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Housing Bill Codified: Multifamily Dodges Bullet - 052809
By: Chris Wood
Foreclosure amendments targeting multifamily housing stock not included in Obama-signed legislation.

A broad housing bill that includes far-reaching efforts to reform the nation’s housing and financial markets was signed by President Barack Obama last week. Not included in the final version of the bill were two amendments sponsored by U.S. Reps. Nydia Velazquez (D-N.Y.) and Bob Filner (D-Calif.) and supported by U.S. Sen. Charles Schumer (D-N.Y.), which the National Multi Housing Council (NMHC) says could have an imperiling impact to multifamily operators and the multifamily lending space.

Intended to protect affordable housing stock, particularly in New York City, the amendments direct the U.S. Treasury and the U.S. Department of Housing and Urban Development (HUD) to create a loan modification program allowing for government intervention in multifamily properties considered at risk of foreclosure. That intervention could include a restructuring of existing mortgages and transference of the property through short-sale of deed in lieu of foreclosure.

While the amendments were successfully attached to the House version of the bill (H.R. 1728), Schumer was forced to withdraw the amendments from the Senate version of the bill (S.B. 896) due to point-of-order restrictions on modifications he sought just prior to the Senate vote. Since the House passed the almost identical S.B. 896 to the President’s office rather than reconciling it with the House bill, the amendments on H.R. 1728 were not included.

“As it stands right now, there is nothing moving,” says NMHC senior vice president of government affairs Jim Arbury. “The thinking now is that Velazquez and Filner will probably try to get the amendments into a subsequent House bill, possibly attaching them to Section 8 voucher legislation. It is still a definite threat.”

Following his point-of-order withdrawal of the Senate amendments, Schumer claimed that tens of thousands of New York City affordable apartment units were in immediate peril of foreclosure. A press release announcing his legislation claimed that 60,000 units were in danger of what Schumer called “subprime crisis 2.0.” The press release, which uses the terms “affordable housing” and “multifamily apartment buildings” interchangeably, also warns of additional multifamily mortgages at risk in Tennessee, Georgia, Florida, Nevada, Texas, Illinois, Michigan, Ohio, Indiana, Connecticut, Oklahoma, Kentucky, Missouri, Mississippi, California, and Massachusetts. Repeated calls to Schumer’s office requesting comment and clarification on the amendments and the press release were not returned.

In a March 18 letter to Treasury Sec. Timothy Geithner, Velazquez and Schumer (along with U.S. Rep. Charles Rengel) requested that the Obama administration create a Multifamily Preservation Program that would assist in “deleveraging” multifamily housing stock at risk of disinvestment and foreclosure. Specifically, the letter asks for HUD to conduct physical inspections of multifamily properties that don’t meet fair market value (defined as an inability of net operating income to cover operation and maintenance of the property). A failed physical inspection under the proposal would result in a “regulatory default” and foreclosure of the property.

“The letter really shows their intent in this whole thing: to turn who-knows-what type of multifamily real estate basically into public or otherwise rent-controlled housing,” Arbury says, adding that the legislation would have a chilling effect on what is already a frozen credit market beyond GSE lending. “Just the threat that the Feds could come in and foreclose and then get a low price an a property to make it low-rent or affordable—whatever that means—what lender in their right mind would ever lend into any property?”