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On Tuesday, Public Advocate Letitia James released a list of the top 10 banks lending the most money to the 100 landlords on the Public Advocate’s Worst Landlords list (compiled annually based on a count of building violations), a step celebrated by tenant advocates and other elected officials at a press conference Tuesday.
It’s not the first time the city has tried to hold financial backers responsible for poor conditions and the loss of affordable housing. In 2012, the City Council passed a law that would mandate reporting on the conduct of banks that hold city deposits, but it was overturned three years later. In 2014 the state of New York tightened its procedures for evaluating banks under the Community Reinvestment Act to encourage banks not to lend to landlords that took away affordable housing or allowed poor conditions. That procedural change has been helpful, advocates say, but insufficiently so.
James now seeks to use the power of the spotlight to make banks implement a series of reforms: “incorporate a landlord’s presence on the Worst Landlords Watchlist, as well as current violations, hazardous conditions, and findings of harassment when evaluating a property for a loan” and “condition the loan on the removal of Department of Housing Preservation and Development (HPD) and Department of Buildings (DOB) violations, and assess future property revenue only on the current rent roll.”
Furthermore, if a bank’s mortgager ends up on the Worst Landlords Watchlist after a loan has been made, James says, “the bank should appoint a liaison to work with the landlord and tenants on a remediation plan that includes monthly inspections. If the landlord defaults on the remediation plan, the bank should foreclose on the property and appoint a receiver.”
Will negative press make a difference to these banks? Anna Brower, James’s director of communications, says they’re hopeful. She says the landlords watchlist has made a difference with some, if not all landlords, who have approached James’s office trying to get off the list. Brower expects banks will do the same—especially smaller ones seeking to protect their local reputation.
One mid-sized bank, New York Community Bank, had shortly prior to the announcement reached an agreement with the Association for Neighborhood and Housing Development to change its lending practices, ANHD announced later on Tuesday. NYCB has committed to choosing borrowers carefully by looking at the Worst Landlords List and other sources, ensure mortgages are underwritten in a way that they can be repaid with current rents, rather than require the landlord to displace tenants and raise rents, and create a formal process to respond to complaints from tenants about their buildings.
“Whenever we are approached by community based organizations regarding concerns surrounding a portfolio, we work proactively with those organizations to understand the issues, see what can be done to help resolve them, and educate our lending group to better inform future decisions,” wrote John Puccio, a spokesperson for NYCB, in an e-mail to City Limits. Regarding the specific suggestions of the Public Advocate, he added, “NYCB will review the presented suggestions and see how we may improve our processes.”
Brower said that James’s office is in negotiations with other banks, as well.
More defensive reactions came from other banks, however. Signature Bank, which ranks at the top of the list with $130 million in aggregate mortgages held by the “worst landlords” disputed the accuracy of one property in the loan count, though said it hadn’t yet verified the full $130 million, and argued that it already takes multiple steps to ensure borrowers keep their buildings in good condition, according to The Daily News.
Similarly, Richard Ehst, a spokesperson for Customers Bank, which ranks second with $40 million in aggregate loans, says that during the loan approval process they require a property conditions report and that the borrower provide an escrow account that could pay for the correction of violations. He says loans are always underwritten at current rents, that they already keep track of violations on customers’ properties “twenty four seven,” and that it would be impossibly difficult to conduct monthly inspections to ensure remediations. And he says foreclosing on a property that is not in financial default would also be legally impossible (the Public Advocate’s office says it depends on the terms of the mortgage).
“We are very good at what we do and we are going to continue to do [it],” says Ehst, who added that the Public Advocate’s office hadn’t been able to tell the bank which clients and properties had landed them on the list. (The Public Advocate’s office said they certainly have this information, but are playing phone tag with the bank.)
James is making additional recommendations for changes to city policy. She is calling on City Council to pass legislation that will prevent landlords on the watchlist from attaining building permits, and on city agencies to conduct thorough building inspections not just when a complaint is filed, but when a loan is made, so that the bank in question has a full picture of the conditions of their client’s building. She also wants the the New York City Banking Commission to look into how much business these banks have with the city—in a similar vein to that earlier, overturned legislation.