Report Back: When Do Nonprofit Mergers Make Sense?

Federal Reserve Bank of New York

From time to time, I like to mix and mingle with my peers, and what better place to hobnob, rub elbows and generally get the gossip than at an industry workshop on nonprofit mergers and collaborations?  And so it was that I found myself this past October 4th attending a meeting hosted by the Federal Reserve Bank of New York and Enterprise Community Partners entitled:  “Smart Futures for the Non-Profit Housing Industry: When do Mergers, Collaborations, and Strategic Alliances Make Sense?”

The panel was moderated by Richard Roberts (Independent Consultant), and included John MacIntosh (Principal, SeaChange Capital Partners) and Michael Wadman (VP, Phipps Houses).  Given that the concept of nonprofit mergers is a rather hot topic these days (in more ways than one), I felt like I had some real takeaways from the panel – more than the usual belly full of coffee and danish, accompanied by the usual sliced fruits.

During down market cycles, nonprofits struggle just like many other businesses:  contracts are reduced, private funding sources shrink or dry up entirely, earned revenues (if there are any) tend to decline, and organizations experience layoffs, belt-tightening, and all the other many pleasures of hard times.  But nonprofits tend to resist consolidation, for a couple of reasons:

  • Nonprofits are driven by mission, and that mission is defined by executive management and the board.  Many nonprofits believe they are the best (and sometimes only) organization that can meet their stated mission in a given geography or with a given constituency.  Most nonprofits fear (and somewhat justifiably) that in a merger they will lose their sense of mission and therefore their unique identity.
  • Most nonprofits (certainly most community based nonprofits) have a sense of mission that extends to how they engage with their own staff.  When organizations are working to create economic stabilization and growth in their communities as part of their mission, mergers which create “redundant staffing” and therefore lead to reductions can feel contrary to that very mission.
  • Merging organizations means merging organizational leadership – both at the staff and board level.  This can be complicated for nonprofits, which tend to value participation and inclusion.  Whom do you decide to remove, or at least remove from primary leadership?  You can’t just make everybody a co-leader and split the baby.  You’ll wind up with hydra, or worse yet with a lot of in-fighting as territories are established.

I thought John MacIntosh did a really great job of laying out 8 key considerations for organizations looking into mergers and collaborations, as follows:

  1. Be proactive:  Many organizations begin to look at the possibility of a merger or consolidation far too late.  Board and executive leadership can linger over making the decision to seek collaboration partners and hollow out an organization from within.  In his experience, timelines of 18-24 months to establish and work through bringing partners together is not unusual.  This won’t be possible if one of the partners has just three months of liquidity left.  It’s also good to consider a “Plan B” in case negotiations between the two initial parties don’t succeed.
  2. Keep Mission Central:  Organizations must have a grounded sense of what they do, why they do it, how they measure success, and what they take for granted about the environment they act within.  In any successful collaboration, it’s important to develop congruity in at least 2-3 aspects of how mission is defined, met and measured.  It’s equally important, however, to remain flexible and understand that there will be give and take.  Attempting to achieve consensus at all costs is both unlikely and extremely labor intensive.  It may be necessary for leadership who identify strongly with key concepts or practices to relinquish those cherished aspects of the work, or if they cannot to consider stepping down.
  3. Watch Your Language:  Words matter.  The terms “merger” and “acquisition” can seem heavy-handed or dominating to certain parties involved in the transaction.  Terms like “union” and “collaboration” can make a difference in conveying the respect both parties hope to reflect in the process.  Whatever language is chosen, it’s best to define that language early, make it common knowledge to those involved in the process, and to stick to it throughout.
  4. Delay the Lawyers:  While consulting with legal counsel early in the process to outline key issues and sketch terms is very important, it’s equally important not to involve legal counsel too directly in negotiations until key terms of an agreement are already in place.  Too much wrangling can easily derail what can be a delicate process.
  5. Money Matters:  Very few mergers are justified by the idea of short term cost savings.  On the contrary, transaction costs such as legal fees, severance costs, lease breaking, IT and other operational restructuring, rebranding and so forth can run quite high.  For larger consolidations, $200-$300K is not unusual (although Michael Wadman pointed out the smaller organization he chairs will complete their consolidation with less than $30K in costs).  Consider potential costs early and manage them carefully throughout the process.  Good consolidations will allow for cost efficiencies to emerge over time (1-3 years).
  6. Seek Professional Support:  Transition consultants, experienced legal staff, and even foundation supporters who regularly fund mergers will be critical.  Such transactions are complex, and it’s important to work with people who handle them as a matter of routine.  Everyone will benefit from a more streamlined process, clearer expectations, and confident guidance.
  7. Don’t Dawdle:  Proceed as fast as you can, and as slow as you must.  Mergers and acquisitions are emotionally and physically draining for everyone.  Dawdling in and of itself can be enough to derail the process.
  8. Celebrate:  Many nonprofit leaders worry that in mergers leaders and staff can be lost, programs can be diminished, and missions can alter.  Bear in mind that without a well run consolidation, an entire organization may run the risk of disappearing completely.  Given the alternative, it’s important to acknowledge the diligence of all participants, and give thanks for what’s been preserved.

