial reform bill.

Long-term residents of the Bronx brought their neighborhoods back from the ruin of the 1970s and 1980s, only to watch speculators and banks make a quick buck then walk away, according to Ruben Diaz Jr, the borough’s president. “It’s downright criminal,” he said. “We’re calling on the FDIC to stop New York Community Bank from profiteering at the expense of Bronxites, all while their buildings fall apart around them.”