The New York State Department of Financial Services last week released the Final Guidelines for Bank Lending to Multifamily Properties Under the Community Reinvestment Act. UNHP welcomes these final guidelines to ensure that banks only receive credit for quality multifamily loans, and not just the overall quantity of loans.
DFS must consider the integrity and viability of bank loan portfolios and the impact bank practices have on the communities in which they conduct business; otherwise, it would be remiss in its obligations under the State’s Community Reinvestment Act (Banking Law § 28-b (“CRA”)).
DFS has been very responsive to the lending issues that UNHP has raised and the guidance offers a number of best practices recommendations to lenders on multifamily housing. It also strongly encourages lenders to monitor conditions in the buildings on which they hold loans, and specifically cites UNHP's Building Indicator Project as an example of a tool that lenders could use.
Going forward, DFS CRA examinations will consider whether a bank has met its responsibility to ensure that a multifamily loan submitted for affordable housing or neighborhood revitalization credit under CRA contributes to, and does not undermine, the availability of affordable housing or neighborhood conditions. A loan on a multifamily property would not be found to have a community development purpose and would not be CRA eligible if it:
1. Significantly reduces or has the potential to reduce affordable housing as determined by:
a. The number of affordable units before and after the financing, or a series of re-financings; or
b. Financial projections underlying the project that include the conversion of affordable units to market rate rents;
2. Facilitates substandard living conditions as evidenced by a high number of housing code violations, emergency repair liens, water bill liens or indexes of such measures such as those contained in the New York City Department of Housing Preservation and Development’s (“HPD’s”) At-Risk Multifamily Building Data, 6 University Neighborhood Housing Program’s Building Indicator Project Database, 7 or other information provided by municipal or state housing agencies;
3. Is in technical default based on the repeated violations of covenants in the loan agreement, even though the borrower might not be in payment default; or
4. Has been underwritten in an unsound manner, based on the assessment of market rents, building expenses and overall debt loads.
Banks will have ample opportunity to provide information to demonstrate the community development purpose of loans identified for this additional review.
Last fall, DFS and the FDIC sponsored a meeting with the other bank regulators (OCC and the Fed) and DFS staff described the guidelines. This final release of the guidelines supports UNHP's efforts to encourage other regulators to take similar action and lenders to adopt proactive policies with their building portfolios. In some ways it is the result of more than 40 years of organizing, research and community work.