Thanks to Enterprise Community Partners and the Federal Reserve for organizing this presentation.

401(no)(k): Why Retirements Should Not Be Used to Pay Mortgages

The Century Reader: Foreclosure Home for $1.00?

For those of you who are not avid readers of the Detroit News, there was a really well done opinion piece on a new proposal put forward by U.S. Sen. Johnny Isakson, R-Ga., and U.S. Rep. Tom Graves, R-Ga.  The writer for the Detroit News, Brian O’Connor succinctly lays out the proposal as follows:

Right now, if you’re strapped you can take a loan against your 401(k) through your workplace. You have to pay it back within five years with interest, but you’re paying it to yourself. About 85 percent of plans offer loans.

If you’re desperate, 89 percent of plans offer hardship withdrawals. Even though you don’t have to pay the money back, it’s a pretty bad deal: You have to pay income tax on the amount withdrawn and a 10 percent penalty if you’re younger than 59-1/2. For most people, it means at least 25 percent of the money withdrawn goes to penalties and taxes, not to saving a home from the bank.

But here’s where the plan backed by Isakson and Graves fails to the point of uselessness: It allows for outright withdrawals, not loans, but it only waives the 10 percent penalty — you’re still on the hook for taxes, ranging from 15 percent on up to the top bracket of 35 percent.

The plan also limits your withdrawal to a maximum of $50,000 or half of your account balance. So, if you withdrew $50,000 and were in the 25 percent tax bracket, you’d skip a $5,000 penalty but still pay $12,500 in federal tax, plus your state income tax. And unlike taking out a loan, all that money would be due April 15, and it would all go to the tax collector.

O’Connor goes on to point out that 401(k) funds are protected in bankruptcy, which is a point I want to highlight.  Why?  Because if you decide to declare a personal bankruptcy as a way to restart your economic life (which probably means you will lose your home), at least you can hold on to that nest egg in your retirement fund.  That can’t be tapped in bankruptcy to satisfy your creditors.

I’ve already written in a prior blog about my experiences of foreclosure prevention in NYC:  most homeowners are all too willing to run up their credit cards, poach the kid’s college savings fund, dip into their 401(k) and borrow from Aunt Tilly before they give up the home.  This frequently leaves homeowners in a very precarious financial position, and (even worse) frequently does very little to address the underlying economic difficulties in their lives (usually loss of income).  I think it’s just plain bad policy to provide further encouragement to distressed homeowners to act so clearly against their own self interests – especially when lenders and servicers have failed to similarly extend themselves and meet distressed homeowners halfway with timely, accurate and equitable workout solutions.

