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                                             April 30, 1996

TenantNet:  The Online Resource for Tenants' Rights

TenantNet's Web page: http://tenant.net
Email: tenant@tenant.net
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It's that time again - Rent Guidelines Board (RGB) season where
the New York City Rent Guidelines Board determines the percentage
rate of rent increases for Rent Stabilized apartments. Contrary
to the obligatory media hype, landlord lobby and assorted net
fascists, wackos and luddites, the RGB has absolutely nothing to
do with Rent Control.

Normally we try to restrict NYC tenant info to New York tenants
on our mailing list, but we're going to experiment a little
hoping that those outside of New York might also find this
information interesting. We are working to set up a discussion
list (majordomo) and eventually a newsgroup that will be more
broad-based for tenants outside of New York (please bear with us).

In our last newsletter we indicated that NYC Mayor Guiliani was
considering replacing the tenant representatives Leslie
Holmes and Ken Rosenfeld. Many tenant organizations
(and many individuals getting this newsletter) flooded the
Mayor's office with phone calls and letters demanding he
keep our tenant reps to hold off the onslaught of the landlord
and alleged "public" members. As preliminary RGB hearings were getting
underway, Guiliani relented agreeing to keep Ken and Leslie on
the board at least through the end of June when the important
decisions will be made.

The RGB staff each year conducts research into many economic
aspects of the rental housing market -- admittedly dry stuff
to those of you suffering from lack of heat or other vital services,
but nonetheless very important since what you will pay in rent next 
year is determined partly by this research, partly by the 
misrepresentations of the media and partly by the circus
at the RGB hearings held in June.

We've not included the tables and charts in this newsletters which
are available on TenantNet's web site (see URLs below). The
document is also available in Adobe Acrobat format at:

http://tenant.net/Oversight/RGBsum96/msurv/96msurv.pdf.

Keep in mind that what follows is not a final product as the RGB does
not release the complete research until the autumn of each year.
Things can change and the following is just one aspect of the 
research. We present it (at least for now) without comment.

 ========================================================

1996 Mortgage Survey Report

Summary

The 1996 Mortgage Survey provides evidence that the effects of
the Savings and Loan crisis on New York City's multifamily
lending market in the early 1990s have fully played themselves
out. The years immediately following the recession ushered in
vast changes in lending, including tightening lending standards,
careful scrutiny by Federal regulatory agencies, institutional
mergers, lenders exiting the lending market, and mounting
delinquent and defaulted loans. Towards the end of 1993, the
lending market for multifamily mortgages showed signs of
improvement. Borrowers were no longer defaulting in large
numbers, lending standards and loan volumes stabilized, and
interest rates declined, reaching a 15-year low of 8.6% in 1994.

While 1995 Survey results were mixed - interest rates rose by
1.5%, though lenders increased the volume of loans underwritten -
this year's Mortgage Survey shows continued growth in multifamily
lending. Interest rates fell back to 8.6%, a drop of 150 basis
points, and additional lenders entered the mortgage market.
Likewise, the Federal Home Loan Mortgage Corporation, or Freddie
Mac, infused $113 million into the New York City secondary market
in only its second full year of operation following a temporary
shutdown that began in 1990. Lending institutions are responding
to almost non-existent loan delinquencies and to anticipation of
continued low interest and inflation rates by allowing lower
interest rates, longer loan terms, more fixed rate mortgages, and
higher loan-to-value ratios.

Introduction

Section 26-510(b)(iii) of the Rent Stabilization Law requires the
Rent Guidelines Board to consider the "costs and availability of
financing (including effective rates of interest)" in its
deliberations. To assist the Board in meeting this obligation,
the RGB research staff conducts an annual survey of financial
institutions which underwrite mortgages to multifamily properties
in New York City.

During the past year, RGB staff made several improvements to the
Mortgage Survey. Last year's survey sample was updated to include
only those institutions that still offer loans for multi-unit
buildings in New York City. In addition, since so many of the
lenders surveyed in the past have merged or discontinued offering
mortgages for multifamily properties, staff combed newspapers,
trade magazines, the yellow pages and other sources for lenders
to include in the sample. We more than made up for institutions
lost last year by adding ten new lenders to our sample, reaching
a total sample size of fifty-six institutions.

