Fannie Mae and Freddie Mac tighten lending on rent-stabilized buildings after the freeze. What lenders and the city have told the Council

The two government-backed companies that have become the main buyers of mortgages on New York City's privately owned rent-stabilized buildings have tightened their terms since the Rent Guidelines Board froze stabilized rents in June, THE CITY reported Monday. Fannie Mae's new underwriting assumes no rent increases on stabilized units for four to eight years, and Freddie Mac has paused new loans while it assesses the freeze, according to several real estate sources who spoke to the outlet.

Lenders are also assuming that expenses rise at least 5% a year and that more tenants fall behind, so the amount they will lend on a building is shrinking, THE CITY reported. Rafael Cestero, chief executive of the Community Preservation Corp., a nonprofit lender, told the outlet his group will make half as many loans to all-affordable city projects as it did two years ago. Fannie Mae did not respond to THE CITY; Freddie Mac said it "continuously reviews market conditions."

Deputy Mayor for Housing and Planning Leila Bozorg said in a statement to the outlet that the city's housing agencies work through changing conditions, "including higher interest rates," and are prepared to explore new lending practices. She pointed to a city-backed insurance program and faster permitting, most of it in planning or early rollout, THE CITY reported.

Why it matters to residents: the city has about 1 million rent-stabilized apartments, according to testimony the Council heard in March. THE CITY reported that older buildings made up almost entirely of stabilized units, many already in financial trouble, will struggle to refinance and could face foreclosure or sale, while all-affordable buildings built with city help may need larger subsidies. Buildings that mix market-rate and stabilized units remain in better shape, the outlet reported.

What our records add

The Council doesn't set stabilized rents. The nine-member Rent Guidelines Board, appointed by the mayor, sets the annual adjustments. The Council's role runs through housing code enforcement, city subsidies and the budget.

A lender warned the Council about costs in March. At the Housing and Buildings Committee's March 24 budget hearing, a representative of the Community Preservation Corp. testified that per-unit operating expenses in the lender's city rent-stabilized portfolio rose 22% from 2020 to 2023, with insurance and administrative costs up more than 50% each, while revenue stayed tightly limited. The testimony said some owners were deferring repairs to stay afloat, and that a property tax increase would be devastating for buildings on thin margins, "especially" if paired with the proposed rent freeze (5:39:23). The group asked the city to seek a renewed J-51 tax break from Albany, back new insurance pools and consider a full property tax exemption for distressed stabilized buildings.

Bills on the stabilized stock. Int. 600, from Crystal Hudson, would require the housing department to study rent-stabilized apartments periodically and create a program encouraging owners to keep units stabilized longer. It has six sponsors and has waited 264 days without a hearing. Int. 1086, from Farah N. Louis, would require the city to add 400 distressed buildings a year to its Alternative Enforcement Program, 100 of them repeat offenders. Introduced Sept. 24, it has not had a hearing.

A new buyer route for distressed buildings. On Oct. 22 the Council passed the Community Opportunity to Purchase Act, Int. 905, from Sandy Nurse, 38 to 9, as we reported. It gives qualified nonprofits an early chance to buy certain distressed and affordable buildings when owners sell. It is awaiting the mayor's signature, according to our records.

THE CITY cited one example of a struggling owner: a lender filed a foreclosure suit last month against A&E Real Estate Holdings over a $103 million loan on 22 buildings in Jamaica, Queens; A&E later put in $3 million to bring the loan current.

What's next

No Council hearing on rent-stabilized building finance is scheduled. The Finance and Housing and Buildings committees meet jointly Nov. 17 on homeownership programs.