Personal as Political 

And here’s what really kills me about this proposal:  this solution essentially advocates that homeowners (AKA taxpayers, AKA workers, AKA consumers, AKA citizens) again make a substantial and unprecedented personal sacrifice in an effort to pay back a lender (AKA bank, AKA institution, AKA federal bailout recipient) for a home that is distressed, when that same lender (and the bank that controls it) have frequently failed to provide adequate servicing and support to the homeowner.  This presumed “systemic” response (which as O’Connor notes would really provide very little value over a traditional early 401(k) withdrawal for most people) again puts the burden of attempting to resolve the foreclosure crisis on distressed individuals, and apparently does nothing to address either the problematic history of the mortgage bubble (and all the very messy ways that home mortgages were improperly extended, packaged and securitized), nor the myriad current problems within the mortgage servicing industry (such as problematic denials, improper foreclosure proceedings, and the lack of an effective appeals process).

It just really gets my Irish up.  And I can’t help but point out that the maximum 401(k) withdrawal amount of $50,000 is the exact same amount that many distressed homeowners should have qualified for under the recent Emergency Homeowners’ Loan Program.  In other words, the federal program which suffered from such enormous administrative ponderousness that it only disbursed $432 million of the $1 billion allocated for distressed homeowners should now be replaced by a meager incentive to allow those same distressed homeowners to sack their own retirement savings funds.

That is not really what I would call an effective systemic solution.

For now, let’s hope that the proposal by Isakson and Graves gets all the attention it rightfully deserves. We can do better.

Big Foreclosures vs. Little Foreclosures

Foreclosures Leave Apartment Buildings in Need of Repair

There was a really nice article in today’s Gotham Gazette about larger, non-owner-occupied buildings that are headed into default and foreclosure.  The author, Chris Opfer, does a good job of laying out the complications for tenants, who are frequently stuck when a building enters the netherworld of default.  With affordable housing really hard to find for low income renters (refer to my earlier post “Foreclosure: The Ugly Stepchild of Affordable Housing“), trying to relocate from a rent stabilized unit can be a real nightmare.

Big vs. Little – What’s the Difference

Tenants Turn to Lenders to Repair Buildings

So, just let me clarify that we’re talking about two very different kinds of housing stock.  Many properties with six or more units of housing are rent stabilized (for a very handy FAQ, click here).  In most cases, the owner does not actually live in the building, but is instead an investor who has purchased the property with the ambition of making a profit from it.  Property investors make profits in two ways:  by keeping expenses (mortgage payments, building repairs, maintenance, vacant units, etc.) lower than income (rents), or by selling a building for more than they paid for it.  During the bubble, many investors were more interested in the latter strategy than the former.  While property values were going up, up, up, this wasn’t so much of a problem, because you could sell your overpriced building to the next sucker who got incredibly cheap and easy financing.  But when the music stopped, someone got stuck with a building that they couldn’t sell, and that no longer made enough money in rents to pay for those expenses (especially that really high mortgage).

The city is still struggling to come to terms with the number of larger, rent stabilized properties in this condition.  Really excellent work has been done on this by University Neighborhood Housing Program through its Building Indicator Project.   If you want to geek out on some seriously juicy NYC based research, it’s well worth a read.  Oh, and it will scare the crap out of you:

“Currently, the BIP database tracks violation, lien and lender data for more than 62,000 properties in four boroughs of New York City, and the most recent data shows nearly 3,400 properties containing approximately 135,000 apartments scoring above our likely distress threshold of 800 points.  This represents 5.5% of all properties in the database, and is a significant increase from the fall of 2009 when 3.3% were likely distressed. The percent of properties also increased slightly in all boroughs except Manhattan since the spring of 2010, bucking the trend of scores dropping slightly each fall.”

I should also take a moment to acknowledge the equally compelling work done by the Citizens Housing and Planning Council on Zombie Mortgages – carefully detailing the costs and risks of the over-leveraged, multi-family properties.  Suffice it to say that there appear to be many larger, rent-stabilized properties at risk of foreclosure because of investor speculation in NYC.

Lucky Break: Foreclosed Home Returned to Owner

This is a very different problem than the issue of 1-4 family home foreclosures that is plaguing the country.  These properties are owner-occupied, and while the homeowners are in many cases also over-leveraged, there are other contributing problems (primarily loss of income and unemployment) that are causing widespread mortgage defaults.

