The Real Deal New York

Suit against Isaac Kassirer raises questions over Fannie and Freddie’s increased lending on NYC multifamily

Cheap government-backed loans attract investors and raise rents, critics say
February 19, 2019 10:30AM

Isaac Kassirer with 1569 Lexington Avenue and 411 East 118th Street

More known for backing single-family loans, Fannie Mae and Freddie Mac have seen their involvement in rental mortgages grow dramatically since 2008. Though the agencies aim to promote affordable housing with cheap, government-backed loans, critics say these loans can have the opposite effect.

While housing advocates mostly agree that Fannie and Freddie loans for affordable housing and in rural areas have benefited renters significantly, their financing of market-rate apartments in major cities can end up attracting investors to gentrifying neighborhoods and increasing rents.

In one notable case, Isaac Kassirer’s Emerald Equity Group received a $189 million Freddie Mac mortgage last month to refinance much of its extensive $358 million East Harlem “Dawnay Day” portfolio, despite being sued by tenants at three buildings for charging market rates on rent-stabilized units, the Wall Street Journal reported. The sides are currently in settlement talks.

“The irony here is that it’s the exact kind of thing that Fannie and Freddie are supposed to mitigate,” said Aaron Carr of the nonprofit Housing Rights Initiative, whose investigations led to the lawsuits.

Kassirer called the lawsuit meritless, and Fannie and Freddie denied being responsible for any increase in rents.

In 2018, Fannie Mae and Freddie Mac guaranteed $95.7 billion in rental apartment mortgages, more than 11 times higher than the pre-recession peak in 2003, which was just $8.2 billion.

Though Fannie and Freddie’s proponents argue that cheaper, government-backed loans can reduce the pressure on landlords to raise rents, critics say it can also provide further incentive to do so.

“Fannie and Freddie are the cheese at the end of the maze,” Carr said.

Meanwhile, the ongoing national debate over the mortgage guarantors’ future has brought new attention to their multifamily activities. At a Senate confirmation hearing last Thursday, the Trump administration’s pick to head the Federal Housing Finance Agency, Mark Calabria, said that he doesn’t believe the multifamily program needs “the same sort of changes” he has in mind for single-family mortgages. [WSJ] — Kevin Sun