Senator Charles E. Schumer

FOR IMMEDIATE RELEASE: May 5, 2009

SCHUMER INTRODUCES NEW LEGISLATION TO HELP PREVENT MAJOR NYC AFFORDABLE HOUSING COMPLEXES FROM DEFAULT AND FALLING INTO DISREPAIR - TENS OF THOUSANDS OF TENANTS IN THE CROSSHAIRS

Dozens of Buildings Now in Danger of Foreclosure Because Predatory Developers and Lenders Took Out High Risk Loans that Were Not Sustainable

At Least 60,000 Units in NYC in Buildings in Danger of Foreclosure - If Entire Complexes Default, Apartments and Buildings Would Fall in to Grave Disrepair

New Schumer Legislation Would Require HUD and Treasury to Help Restructure

Today, U.S. Senator Charles E. Schumer unveiled new 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 do not default on their mortgages and send those properties into a state of total disrepair. More than 60,000 units in New York City are now in buildings in danger of foreclosure. Similar to subprime mortgages for single family homes, owners of major affordable housing complexes took out unrealistic mortgages on which they could not afford to pay the debt service. Now, as the economy has slowed, 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,” Schumer said. “These predatory developers took out mortgages they could never realistically afford in the first place and unless the federal government finds a way to restructure those loans, it’s going to be the tenants and not the developers who are left in buildings that end up falling apart around them. The low-income 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 entire quality of life.”

“As many as 60,000 New Yorkers live in buildings that are financed with risky debts too high to maintain. These families have paid their rent and followed the rules, but could be left in a deteriorating building because of bad bets made by irresponsible developers,” said Congresswoman Nydia M. Velázquez (D-NY). “I am working in the U.S. House to protect tenants and keep multi-family buildings out of foreclosure. A new program to stabilize troubled buildings is vitally important for New York City, where more than half of our residents rent.”

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. The 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 legislation, which he is pushing as an amendment to the Housing Bill now being considered by the full 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. He is working with Congresswoman Nydia M. Velázquez, a senior member of the Financial Services Committee, to ensure companion legislation is passed in the U.S. House.

In December, 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.

"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."

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