From the perspective of reducing foreclosure-related displacement in big vs. little buildings, the critical difference in my experience is that in large buildings tenants are more likely to remain even if the building is foreclosed upon, but in small buildings tenants are almost always removed upon foreclosure.  Indeed, protections for tenants in larger buildings are much stronger and deeper than for tenants in smaller buildings.

There is another important difference that’s also worth mentioning:  in most little building foreclosures the owner / investor actually lives in the home.  Why is this such a critical difference?  Because when the owner lives in the property they have a real incentive to maintain the security and livability of the building as best they can.  That means a lot to their tenants, as you can imagine, and substantially reduces the likelihood that they will feel compelled to move because of deteriorating building quality.

Speeding Up vs. Slowing Down

So, here’s the real policy issue – in large scale properties when there is a mortgage delinquency it’s better to speed up the foreclosure proceeding.  In smaller, owner-occupied properties, it’s better to slow it down.  The reason is fairly straightforward:  with larger, non-owner-occupied buildings, getting to a resolution that includes a restructuring of the debt (usually through foreclosure) means the building can have a shot at a fresh financial start.  Many of these buildings would be fine if they weren’t saddled with unrealistic debt.  They have good paying tenants, are currently in reasonable repair, and meet an important need in the housing market.

On smaller, owner-occupied units, slowing down the process to allow homeowners more opportunities to correct their situation preserves options for both owners and tenants.  Because tenants in these properties are routinely evicted upon foreclosure, it’s better to try and correct the mortgage default through modification, refinance, repayment of arrears, or other similar strategies.

Note that both of these strategies are aimed at keeping tenants in place and reducing the overall number of folks who will be put out of their homes as a result of mortgage delinquency.

I should conclude by noting, for those of you who might want to know, that free help for tenants and homeowners is available in NYC by simply calling 311 and saying the word “foreclosure.”  

Why I Think Schneiderman is Right

NYS Attorney General Eric Schneiderman

So, the press keeps coming back to this story about the proposed “robo-signing” settlement being constructed by a consortium of state Attorneys General.  Initially, the consortium included AGs from all 50 states, making it a very powerful platform for pursuing a settlement concerning malfeasance on the part of many banks in processing large numbers of foreclosure claims.

NY State Attorney General Eric Schneiderman, along with the AG’s from Minnesota and Delaware (among others), are deeply concerned that any settlement on this issue providing a waiver to banks against any further liability on “robo-signing” will ultimately have the impact of watering down future investigations and settlement negotiations.  Indeed, Schneiderman feels so strongly on this issue that he’s spoken out in a NY Times editorial against a proposed settlement being floated, and has become persona non grata with other AG’s directly involved in the negotiations, not to mention HUD Secretary Shaun Donovan (speaking on behalf of the administration).  Their response has been to kick Schneiderman off the central settlement negotiating team and generally cut him out of the process.

Iowa State Attorney General Tom Miller

Iowa AG Tom Miller has defended these actions by saying that it’s better to reach a settlement sooner and to get their collective hands on a proposed $20 billion payout by banks, than to wait and prolong an already cumbersome investigation.  He also says he would insure there are limitations to any waiver of further liability in the proposed settlement, and that these would allow for further substantive investigations.  These are arguments that have merit, but I remain distressed.

So, let me begin my comments by saying that Schneiderman is following a well established tradition of NYS AG’s going after purported and actual Wall Street abuses.  Both Cuomo and Spitzer developed their political muscle in high profile fisticuffs with financial industry executives, and burnished their populist credentials at the same time.  I don’t really have much interest in questioning Schneiderman’s motives for deciding to take a stand on this issue – high stakes as it is.  Bear in mind that he’s essentially removed himself from the adult table on these negotiations, which could be very lucrative for distressed homeowners, foreclosure prevention advocates, and NY State in general.

