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Cuomo's Slumlord Prevention Plan for Banks:

September 10, 2013

No CRA credit for loans that result in tenant harassment or affordable housing loss  

Making good on a promise announced at ANHD's March 2013 conference by Benjamin Lawsky, Superintendent of the Department of Financial Services (DFS) and the State's top regulator, the Cuomo administration is raising the bar in enforcing community reinvestment: Multifamily loans that undermine safe, affordable rental housing conditions will not be eligible for Community Reinvestment Act (CRA) credit. The CRA states that banks have an affirmative obligation to help meet the credit needs of the low- and moderate-income (LMI) communities in which they do business.  The CRA examination determines whether the banks are meeting this obligation by examining how their loans, investments, and services equitably serve lower-income people and neighborhoods in the areas where they take deposits.   As part of the evaluation of community development loans, banks can get CRA credit for multifamily loans that serve primarily LMI households, typically if at least 50% of the units are affordable, or if the loan is determined to otherwise contribute to neighborhood revitalization.  ANHD has long asserted that regulators should look not just at the volume of loans, but at the quality of the loans and their impact on the community.  As we learned from the 2008 financial crisis when loans are not made responsibly - often due to speculative underwriting or business dealings with bad-actor landlords - buildings are put at risk of financial and physical distress, and tenants of harassment, unlawful evictions, and deteriorating living conditions. After years of working with banks, regulators, and community organizations, DFS fully understands this.  "Banks are critical gatekeepers in deciding who becomes a landlord in local communities across our state," said Superintendent Lawsky.  "Our Slumlord Prevention Guidelines will provide a powerful incentive for banks to lend to responsible long-term buyers - rather than landlords who abuse their tenants in search of windfall profits." Superintendent Lawsky recently outlined the Cuomo Administration's proposed new guidelines in a letter to the banking industry.  Key provisions include:
  • Clearly states that loans that undermine affordable housing or neighborhood conditions, facilitate substandard living conditions, or are underwritten in an unsound manner will not be eligible for CRA credit.  For example, loans to borrowers with a high number of housing code violations or loans that are too highly leveraged (too much debt financing) will not receive CRA credit.
  • Provides a list of actions that could result in positive CRA consideration including:  working with local government housing departments, community groups, and qualified preservation-oriented developers; and monitoring loan portfolios to determine whether multifamily buildings are properly maintained and do not have multiple and egregious building code violations.
  • Allows for multiple ways to track violations, including media reports of housing code violations, tenant complaints and complaints by consumer groups or government agencies.
  • Ensures that lenders require that the individuals reviewing appraisals are independent of the transaction itself to prevent conflicts of interest.
  • Encourages lenders to create written community outreach strategies to build or enhance relationships within communities served by the banks.
ANHD celebrates these new guidelines as an effective way to encourage responsible lending and discourage predatory lending.  We especially applaud the attention to overleveraging and the encouragement of close collaboration with community groups that are working directly with tenants to monitor and respond to issues in their buildings.  This could - and should - be a model for state and federal exams nationwide.  

Blogger - Jaime Weisberg

ANHD blog team:  Benjamin Dulchin, Moses Gates, Ericka Stallings, Jaime Weisberg, Barika Williams, Eric Williams. Anne Troy, editor.

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