Maloney bill would help stop Fannie and Freddie anti-affordable housing investments

WASHINGTON — Congresswoman Carolyn B. Maloney today reintroduced legislation that would 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. The bill introduction follows the formation of a Coalition against Predatory Equity in Housing (CAPE) announced earlier this week by  New York City Council Members and Coalition Chairs Dan Garodnick, Jumaane Williams, Mark Levine and Ritchie Torres. Maloney and other elected officials are members of the coalition and announced its creation at a press conference this week (photo).

“Part of Fannie and Freddie’s mission is to encourage affordable housing, but some of the deals in which they have invested have caused the opposite to occur,” said Maloney. “Affordable housing credits shouldn’t be awarded for investments when the only conceivable scenario for profitability is for rents to rise. That is what’s happening at Stuyvesant Town/Peter Cooper Village, and that’s what my legislation is designed to prevent. We have an affordable housing crisis in New York, and we need Fannie and Freddie to live up to their stated mission and help us solve this crisis.”

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.

Maloney’s legislation, the “Responsible GSE Affordable Housing Investment Act of 2014” 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.

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 Government-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 senior 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, as it represented nearly 60% of the total cost of the acquisition.

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.