What I really want to say about this issue comes out of my direct experience working with banking regulators and federal agencies around the issue of bank malfeasance.

From 2008 until this past July I ran the Center for NYC Neighborhoods, the country’s largest centralized foreclosure prevention effort.  We worked with nearly 5,000 NYC homeowners each year, and we saw a lot of things.  We were literally reviewing thousands of mortgage documents and naturally what we saw concerned us.  When the robo-signing scandal broke, I can’t say that we were particularly surprised.  At the time, we were approached by both federal and state banking regulators asking about our observations and any recommendations we had.

We knew that there were many issues within mortgage processing – not just late in the process when foreclosure affidavits were filed (the issue the robo-signing scandal pertains to), but throughout the long chain of the transaction from mortgage origination, through securitization, to modification negotiation.  We made it simple:  go out and subpoena a random sample of mortgage documentation from origination and review it for errors, omissions and malfeasance.  You would find consistent problems, including:

  • Misrepresentations of personal income and assets, loan amounts, title clearance, appraisal values and other critical information in mortgage origination documents;
  • Improper recording and transference of promissory notes through complex securitization processes;
  • Poor documentation of current and overdue payment amounts, records of indebtedness, and delinquency levels among defaulted homeowners;
  • Improper and sometimes fraudulent modification agreements that in a wide variety of cases left the homeowner paying more than their current debt;
  • Numerous instances of inappropriate fee billing and bundling;
  • Unnecessary and sometimes illegal add-on private mortgage insurance or omissions in property tax escrows.

Frankly, this is a short list – we found lots of other consisten problems as well.  We basically said, go back to the beginning and think about how a mortgage should be handled according to current law, and then just see how many instances there are where this didn’t happen.  In an industry that was operating at the peak of the bubble, under lax regulatory oversight, we guarantee you will find systemic and systematic abuses that warrant further investigation.

We posed this question, and I was told by several of my colleagues that it was taken to the highest levels of federal regulatory leadership for consideration.  The answer eventually came back that such an investigation would not be conducted.  Why?  Because regulators were very concerned about turning over those rocks.

I mean, in a way, I can’t say that I blame them.  If such an investigation were made, I’m sure what it would have revealed is that the mortgage origination and securitization industry was a mess, and that the products it developed and sold were in many instances, um, soiled.  Now, think of the trillions of dollars in securitized mortgage debt out there that’s already worth no more than pennies on the dollar.  Next, think of telling the investors who are losing their shirts, well, you may be right that you were sold a bill of goods.  You can bet that the ensuing bloodbath of lawsuits, forced redemptions, buybacks and write-downs would turn the moribund financial sector into little more than a knacker’s shop.  That’s a pretty scary thing to contemplate.

At the same time, when I look out at the landscape of current housing policy in regards to the foreclosure crisis, I am very critical of how little is being done to defend affected homeowners and how little accountability has been expected of financial sector partners.

But here’s the thing that really upsets me more than anything else.  When the robo-signing scandal broke, one of my regulatory colleagues whispered in my ear that “the feds” were really hopeful that the AG’s could force banks to the negotiating table in ways that they could not.  Meaning that federal regulators had lost faith in their own abilities to compel banks to enact such things as principal write-downs, more effective loan servicing platforms, and greater transparency in modification appeals (among many other issues).  In short, the feds were hoping the state AG’s could do what they felt they themselves could not.

It’s sadly ironic to me that Schneiderman is taking a stand in the current negotiations to say, we can’t walk away from the true scale of this problem.  It deserves complete investigation and proper accountability because it’s at the center of a global economic crisis.  And yet, it’s the feds who are pushing for a weaker settlement and therefore effectively limiting all future investigations.

I’m glad I voted for you, AG Schneiderman.  I hope you are successful not because I want to see “justice” in some deeper sense, but because I think exposing the underbelly of this debacle is vital to our nation’s ability to move beyond it – economically, politically, even morally.

Best of luck.  It looks like you’re going to need it.

