Government-backed lenders are pulling back from New York’s rent-regulated market following a recent rent freeze.
Fannie Mae has tightened its underwriting rules for these buildings. Meanwhile, Freddie Mac has stopped new lending to study the financial impact of Mayor Zohran Mamdani’s policy.
The moves leave struggling owners with few choices when mortgages expire. This situation could lead to more foreclosures or distressed sales, as they have limited options to refinance their properties.
Fannie Mae now assumes rents will stay flat for four to eight years, covering the mayor’s current term and a possible second term.
Operating costs are expected to rise by 5 percent annually. The Community Preservation Corporation has doubled its estimated rent collection shortfall to 10 percent, indicating a significant challenge for property owners.
If government-backed firms continue to tighten requirements, the burden of maintaining affordable housing may shift heavily toward the public sector. This trend indicates that private capital alone can no longer sustain these properties under current rent caps, requiring alternative solutions.
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Lower projected income and higher costs reduce the amount banks will lend, making it harder for owners to secure financing. Stricter loan-to-value rules mean landlords must provide more equity to qualify for loans.
Older buildings with stabilized units are especially vulnerable to these changes. All-affordable developments may need larger public subsidies to get financing, as they rely heavily on government support.
Rafael Cestero, CEO of the Community Preservation Corporation, expects 50 percent fewer loans for all-affordable projects than two years ago, highlighting the significant decline in available financing.
These shifts follow 2019 rent law changes that drove away traditional banks. Signature Bank collapsed in 2023, and New York Community Bank exited the sector, leaving government-backed lenders as the primary option.
Fannie Mae and Freddie Mac became the last options for the industry. Only owners with significant equity can still get loans, as they are seen as less risky by lenders.
Mixed-income properties are safer because they have market-rate rents, providing a more stable source of income. Buildings relying on regulated rents face a tighter financing squeeze, as they are more vulnerable to changes in government policy.