In response to requests from RGB Board Members, staff made a few
additions to the Mortgage Survey questionnaire. New or enhanced
questions include whether the change in the Major Capital
Improvement program (MCI) has affected the level of non-
performing loans; the percent of refinanced mortgages accounted
for by small buildings; and a distinction between vacancy and
collection losses. Finally, staff added two new sections to the
Mortgage Survey Report. One is a longitudinal perspective of
those institutions completing the 1994-1996 Surveys, the other is
a retrospective of the multifamily lending market in New York
City during the past decade which combines data from RGB Mortgage
Surveys and other sources.

Graphic Charts can be found:

"The Average Mortgage Interest Rate Fell to 8.6%"
[at http://tenant.net/Oversight/RGBsum96/msurv/msp2.gif]

"More Lenders Report Vacancy and Collection Losses Below 5%"
[at http://tenant.net/Oversight/RGBsum96/msurv/msp5.gif]

"Mortgage Rates for Multifamily Properties Have Declined Since the Early 1980s"
[at http://tenant.net/Oversight/RGBsum96/msurv/msp9a.gif]

"Falling Rates Have Not Sparked New Construction in Recent Years."
[at http://tenant.net/Oversight/RGBsum96/msurv/msp9b.gif]

Survey Respondents

Twenty-one of the fifty-six financial institutions surveyed
completed the 1996 Mortgage Survey, furnishing the RGB with
details about the current multifamily mortgage lending market.
Unlike past years when we found several lenders had stopped
underwriting mortgages for multifamily buildings, two
institutions recently created separate multifamily mortgage
divisions and are currently developing lending standards. And
contrary to previous years' spate of mergers, not one lender in
our sample merged with another this year, though three
institutions responded that they have too few outstanding loans
for rent stabilized buildings to respond to our questionnaire.

Thirteen of this year's respondents also completed last year's
Mortgage Survey and eleven completed the previous three surveys.
Given this strong response in multiple years, we added a separate
longitudinal section to this year's Report allowing us to
distinguish between differences due to changes in the lending
market and those due to changes in institutions responding to RGB
surveys.

Cross Sectional Study

Financing Availability and Terms
[see table 1 at http://tenant.net/Oversight/RGBsum96/msurv/amsurv1.html]

Interest rates for multifamily mortgages dropped this year,
averaging 8.6% for new and refinanced loans. This is a decrease
of 150 basis points from last year's survey when we reported an
average rate of 10.1% and marks only the second time since 1980
that mortgage rates averaged below 9%.

Because lending institutions take their cue from the Federal
Reserve, it is not surprising that mortgage rates declined last
year. Following its strong anti-inflationary stance throughout
1994 and early 1995 when the Federal Reserve raised rates seven
consecutive times, the Federal Reserve reversed this trend in mid-
1995 reducing the federal funds rate twice by a total of .5%. At
its first committee meeting in 1996, the Fed lowered short-term
interest rates by an additional quarter of a percent to reach
5.25%. Similarly, the discount rate is now 5%. Rate cuts by the
Federal Reserve spur large banks to decrease their prime lending
rates, leading to similar reductions for mortgages, home equity
loans, small business loans, and credit card balances.[1]

Points, terms and types of loans for both new and refinanced
mortgages have remained relatively constant in recent years.
Points, or service fees, currently charged by lenders range from
0 to 3, the same as last year, but the average service fee for
new loans is now 1.32% versus 1.25% one year ago making the
initial outlay for these loans somewhat more expensive. Average
points charged for refinanced loans are once again lower than for
new loans, averaging 1.21%, about the same as last year.

Since survey respondents normally provide a wide range of term
lengths rather than a single number, it is difficult to know
where within the range banks choose to lend. With this caveat, it
appears that mortgage terms increased since a year ago for new
and refinanced mortgages. Though the length varies between 5 and
30 years for the last two years, more lenders providing single
numbers indicated 15-year mortgages this year, while respondents
have indicated 5 or 10 years in the past. This longer term may
signal increased competition among lenders and an improved
economic outlook.