Foreclosure: The Ugly Stepchild of Affordable Housing

NY Daily News: Advocates say funding needed to prevent foreclosures in New York

It’s no surprise to anybody who spends time on affordable housing that single and small multi-family homeownership (defined as 1-4 housing units / home) has never been a big part of housing policy per se.  In spite of all the polemic about the role of Fannie and Freddie in the mortgage crisis, and all the fallout caused by those nasty public and private issuances of mortgage backed securities, the fact that there was a housing bubble does not mean it was the consequence of housing policy.  Quite the contrary – the housing bubble appears to have occurred without any real reference to housing policy.  In spite of calls for more affordable housing by various political leaders (on both sides of the aisle), the housing bubble was clearly the result of economic policy (artificially low interest rates, lack of regulatory oversight) and a global surplus of cash looking for “value” investments in US mortgage securities.

But there is a big reason why single and small multi-family homeownership (S&SMF, for short) has never really risen to the top of the pile in terms of housing policy, and this reason has a direct bearing on the difficulty in finding foreclosure prevention solutions now.

Retail vs. Wholesale:

Most affordable housing (certainly in NYC) is built by large developers as affordable rental housing.  Whether the development is dedicated exclusively for affordable housing, or affordable units are included as part of a much larger development (sometimes as a condition for permission to build at scale, sometimes because the developers want to subsidize a portion of the development), a whole industry is dedicated to this type of affordable housing development.  There was bubble-related speculation in this market as well, but the causes and implications of this are much different (and the subject of another post to come).  It is this industry, working in close coordination with NYC’s Dept of Housing Preservation and Development (as well as other state and federal agencies), that is striving to meet Mayor Bloomberg’s promise of creating or preserving 165,000 units of affordable housing by 2014 (  The goal is laudable and appears achievable.

When it comes to S&SMF, however, city policy has extended no further than some support to assist low-income homebuyers in covering closing costs, or in current efforts by Restored Homes (a city-affiliated nonprofit, to acquire foreclosed homes, fix them up and sell them to low- and moderate-income homebuyers.  At best, such efforts have yielded a few thousand homeownership opportunities, and the REO acquisition program has a target of just 100 homes.

Why are affordable rentals so much easier to develop than affordable homeownership opportunities?  Because:

  • Affordable rentals are bigger and taller, and pack a lot more folks in less space, so they cost less per unit to build; homeownership is built one parcel at a time and holds fewer people per square foot, so it costs more to develop.
  • NYC is expensive: it takes more income for individuals to afford even an “affordable” home, so there’s more demand for affordable rentals, which don’t require closing costs or higher monthly income levels.
  • There is enormous demand for affordable rental housing (NYU’s Furman Center put the vacancy rate at a meager 3% in 2008,, and while lots of folks would love to own homes, high entry costs keep demand down.
  • There are lots of both nonprofit and for-profit developers of affordable rental housing who specialize in high-density building.  They are a highly organized sector in frequent communication with each other, with public officials, with banks, and with lots of other important stakeholders.  The homeownership sector has relatively few nonprofit partners (such as Neighborhood Housing Services,, and no organized developer community.
  • The administrative burden of developing housing is much reduced on a per unit basis when you build large, because you can centralize functions for building development, qualifying residents, dealing with repairs, handling inspections and so on.

The elephant in the room in all these considerations is, of course, money.  The low income housing tax credit, the federal section 8 program, state level bond financing programs, city subsidies, banks seeking to meet Community Reinvestment Act requirements – all are much better aligned to invest in rental housing.  While experimentation has taken place to use existing subsidies to encourage homeownership, the high cost of housing in NYC and the barriers noted above have dramatically diminished outcomes and most programs have withered on the vine.

All this is to say that the preponderance of resource and capacity is aimed at rentals, and has been for a long, long time.  It’s a huge and thriving industry, and I believe it’s poised to go through another round of expansion in the very near future. Which leads me to my key point….

OK, now let’s talk about foreclosure.

Crisis?  What crisis?

