The New York Department of Financial Services released proposed Slumlord Prevention Guidelines for banks lending to landlords in multifamily properties. In announcing the new guidelines and state Community Reinvestment Act regulations, the Superintendent of Financial Services, Benjamin Lawsky, stated that "banks are critical gatekeepers in deciding who becomes a landlord in local communities." The guidelines include new state CRA regulations from DFS aimed to "incentivize banks to lend to landlord who are committed to the long-term health of a community." The proposals being considered by DFS include, reviewing whether a bank meets its responsibility to ensure that any loan made contributes to, and does not undermine, the availability of affordable housing or neighborhood conditions. For example, DFS will look at the quality of the housing and whether the bank has carefully assessed the true value of their loan in determining whether the loan has a primary purpose of neighborhood revitalization. The guidelines provide that a loan on a multifamily property would not be found to have a community development purpose—CRA eligible—if it: (1) significantly reduces or has the potential to reduce affordable housing; (2) facilitates substandard housing; (3) is in technical default in the loan agreement; or (4) has been unwritten in an unsound manner (e.g., debt load). The guidelines also set forth best practices for property management, community relations, due diligence and appraisals. For example, the guidelines provide that a bank’s due diligence process should consider, at a minimum, the borrower’s record of housing code violations. The guidelines also suggest that banks should ensure that properties are adequately maintained by borrowers by tracking violations including tenant complaints in media reports and/or consumer groups.
Alert September 17, 2013