Lenders are also offering terms that exhibit more flexibility.
For example, more banks are now offering loans with fixed rates
for the beginning of the term and adjustable rates thereafter, as
well as mortgages with longer amortization schedules than the
loan's term.

Last year, approximately one-half of lenders offered fixed rates
and the other half supplied adjustable or balloon mortgages,
perhaps anticipating that low mortgage rates would not persist in
the long run. This year, two-thirds of lenders offer fixed
mortgages while the remainder offer adjustable or balloon type
mortgages. Many respondents report they offer all three, and one
lender lets the customer decide. An adjustable rate mortgage is
usually rescheduled after 3 years for shorter term loans and
after 5 for longer term loans.

With the relatively large reduction in interest rates from 1995
to 1996, came a corresponding increase in refinancing activity,
reaching levels similar to 1994. This year nine lenders (43% of
those responding to this question) indicated a portion of their
mortgage portfolio was refinanced at lower rates, six of these
institutions refinanced more than 10% of their outstanding loans.

A new question on this year's mortgage survey reveals that 55% of
the mortgages refinanced at lower rates are in buildings that
have 20 or fewer units. This is partly because about half of the
lenders reporting high levels of refinancing activity typically
lend to small buildings. Thus, this survey shows that small
buildings are also benefiting from lower debt service payments
resulting from refinanced mortgages.

The volume of loans underwritten by financial institutions
declined slightly throughout 1995 despite decreases in interest
rates. Nearly 30% of respondents reported a one-third reduction
in the number of loan applications received, and two other
institutions report decreases in the rate of application
approvals. This was offset somewhat by 15% of institutions
underwriting more loans due to both increasing applications and
approvals. Qualitative reasons for decreasing loan applications
provided by respondents suggest heightened competition among
lenders, a sentiment which may indicate why banks are reducing
their standards. Perhaps lenders are not only reacting to a
better market outlook, but they are also attempting to attract
more business.

Underwriting Criteria

As mentioned in previous Mortgage Survey Reports, lenders
developed increasingly cautious lending criteria in the early
1990s responding to rising loan delinquencies and defaults and to
pressure by Federal oversight agencies. The Federal Deposit
Insurance Corporation (FDIC) closed several financial
institutions and took control of others, and the Resolution Trust
Corporation (RTC), established by Congress in 1989, restructured
the thrift industry and worked to minimize the effects of the
costly S&L scandal. The proportion of lenders claiming they
implemented stricter standards dropped remarkably after 1993 to
15% and 10% respectively in 1994 and 1995, and fell to nearly
zero this year. Only one lender in 21 mentioned tightening its
standards by using more stringent approvals and monitoring
requirements. This was in response to increased delinquencies by
landlords in the past and an increase in opportunities to sell
loans on the secondary market. Those banks reporting more
stringent standards last year mentioned these same two factors.
Again, we attribute the decline in the number of banks tightening
their standards this year to enhanced standards implemented in
the early 1990s, and since maintained, leading to low delinquency
and default rates, as well as to better economic conditions.

A second set of questions relating to lending standards requests
institutions to furnish other requirements including loan-to-
value ratios, debt service coverage, and building
characteristics. The mean dollar amount respondents are willing
to lend based on a building's value (loan-to-value ratio, or LTV)
increased in 1996 by 1% to reach 71%. Standards for LTVs range
from 50% to 80%. This is the second year that the average
standard LTV ratio increased one percent, indicating a slight
loosening in mortgage financing standards.

The debt service ratio (net operating income divided by the debt
service) measures an investment's ability to cover mortgage
payments using its net operating income. Currently, lenders'
standards for debt service ratios vary from 1.15% to 1.4%. The
mean debt service coverage is 1.24%, slightly less than the
average 1.25% reported last year. The 1.15% standard falls
somewhat close to the "risky" level where available net operating
income is only 15% higher than the debt service. Some lenders
reported the same requirement for debt service coverage last
year, though, and have not indicated the presence of defaulted or
non-performing loans.