Every year, thousands of affordable housing developers (again, mostly developers of rental housing) gather for the annual New York State Association for Affordable Housing (NYSAFAH) Conference convening in NYC.  We all pack into the massive ballroom at the Marriott Marquis for speeches and policy talks, a chance to see old friends and make connections.  I love this event, really, and I wholeheartedly support NYSAFAH’s annual policy goals.

NYSAFAH Annual Luncheon at the Marriott Marquis

I spent several hours and heard lots of colleagues (both on stage and off) talking about the challenges of securing public subsidy, the price fluctuations of tax credits, the implications of prevailing wage debates in the state, the latest developer casualties of the down market – all indulging our somewhat ghoulish fascination with the current muddle in our corner of the world.  The thing that bothered me was that not once did foreclosure come up as a topic.  It was not addressed by any panel, not considered in any policy position, not covered in any analysis of current trends.

This bothered me for several reasons, but I’ll cut right to the chase:

Seriously Delinquent Mortgages in NYC

This really gorgeous chart comes courtesy of the Federal Reserve Bank of New York (click here for the link to the FRBNY publication).  As you can see, we’re talking about 29,000 homes currently in foreclosure proceedings, and another 19,000 that are over 90 days delinquent.

So, round numbers, there are almost 50,000 properties where homeowners are currently at risk of displacement.  In addition, let’s assume that another 50,000 tenants in these same properties are equally at risk of displacement (I’m making this guess based on a study by NYU’s Furman Center that’s now a few years old, but that estimates tenant displacement to be about equal to homeowner displacement – check out this really excellent recent update by Josiah Mader at Furman:

Even allowing for the three years it currently takes to go through a foreclosure proceeding in NYC, we’re talking about some 100,000 residents at risk of displacement today.  We don’t know what this number will be like, although we know that the current sluggish economy is going to continue taking its toll on homeowners (loss of income being the primary reason for mortgage distress).

I believe this number alone has very significant implications for affordable rental housing in NYC.  Remember that 3% vacancy rate that I mentioned earlier?  Even then that number was dropping as pressure built on affordable units in the outer boroughs, and it’s very far below the national average of 10%.

Where will all those displaced folks go?  Many of them will be “recycled” into S&SMF properties that have come through foreclosure into new ownership, but bear in mind that these will now be distressed properties in distressed communities.  Why?  After 3+ years of neglect during the foreclosure proceeding, followed by bank ownership and sale to a speculative purchaser, many of these homes will be converted to strictly rental properties at high risk of illegal conversion, poor maintenance, and distressed tenantry.

Many others will continue to put downward pressure on an already incredibly tight rental market where my NYSAFAH colleagues are looking for opportunities to build and expand.  What does this mean for my development friends as we sit in the Marriott ballroom?  I think it means that we, as a city, are not really ready for the level of residential displacement that is still little more than a trickle.  It means that communities distressed by foreclosures today could become communities distressed by small holder slumlords tomorrow.  It means that those high density neighborhoods where affordable rentals are concentrated (along with the most capable nonprofit partners, and the most robust developer activity) could receive disproportionate attention and resource in comparison to those low density homeowner neighborhoods where such supports are far more fragmented or altogether lacking.

I believe we need to begin developing more aggressive policies today that include the following:

  • A much stronger inspection regime for properties both in foreclosure and post foreclosure, to insure against illegal conversions and other important code and maintenance violations.
  • Greater protections for tenants during and after foreclosure, including outreach to let them know of their rights and obligations.
  • Incentives for new purchasers of foreclosed and distressed properties to keep existing tenants (and even former homeowners) in place, to limit displacement and better insure some personal investment in maintaining the properties.
  • Coordinated dialogue and fresh thinking among developers, policy makers and public officials to understand how our various housing markets could interact for better or worse during this period of substantial displacement.
With all credit to the work that’s been done by many of my colleagues to create a rich environment for affordable housing development in NYC, we must now consider how to invest this talent and capacity into the new frontier of S&SMF foreclosures.  This is an area that has received too little attention for too long, the ugly stepchild of housing policy is not going to go away any time soon.