Preserving affordability by buying mortgages
In an effort to preserve and renovate some existing properties, a New York City housing agency is making the unusual proposal of seeking to buy the mortgages from HUD :
“If we have the mortgage,” [Department of Housing Preservation and Development Commissioner Shaun] Donovan said, “we get to have more say over the enforcement and, ultimately, how the buildings are run.”
The tactic is worth noting, since lenders do not normally think of themselves as asset managers:
Under Donovan’s plan, HUD would transfer ownership of mortgages to the city for less than face value. In most cases, the city would quickly foreclose and, instead of auctioning mortgages to the highest bidders, as HUD often did, it would sell the buildings to pre-selected nonprofits, responsible private landlords or the tenants themselves.
Several things about this move are worthy of comment:
- Sometimes it’s the lender who has effective control over a property, if it is willing to act.
- Government lenders can be hamstrung by administrative and other requirements. Here HUD hasn’t foreclosed, in part (we suspect) because applicable Federal law sets forth specific procedures under which HUD, before disposing of a property, would have to put new property-based Section 8 rental assistance on it, and assure that it was properly renovated. These burdens may make it uneconomical for HUD to foreclose.
- Moving control from a distant Federal agency (sometimes it seems Washington DC and New York City are light-years apart, not just a three-hour train ride) to a local entity increases the likelihood of effective action.