Requirements regarding mortgage levels and physical
characteristics of buildings have not changed much since last
year. Three respondents have minimum loan values ranging from
$500,000 to $1.25 million and one bank offers loans of no more
than $36,000. These figures are in line with last year's
responses. This year's survey also yielded similar responses in
terms of number of units, building age, location and level of
maintenance. Almost all lenders require buildings to be in at
least good condition, four lenders have building-size
requirements (minimum of 5 to 10 units), two specify location,
and three consider whether a building has the potential to
convert to a co-operative or condominium. Unlike last year, no
respondents consider building age or whether the owner lives in
the building in their lending criteria. Two institutions
mentioned additional requirements not listed on the survey; one
looks at the environmental aspect of the building, and the other
reviews buildings' management.

Non-Performing Loans and Foreclosures

This year's responses to the non-performing loan section of the
Mortgage Survey are even more encouraging than last year's
results which showed that the recession of the early 1990s had
finally stopped reverberating through lenders' portfolios of
outstanding loans. Last year, three lenders reported decreases in
non-performing loans and four claimed their level of foreclosure
proceedings declined substantially. No lenders reported increases
in non-performing loans or defaults. Once again this year, not
one survey respondent experienced an increase in non-performing
or defaulted loans. One institution reduced its non-performing
loans and foreclosure proceedings by 100% and attributed these
results to the improved rental market.

At the end of 1994, the New York State Court of Appeals capped
Major Capital Improvement (MCI) increases at 6% and allowed them
to become part of the base rent. Formerly, temporary increases up
to 12% were allowed but were not added to the base rent. The new
ruling caused concern among owners that the reduced return would
inhibit building repairs and therefore would cause buildings to
deteriorate over time. Since no institutions responding to the
1996 Mortgage Survey experienced an increase in non-performing
loans, none responded to the question containing the change in
the Major Capital Improvement (MCI) program. This leads us to
believe that the effects of changing this program have not been
overwhelming or that the effects will manifest in the long term
and are not yet visible in owners' balance sheets.

RGB Mortgage Surveys also ask lenders how they resolve
foreclosure actions against rent stabilized buildings with
delinquencies. Again, many respondents did not answer the
question since they currently have no non-performing loans,
though some institutions did provide answers. Of those who
responded, most (six out of seven) seize the building or
restructure the outstanding debt. Others reported resuming
regular debt service and arranging financing with another
financial institution, while one lender reported working out any
problems with the building owners. These results do not differ
from last year.

Characteristics of Rent Stabilized Buildings
[see table 2 at http://tenant.net/Oversight/RGBsum96/msurv/amsurv2.html]

A number of questions on the Mortgage Survey ask about
characteristics of buildings currently in lenders' portfolios
including building size, vacancy and collection losses, loan-to-
value ratios, and operating and maintenance costs. Similar to
last year, over half (57%) of lenders in our sample typically
provide loans for buildings with more than 20 units, the most
frequently cited size being 50 to 99 units. The next most common
building sizes are 11-19 and 20-49 units respectively. Two
lenders typically lend to buildings with fewer than ten units and
one mainly lends to buildings with 100 or more units. Again this
data does not vary from responses in previous years.

A change in the Mortgage Survey instrument allows us to
distinguish between relinquished rental income due to vacant
apartments versus lost income caused by delinquent rental
payments. The combined vacancy and collection losses reported by
respondents declined considerably since last year when the mean
was 4.6%. This year's average is 3.7%, similar to 1990 when the
average was 3.5%.

Last year, nearly three-quarters of respondents had vacancy and
collection losses of 5% or more. This year, only half of
respondents reported losses this high and one-quarter (4 of the
17 institutions responding to this question) claim combined
losses of 1% or less. We can only surmise this is due to the
overall improvement in New York City's economy.

It is unlikely that this substantial decline in vacancy and
collection losses stems from the change in the survey instrument,
since the question regarding combined vacancy and collection
losses is the same on both surveys and precedes the question
requesting respondents to separate the two types of losses. This
breakdown shows that, on average, 2.9% of this year's total
losses are attributable to collection problems, while just under
1% is due to vacancies. Given an overall vacancy rate of 3.4% in
New York City's housing stock, this figure appears low. However,
such low vacancy and collection losses are not unprecedented -
RGB Mortgage Surveys from 1988 to 1990 found combined losses of
around 3%.

