A knock-on effect of the rent freeze that went into effect last month? Even the lenders that backstop much of the mortgage market are becoming resistant to old patterns.
Fannie Mae toughened its underwriting standards for rent-regulated buildings while Freddie Mac has paused new lending as it assesses the financial fallout from Mayor Zohran Mamdani’s rent freeze, The City Reporter reported. The moves threaten to leave struggling owners with few options when their mortgages come due and could push properties toward foreclosure or distressed sales.
Fannie Mae’s revised assumptions effectively bake in four to eight years of flat rents, covering Mamdani’s current term and a potential second. Meanwhile, lenders are projecting annual operating expense increases of at least 5 percent and higher rent collection losses.
Community Preservation Corporation, for example, doubled its assumed collection shortfall to 10 percent.
The math is squeezing borrowers from both ends. Lower projected income and rising expenses reduce the amount lenders are willing to advance, while tougher loan-to-value requirements mean owners must bring more equity to the table. For landlords already operating on thin margins, refinancing could become impossible.
The consequences extend beyond private owners. Older buildings composed almost entirely of rent-stabilized apartments are particularly vulnerable, with some facing foreclosure or sales at steep discounts. All-affordable developments built with city assistance are also under pressure and may need larger public subsidies to secure financing.
Rafael Cestero, chief executive officer of Community Preservation Corporation, said his organization expects to make 50 percent fewer loans to all-affordable projects in the city than it did two years ago. Brooklyn nonprofit Fifth Avenue Committee has lent money to its affordable housing projects to prevent mortgage defaults.
The lending retreat comes after the 2019 rent law changes helped drive traditional lenders away from the rent-stabilized sector. Signature Bank collapsed in 2023 with significant exposure to the market, while New York Community Bank exited the business after its acquisition.
Fannie Mae and Freddie Mac consequently became lenders of last resort for the industry.
Established owners with substantial equity can still secure financing. But newer investors and highly leveraged landlords have far less room to maneuver.
Mixed-income properties remain comparatively insulated, buoyed by market-rate rents. But for buildings dependent on regulated rents, the financing squeeze threatens to turn the city’s affordability strategy into an increasingly expensive problem for taxpayers.
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