Additionally, we have sent a sign-on letter to the New York City Congressional Delegationcalling on them to protect tenants.

To sign on to the letter, please contact Patrick Coleman at Tenants & Neighbors by

• 10 AM on Thursday Sept. 25th

Contact Patrick at: Patrick@tandn.org or 212-608-4327. Please respond fast: Congress is moving quickly!

For more information, click on "read more" or on the blue links for a memo from the Partnership to Preserve Affordable Housing, which discusses potential threats and opportunities to affordable housing affected by the government’s action and for the text of the letter to members of Congress.

Sincerely,

Maggie E. Russell-Ciardi
Executive Director, Tenants & Neighbors
236 West 27th Street, 4th floor, New York, NY 10001
212-608-4320, extension 302

Become a member of Tenants & Neighbors today! Go to Tenants & Neighbors.

From the Partnership to Preserve Affordable Housing

An Opportunity to Protect Tenants and Communities Affected By the Mortgage Crisis

By Tom Waters,
Housing Policy Analyst, Community Service Society

• The proposal to create a new federal entity to hold troubled mortgage debt creates an opportunity to protect tenants and communities affected by “predatory equity” – highly speculative investments in multifamily housing where low‐ and moderate‐income people live.

• We must ensure that the new entity’s mission does not leave out the needs of tenants in multifamily housing.

Background:

Last night, the Federal Reserve and the Treasury Department announced a plan to stabilize the financial markets by creating a new government entity to buy and dispose of hundreds of billions of dollars in distressed financial assets. This would require major legislation which they hope to pass by the end of next week.

The plan is being justified as a way to keep the banks lending. Banks hold an enormous amount “toxic” debt whose true value, if any, is unknown. As a result, they don’t know whether they have enough capital to back up new loans. This threatens consumers and generally the “real” (non‐financial) sector of the economy which needs to borrow money in order to do business.

The Fed and Treasury would fix this by creating a new public entity to buy up the toxic debt, cleaning up the balance sheets of the banks and enabling them to get back in business. The new entity might also end up buying interests in the banks themselves, in order to provide them with capital. Some people are calling the new entity a Troubled Asset Relief Program, or TARP.

According to the Wall Street Journal, TARP will purchase the toxic debt “at a steep discount from solvent financial institutions and then eventually sell them back into the market.” Obviously it matters a lot how steep that discount on the debt purchases turns out to be. The more TARP pays, the more it is bailing out the banks and protecting Wall Street from arguably deserved losses. The less it pays, the more it is just managing the crisis. But even managing the crisis will benefit Wall Street directly and the rest of us only indirectly.

The political context:

Regardless of the prices paid for the distressed debt, the proposal will be controversial since it will involve using a lot of taxpayer money to bail out rich people. But the stakes are high, and if Congress doesn’t pass some form of the proposal, then Democrats (and Barack Obama) could take the blame for the biggest stock market crash since 1929.

Common sense would dictate that if this bailout goes forward, there should be protections for nonrich people too. Senator Schumer has already moved to stake out a position with an alternative plan that is very different and includes measures to renegotiate single family mortgages to keep people in their homes.

Our proposal:

Our concern is that the final version of TARP includes protections for tenants in the multifamily buildings affected by predatory equity and the mortgage crisis.

The Partnership to Preserve Affordable Housing and others have brought people’s attention to the fact that the housing bubble that fueled the single‐family mortgage crisis also affected investment in apartment buildings. Four years of increasingly speculative purchases have lead to a severe overleveraging of tens of thousands of housing units that threatens tenants with displacement and with disastrous building conditions including the likely loss of heat this winter. Investors, too, are threatened with the loss of their investments. Billions of dollars in mortgage‐backed securities related to these investments make up part of the toxic debt driving the financial crisis.

Our challenge is to ensure that TARP’s mission does not leave out the multifamily stock. Our goal should be a requirement that the TARP entity dispose of the multifamily mortgage loans that it acquires in a way that protects the interests of tenants and communities.

Obviously it will be very difficult to develop a detailed prescription for how to do this in the next week, which is the timeline that the Treasury and the Fed are trying to impose. We need both procedural and substantial protections.

1. Procedurally, tenants and community groups should be recognized as affected parties in the disposal of the assets. They should be informed of possible dispositions under consideration and have the opportunity to comment on them.

2. Substantially, the TARP entity should be required to restructure debt or sell its assets, including foreclosed property, at a price that is sustainable
   • without imposing unaffordable rents and displacing tenants,

   • with adequate income for needed maintenance and other operating expenses, and

   • capital left over for needed rehabilitation.

3. In addition, tenants and their chosen nonprofit partners should have an opportunity to purchase any property going through disposition before it is sold to another buyer.

4. TARP should vet buyers of properties going through disposition to ensure that they are properly qualified to operate the buildings and that their plans are financially sound.

September 25, 2008

Dear Members of Congress:

We are writing to ask you to do everything in your power to ensure that any government bailout of the financial industry includes protections for tenants and preservation of affordable rental housing.

A number of Congressional representatives, familiar with the devastating impact that subprime, securitized loans have had on owners of single family homes, have indicated that their support for any bailout proposal would be contingent upon the proposal providing protections for these homeowners. This is a positive intervention. But it is not enough.

Any government action must protect tenants, not just homeowners.

We urge you, when thinking about who needs to be protected, to remember that the banks did not just make risky loans to people buying single family homes. They also made these loans to predatory-equity speculators who were buying up affordable subsidized and rent regulated housing at financially unsupportable prices – thus jeopardizing the future affordability and stewardship of the properties.

If Congress approves the Bush bank bailout, tenants’ taxpayer money will be used to bail out banks that invested in speculation on buildings like Stuyvesant Town and Peter Cooper Village, the Riverton, Independence Plaza, and hundreds of other rent regulated, Mitchell-Lama, Section 8 and unregulated buildings all over New York.

Any legislation adopted by Congress MUST:

• Ensure Tenant Protections
• Ensure that Tenants and Community Groups are Involved in Determining the Future of Properties Affected by Any Federal Action

Sincerely,