Though the RGB did not request lenders to separate vacancy and
collection losses in the past, in 1993 RGB staff conducted a
survey which requested vacancy information of owners who have
buildings in tax arrears. The survey found that "almost 20% of
the average building's potential rent roll remains uncollected
due to [vacancy and collection] losses. A 6% loss derives from
vacancies and an additional 13.5% from an inability to collect
rent from tenants." These results show a similar proportion of
losses due to vacancies (approximately 30%) and those due to
unpaid rent (roughly 70%), though buildings with tax arrears
relinquish far greater amounts of their rent roll than most
buildings in lenders' portfolios.

The loan-to-value ratio (LTV) on mortgages currently held by
respondents averages 65%, or the same as last year. Though the
average is the same, one-third of lenders (7 out of 20) reported
typical LTVs of 70 or higher, twice as many as last year.
Apparently, some lenders are beginning to lend up to their
maximum LTV standard which they have refrained from in recent
years. LTV standards have also increased in each of the last two
years by 1% and now average 71% as mentioned earlier in this
Report.

The Mortgage Survey questionnaire traditionally requests typical
operating and maintenance (O&M) expenses of buildings with
outstanding loans. Because lenders' answers are extremely varied,
we do not present average or modal values. Lenders' responses are
more a reflection of the type of building, whether luxury or
basic and the buildings' conditions, for which the lender
underwrites mortgages rather than a guideline of costs involved
in operating New York's rental housing. Nonetheless, such
responses are valuable in determining what type of buildings
currently hold outstanding mortgages. For example, a response of
$3,000 in monthly operating and maintenance expenses indicates
the institution lends to highly-staffed and well-maintained
buildings with large units. More than half of 1996 responses
range from $240 to $550 per unit per month, while two respondents
indicate O&M costs of $3,000 or more. Further, reported O&M costs
range from 30% to 60% of gross income according to this year's
survey respondents, similar to previous years.

The differences between an institution's current lending
standards and the characteristics of its overall portfolio point
to changes in that institution's formal or informal practices and
possible exceptions to its standards when choosing to underwrite
individual loans. The loan-to-value ratio data provides concrete
evidence that a subset of lenders are sufficiently comfortable
with the economy to ease their lending practices even if they
have not officially changed their underwriting standards, as none
report doing since last year.

Longitudinal study

With so many of the same institutions responding to the 1994,
1995 and 1996 Mortgage Surveys, we decided to add a longitudinal
perspective to the Report. In this section, RGB staff compare
responses from lenders who replied to all three surveys
(longitudinal group) with the data from all institutions
providing responses in these years (cross sectional group). This
comparison will help to determine whether the changes we have
seen in the last two years reflect changes in the lending market
or differing Mortgage Survey respondents.

Financing Availability and Terms
[see table 3 at http://tenant.net/Oversight/RGBsum96/msurv/amsurv3.html]

The terms offered by institutions consistently responding to our
surveys (longitudinal group) differ slightly from those of all
respondents (cross sectional group). For example, interest rates
for new mortgages were 8.2%, 9.7%, and 8.3% respectively in 1994
through 1996, which is slightly less than the respective 8.6%,
10.1%, and 8.6% we reported for all lenders in these years.
Though interest rates were lower, service fees are higher for
respondents in all three years averaging more than 1.4 in the
longitudinal group as opposed to roughly 1.25 for the cross
sectional group. Loan lengths and types in the longitudinal group
are more consistent with the cross sectional group. Overall,
financing terms are not very different for the two groups.

Similarly, refinancing activity was fairly consistent for lenders
who responded in all three years, except that in 1994 a larger
proportion of cross sectional lenders reported an increase in
refinancing activity. Thus, the percent increase in banks
refinancing a sizable portion of their portfolios in 1994, 42% of
all lenders, may have been overstated; likewise for the
proportion of lenders experiencing increases in loan volumes.
This does not change the trend for these years, rather it merely
alters the year in which the refinancing activity and loan volume
changes occurred.

