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New York State to Lenders: You ARE Accountable for Multifamily Displacement Lending

October 10, 2018

Department of Financial Services (DFS) issues guidance on responsible multifamily lending

New York State is taking a leadership role in combating displacement lending in multifamily buildings. The Association for Neighborhood & Housing Development (ANHD) applauds New York State Department of Financial Services (DFS) Superintendent Maria Vullo for issuing strong guidelines to state-regulated banks to lend responsibly on multifamily buildings in order to preserve affordable rent-regulated housing and deter tenant harassment and unsafe living conditions. Rent-regulated housing is one of the most important sources of private affordable housing in New York City, particularly for lower-income people and people of color, who are facing an increased risk of displacement every year. New York City has lost over 152,000 units of rent-regulated housing since 1993 due to high-rent “vacancy decontrol.”

DFS recognizes the critical role bank lending has on this important housing stock. Left unchecked, bank lending can do irreparable harm; but done responsibly, it can preserve affordable housing and support tenants’ abilities to stay in their homes.

“Our banking institutions play an important role in providing critical financing for improving and increasing the affordability of housing and access to reasonably priced housing in New York,” said Superintendent Vullo in the press release from September 25th. “DFS expects New York State-chartered institutions to apply best practices and conduct proper due diligence of these landlords. There can be no excuse for misconduct by a landlord. We expect our lenders to diligently review their matters and follow up on red flags suggesting potential misconduct.

We couldn’t agree more. DFS’s guidelines strongly reflect ANHD’s multifamily best practices. Two of the largest multifamily lenders in New York City – Signature Bank and NY Community Bank – have already signed onto the best practices. Signature Bank adopted them just a few months prior to DFS’s new guidelines being issued, further enforcing the need for such guidance.  

This new guidance follows similar DFS guidance in 2014 related to multifamily loans submitted for Community Reinvestment Act (CRA) credit, which states clearly that banks will not get credit under the CRA for lending that leads to tenant harassment, displacement, or poor conditions, regardless of the rent levels at the time the loan was made. ANHD applauded the guidance at the time and has been advocating for the guidance to be extended beyond loans submitted for CRA credit. DFS is now clear: banks can no longer abrogate responsibility for their lending when it harms tenants and neighborhoods, whether or not the loans are submitted for CRA credit. 

This new guidance comes at a critical moment as the federal regulators are considering CRA reform starting with the Office of the Comptroller of the Currency (OCC)’s first call for comments about CRA reform through the Advance Notice of Proposed Rulemaking  (ANPR). ANHD has serious concerns about the OCC’s approach, not the least of which is their “one ratio” approach that prioritizes quantity over quality and could potentially sideline any qualitative analysis entirely. DFS’s guidance, on the other hand, provides regulators concrete tools to use when evaluating responsible bank lending.

Banks should be given credit on CRA exams for adopting and implementing best practices. At the same time, if a bank’s lending violates either set of guidance, whether the loans were submitted for CRA credit or not, they should be downgraded for such behavior. We look forward to working with DFS as the guidelines take effect, and we hope this and earlier CRA guidance serve as models for all bank regulators to adopt.

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