New York, NY – May 22, 2010 – (RealEstateRama) — Congresswoman Carolyn B. Maloney joined with elected officials, community leaders, and affordable housing advocates at a news conference outside Stuyvesant Town to announce her introduction of legislation in Congress, H.R. 5361, that will sharply curtail the ability of Fannie Mae, Freddie Mac, and other government-sponsored enterprises (GSEs) to invest in future transactions that reduce the availability of affordable housing both in New York and nationwide. Representative Maloney was joined at the press conference by New York City Public Advocate Bill de Blasio; Manhattan Borough President Scott Stringer; NYS Assemblyman Brian Kavanagh; NYC Councilman Dan Garodnick; Alvin Doyle, the President of the Stuyvesant Town/Peter Cooper Village Tenants Association; and other consumer, housing and community advocates.
GSEs like Freddie Mac and Fannie Mae are mandated by the federal government to help increase affordable housing. However, Fannie and Freddie provided crucial liquidity for the purchase of Stuyvesant Town and Peter Cooper Village, even though the buyers’ business plan relied heavily on the use of aggressive tactics to convert rent-regulated apartments to market rate housing. What’s more, Fannie Mae and Freddie Mac earned “affordable housing goals credits” by investing in the Stuyvesant Town deal – despite the fact that the transaction did the opposite of creating or preserving affordable housing.
Congresswoman Maloney’s bill, the “Responsible GSE Affordable Housing Investment Act of 2010″(H.R. 5361), which has been cosponsored by New York Reps. Jerrold Nadler, Nydia Velazquez, Gregory Meeks, and Yvette Clarke, would require the Federal Housing Finance Agency (FHFA) to deny affordable housing goals credits when a project’s debt is disproportionate to its income – as was the case in the Stuyvesant Town/Peter Cooper Village sale. The bill will also require the GSEs to use the same standards for assessing their investments in the secondary securities market as they would for direct investments for the purposes of affordable housing goals credits, thus syncing the standards for securities investments with those of direct investments. In addition, Rep. Maloney and Financial Services Committee Chairman Barney Frank this week sent a letter to the Acting Director of the FHFA urging the Agency to use its power to deny affordable housing goals credits for multifamily loans that facilitate the conversion of units from affordable to a higher market rate. A full copy of that letter is attached.
“It’s outrageous that Fannie Mae and Freddie Mac aided and abetted efforts to slash New York’s stock of affordable housing. In the Stuy Town deal, Fannie and Freddie got affordable housing goals credit where no such credit was due – and for the good of our communities, that’s got to stop,” said Congresswoman Maloney. “My bill will sharply curtail the ability of Fannie, Freddie, and other GSEs to take part in transactions that depend on converting housing to market rate. Today, we’re sending the message to Fannie and Freddie that they should be investing in deals that increase affordable housing. That’s their stated mission — and they need to start living up to that mandate.”
Joining Representative Maloney at today’s news conference were several elected officials, community activists, and advocates for affordable housing. Among them were New York City Public Advocate Bill de Blasio, who said, “Fannie Mae and Freddie Mac were created to increase access to housing. When they funded an investment predicated on eliminating affordable housing at Stuyvesant Town and Peter Cooper Village, they failed that goal. The government should stop Fannie Mae and Freddie Mac from investing in any development deals that will threaten affordable housing. I applaud Congresswoman Maloney for spearheading legislative efforts which will help protect tenants at Stuy Town and Peter Cooper Village and throughout our city.”
“Organizations like Fannie Mae and Freddie Mac should not be lending a helping hand to developers who look at our city’s dwindling stock of affordable housing with dollar signs in their eyes. Preserving affordable housing is a priority for every level of government, and we must ensure that our government sponsored enterprises don’t hinder that mission. I applaud Congresswoman Maloney for introducing this vital, common sense legislation that will protect America’s tenants,” said Manhattan Borough President Scott Stringer.
NYS Assembly Member Brian Kavanagh, who represents the community in the State Assembly, said, “I applaud Carolyn Maloney for this effort to require Fannie Mae and Freddie Mac to heed the lessons we’ve learned from Tishman Speyer’s and their associates’ overly aggressive, ill-fated purchase of Stuyvesant Town and Peter Cooper Village in 2006. Even as we work to hold Fannie and Freddie accountable for their past actions–and to ensure that they play a productive role as this community seeks a strong voice in its future–we need long-term assurances that they and other government-sponsored enterprises will not repeat this kind of predatory behavior that violates the public trust and runs counter to the purposes for which they were created.”
“Fannie and Freddie’s investments should not come at the harm of the very taxpayers who support them and who propped them up when they needed help,” said Council Member Dan Garodnick. “It is possible to do well, even while you’re doing good. That’s what we expect from Fannie and Freddie, and that’s what we will get with Congresswoman Maloney’s legislation.”
Alvin Doyle, President of the Stuyvesant Town/Peter Cooper Village Tenants Association, said, “Tenants at Stuyvesant Town and Peter Cooper Village are grateful to Congresswoman Maloney for introducing this bill, which will help prevent GSE-financed deals like the recent sale of our complex, which has resulted in a loss of affordable housing stock. Her legislation will help ensure that Freddie Mac and Fannie Mae act in a responsible manner and encourage the preservation of affordable housing.”