Lending Standards
[see table 4 at http://tenant.net/Oversight/RGBsum96/msurv/amsurv4.html]

Some of the changes in lending practices we have reported since
1994 may have been overstated or have occurred in different years
from those reported because of differing respondents to the
Mortgage Surveys. We noted in previous Reports that acceptable
loan-to-value ratios have been increasing over the years (by a
total of 2% since 1994), a finding that the the longitudinal data
confirms, though the increase for longitudinal respondents was
about 1% and occurred between 1994 and 1995.

Further, the longitudinal debt service coverage data, as well as
the longitudinal data for the LTV ratio of outstanding loans,
supports our finding of relaxing standards. Likewise, the
reduction in vacancy and collection losses reported in the cross
sectional data also is evident in the longitudinal data. The
average losses reported in 1996 are 3.4%, or nearly 1% less than
in 1995. Four lenders out of six who responded to this question
on all three questionnaires report fewer losses due to delinquent
rental payments and vacant apartments. Though caution must be
exercised whenever using so few responses, we present the
longitudinal data since it mostly corroborates the findings of
previous cross sectional studies.

Non-Performing and Delinquent Loans

Another optimistic finding is that almost all institutions
responding to RGB surveys in multiple years (longitudinal group)
report decreases in non-performing loans and foreclosure actions.
Those lenders not reporting declines had no delinquent loans to
report. This backs up the findings in our cross sectional studies
that delinquencies have in fact declined or were minimal for
several years.

Conclusion

Savings banks make up the vast majority of respondents to annual
RGB Mortgage Surveys with commercial lenders and savings and
loans providing the rest. However, the percent of each type of
lending institution fluctuated from 1994 to 1995. In 1995, the
RGB received the highest percent of responses from savings banks
- nearly three-quarters of all respondents. This year, slightly
more than half of returned surveys were from savings banks, with
commercial lenders picking up the slack and savings and loans
remaining constant. There are distinct differences among types of
lenders and lending practices. Specifically, saving banks'
average interest rates are usually lower than those charged by
savings and loans and commercial lenders. Because most of the
lenders in the longitudinal group are savings banks, this
explains why longitudinal interest rates average less than the
cross sectional data, with neither group - longitudinal or cross
sectional - necessarily reflecting the "true" value.

Though the small number of institutions responding to a question
in all three years renders the data unreliable on its own, the
longitudinal perspective is useful if presented in conjunction
with the more abundant cross sectional data. With noted
exceptions, the longitudinal perspective confirms that the
multifamily lending market has improved considerably since the
recession in the early 1990s and has continued to loosen in the
past three years. Interest rates and rental losses are down,
lending standards have relaxed, and outstanding loans are
remaining current. With lower costs of borrowing and abundant
mortgage availability, perhaps demand for lending services will
pick up in the coming years.

Retrospective of the Mortgage Lending Market
[see table 5 at http://tenant.net/Oversight/RGBsum96/msurv/amsurv5.html]

Though RGB staff provide two- or three-year perspectives on
multifamily lending practices in its annual Mortgage Survey
Reports, the vast changes in this market in the last decade or
more call for a review of the mortgage lending market that is
longer in term and broader in scope. We draw data from RGB
Mortgage Surveys, from nationally collected statistics regarding
housing construction and from participants in the secondary
lending market.

Secondary Lending Market

Mortgage Survey respondents report altering their lending
practices in recent years to conform with required standards of
the secondary mortgage and mortgage insurance markets,
particularly programs of the Federal Home Loan Mortgage
Corporation and State of New York Mortgage Agency. Though it is
difficult to assess the impact of these two groups in fueling the
local single and multifamily lending markets, it is also hard to
overlook their importance.

Since 1978, the State of New York Mortgage Agency (SONYMA) has
provided mortgage insurance for construction and rehabilitation
of single family and multifamily housing as well as for community
development projects. As of December, 1995, the Agency provided
additional credit to build nearly 32,000 dwellings in New York
City, 85% of which are in buildings with five or more units,
worth approximately $500 million. SONYMA issued commitments for
an additional 10,000 apartments in New York that have not yet
been completed.

