The Surreal Estate

Perspectives on Tenant Organizing from the Urban Homesteading Assistance Board

Tag Archives: FDIC

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.”

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