New York State Senator Thomas K. Duane, who represents Stuyvesant Town and Peter Cooper Village in Albany but was unable to attend the press conference due to a scheduling conflict, said in a statement, “I applaud Congresswoman Maloney’s efforts to rectify the system by which government-sponsored enterprises (GSEs) are credited for financing affordable housing in New York City and across the nation. This bill makes necessary adjustments to ensure the true, long-term affordability of housing units in which GSEs invest. Taxpayers should not be subsidizing housing investments, like those Fannie Mae and Freddie Mac made in Stuyvesant Town/Peter Cooper Village, that are not viable unless rents are raised to unaffordable levels.”
Congresswoman Maloney’s bill has also garnered support from advocates for consumers and for affordable housing. Denise Scott, Managing Director of the Local Initiatives Support Corporation (LISC) of New York, said, “This bill will discourage Fannie and Freddie from investing in multifamily mortgages, or mortgage-backed securities, that are based on a speculative business model in which displacement of low-income families is the goal. This unsafe and unsound model was the one on which the Stuy Town/Peter Cooper Village deal was based, as well as numerous other deals consummated during NYC’s real estate bubble. Many of those deals now threaten the well-being of tens of thousands of tenants and the neighborhoods where they reside, as owners default and buildings deteriorate. This bill represents a sensible effort to bring the GSEs back to prudent and responsible multifamily underwriting standards, and we applaud Congresswoman Maloney for her initiative.”
Barry Zigas, Director of Housing Policy at the Consumer Federation of America, wrote in a letter expressing the Federation’s support for Congresswoman Maloney’s bill that her legislation “would not prevent the companies from financing improvements that might lead to rent increases. It would, however, exclude such units from counting for the purpose of the housing goals if those increases lead to rents that are unaffordable to low and moderate income tenants and cause their displacement. This is both reasonable and consistent with the intent of the housing goals and the realities of our present housing market, where so many low and moderate income consumers have such great difficulty in find and keeping decent and affordable rental homes.”
“This bill is an important measure to ensure the GSEs’ housing goals reward responsible investment in affordable housing, not investment in speculative deals based on assumptions of displacing low-income tenants and deregulating affordable housing,” said Emily Goldstein, an organizer at Tenants & Neighbors, in a written statement.
BACKGROUND:
The bill will curtail the ability of Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac to invest in future deals—like the Stuyvesant Town/Peter Cooper Village sale—that do not result in an increase in, or preservation of, affordable housing.
Since 1992 Fannie Mae and Freddie Mac, which are Governments Sponsored Enterprises (GSEs), have been required to meet certain affordable housing goals each year. “Housing Goals Credit” is awarded numerically based on the types of transactions that they enter into. GSEs make decisions about their investments based on whether these investments would be eligible for Housing Goals Credit.
In 2007, Fannie Mae and Freddie Mac invested in a $22 billion commercial mortgage-backed securities transaction that contained the debt on the Stuyvesant Town/Peter Cooper Village project. The deal was one of the largest commercial mortgage-back securities (CMBS) deals ever; Fannie Mae and Freddie Mac’s participation as senior debt holders of $3 billion was critical.
At the time of the deal it was clear that Stuyvesant Town property was overleveraged –the debt on the property was larger than the rental income it was receiving. After the transaction closed, over the course of several years, the new owners of the property engaged in aggressive tactics to convert affordable units to market rate so that they could increase their rental income—yet the GSEs received affordable housing goals credit for this investment. (The owners’ efforts to evict tenants from affordable units have since been overturned by local courts, and restitution is in the process of being determined; the property has been placed into foreclosure.)
Specific Provisions:
• The bill will require the Federal Housing Finance Agency (FHFA) to deny housing goals credit where a project’s debt is disproportionate to its income– as it was in the case of the Stuyvesant Town/Peter Cooper Village sale.
• The bill will also require the GSEs to use the same standards for assessing their investments in the secondary securities market as they would for direct investments for the purposes of housing goals credit. This will sync the standards for securities investments with those of direct investments.
• In measuring the performance of GSEs in meeting the housing goals, the bill requires FHFA to use the greater of the rent levels at the time the investment is made or the rent levels in the underlying underwriting documents in order to ensure that rents are not calculated based on any future income that might include accelerated conversion of units to market rate rents.
• The bill would give FHFA the authority to review a project that is otherwise eligible for credit and deny credit if it will facilitate the accelerated turnover of affordable units to market rate rent levels.
• If the FHFA determines that there are credits that would facilitate the accelerated turnover of affordable units, those credits would be required to apply to the next year in addition to that year’s credit.
• The bill allows for flexibility in GSE investments that would improve housing and that are designed for mixed use. However, this bill will sharply limit the incentives for the GSEs to become involved in future deals that lead to a decrease in affordable housing.
For more information, please go to:
http://maloney.house.gov/documents/financial/GSE bill folder/CFAlettertoRepMaloney.pdf
http://maloney.house.gov/documents/financial/GSE bill folder/MALONE_131_xml_v2.pdf