The Federal Home Loan Mortgage Corporation (Freddie Mac) has
traditionally been a strong force in the New York area where much
of the multifamily secondary market is located. The corporation,
established by Congress in 1970 to provide a continuous flow of
funds to mortgage institutions, purchases mortgages from lenders
and packages them into securities to sell to investors. These
purchases lead to more available funds for the lenders to make
additional loans.

Freddie Mac shut down its multifamily loan program in October,
1990 to minimize its losses when a large part of its assets were
distressed due, in part, to the bottoming out of the real estate
market. By 1994 Freddie Mac had fully re-entered the secondary
lending market after spending 1990-1993 refinancing some of its
portfolio and restructuring its lending and organizational
procedures. Since then, Freddie Mac has purchased a total of $135
million in mortgages, $22 million in 1994 and $113 million last
year, from multifamily lenders in the New York City. Though these
figures are below the average amounts purchased prior to the 1990
shutdown, the corporation expects more volume in 1996. Other
signs of Freddie Mac's growth are its recent decisions to create
new programs including an affordable housing pilot, a single loan
program for mortgage-backed securities, and a 5+5 program where
interest rates are fixed the first 5 years and adjustable
thereafter.

Since lenders have tightened their standards in response to New
York's real estate crisis, most do not have to further tighten
their standards to participate in the secondary mortgage market.
Given recent trends toward heightened participation in the
secondary market and the creation of additional Freddie Mac
programs, more opportunities are expected for lenders to
participate in secondary lending thereby creating additional
mortgage resources.

Overview of New York City's Lending Market

The most striking change in the lending market over the years has
been the steady decline in interest rates for both new and
refinanced loans on multifamily properties. Likewise, while rates
for both types of loans are down considerably, refinanced loans
are no longer at interest rates that are almost twice the rate of
new loans, as experienced in the early 1980s. In other words,
owners who had balloon mortgages in this period were forced to
refinance their mortgages a few years after origination at much
higher rates inflating their debt service payments. By the late
1980s, refinanced loans were in line with those for new loans and
in the past several years have been nearly indistinguishable.

Since lending terms are comprised of points, terms, and types in
addition to interest rates, it is important to review how all of
these components change when assessing the stringency of lending
standards in any one year. In the 1989 Mortgage Survey Report,
the RGB stated "it appears that the long-term fixed rate mortgage
has largely disappeared. Only two banks responding to the survey
offer fixed rate loans of 15 years or more." This year, in
contrast, we found that institutions lowered interest rates and
offer longer loan terms and more fixed rate mortgages. This
change provides additional evidence of much looser lending
practices resulting perhaps from major changes in the outlook for
multifamily financing.

Surprisingly, the continued decline in mortgage interest rates
since the mid 1980s has not sparked more multifamily housing
development in the Metropolitan area. While multifamily housing
starts have rebounded in other areas of the country, especially
in the South and Midwest, residential building throughout the
Northeast remains sluggish.

Similar to the trend in multifamily housing, conventional
mortgages rates are at their lowest point in several years but
are not spurring single family development or purchases in the
area. Data from the U.S. Bureau of the Census shows that despite
uncharacteristically low conventional mortgage rates, single
family housing construction in the Northeast reached the lowest
number of starts in two years but could cite no specific reason
for the decline. The fact that housing construction in both the
single and multifamily sectors has not rebounded supports the
notion that construction activity is more a reflection of the
region's economic performance rather than a response to national
monetary policy or to local housing practices.

The relationship between interest rates and housing construction
in New York City is relatively strong, but other factors probably
override the decline in mortgage rates to thwart new housing
construction in recent years. These may include rising
unemployment, reductions in government subsidies at all levels,
and growing concerns over an economic recession, however mild.
With continued pessimism about the economy's performance and
mounting employment insecurities, a reduction in mortgage lending
costs and enhanced loan availability may not be sufficient to
pull New York's housing construction out of its slump.

Notes

1. Christopher Drew, "Federal Reserve Trims Key Rates To Spur
Economy" New York Times, February 1, 1996.

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Responses and information from TenantNet are from non-attorney tenant
activists who base their responses on practical experience. It should
not be considered as legal advice -- which is always recommended.