Board Members

Staff Members

Chair:Jonathan L. Kimmel, Esq.

Public Members:Betty Phillips AdamsRisa A. Levine, Esq.

David H. WenkVacant

Owner Members:Magda L. Cruz, Esq.Steven J. Schleider

Tenant Members:Adriene L. Holder, Esq.

Ronald S. Languedoc, Esq.

New York City Rent Guidelines Board

2010 Mortgage Survey ReportMarch 23, 2010

Executive Director:Andrew McLaughlin

Research Associates:Brian HobermanDanielle Burger

Office Manager:Leon Klein

Public Information:Charmaine Superville

PIOC Temp Manager:Shirley Alexander

51 Chambers Street, Suite 202, New York, NY 10007 212-385-2934 www.housingnyc.com

2010 Mortgage Survey Report 3

New York City Rent Guidelines Board

2010 Mortgage Survey Report

Introduction

Section 26-510 (b)(iii) of the Rent Stabilization Law requires the RentGuidelines Board to consider the costs and availability of financing(including effective rates of interest) in its deliberations. To assist the Boardin meeting this obligation, each winter the RGB research staff surveys lendinginstitutions that underwrite mortgages for multifamily rent stabilizedproperties in New York City. (See Appendix 7 for a reproduction of thesurvey.) The survey provides details about NewYork Citys multifamily lendingmarket during the 2009 calendar year as well as the first few months of 2010.

The survey is organized into three sections: financing availability andterms for rent stabilized buildings; underwriting criteria; and additionalmortgage questions, including vacancy and collection losses, operating andmaintenance expenses, and portfolio performance information. In addition tothe survey analysis, rent stabilized building sales data, a section added twoyears ago, is again included in this report.

Summary

The 2010 Mortgage Survey illustrated a lending market with more constraintsthan in recent years. While lending standards didnt change significantly fromthe prior year, the volume of lending reached a nadir not seen since thissurvey began over a decade ago. Despite benchmark rates set by the FederalReserve Board that remained unchanged throughout 2009 and at historiclows, lending volume was at a minimum among institutions in our survey.1

Average interest rates actually charged by surveyed lenders declined, whileup-front fees, called points, increased for the third consecutive year afterfalling to historic lows. Furthermore, vacancy and collection losses and non-performing loans increased, though foreclosures remained rare. Additionally,our analysis of rent stabilized building sales data showed an overall declinein both rent stabilized building sale prices and volume citywide from 2008to 2009, with little variation between the boroughs and building sizes.

This report will more fully detail these issues by beginning with adiscussion of the characteristics of the survey respondents, followed by botha cross-sectional and longitudinal analysis of financing availability and terms,underwriting criteria, portfolio performance and an overview of lendersexpectations and the characteristics of typical buildings in their portfolios.Finally, the report will look at rent stabilized building sales data.

Survey Respondents

Fifteen financial institutions responded to this years survey, one fewer thanlast year. The number of eligible lenders declined from last year due to at

New loan volumedeclined 52%, whilerefinanced loan volumedropped 75%.

Vacancy and collectionlosses increased to4.92%, up from 4.38%the prior year.

In 2009, 521 buildingscontaining rent stabilizedunits were sold citywide,down 49% from theprior year.

Average interest ratesfor new multifamilymortgages decreased0.19 percentage points,or 2.9%, to 6.28%.

Refinancing interest ratesfell by 0.21 percentagepoints, to 6.28%.

Average service fees fornew loans rose 0.18points, to 0.79 points.

Average maximumloan-to-value ratiosdropped to 73.6% in2009, down from 74.3%the prior year.

Whats New

least two lenders who cited that they were not offeringmortgages to multifamily properties in 2009. In prioryears, participation has been adversely impactedprimarily by mergers among lending institutions. Thesurvey sample is regularly updated to include onlythose institutions offering loans to multiple dwelling,rent stabilized properties in New York City. This yearsrespondents include a variety of traditional lendinginstitutions, such as savings and commercial banks, aswell as non-traditional lenders. Among therespondents, all but one also responded to lastyears survey.

Institutions holding deposits insured by the FederalDeposit Insurance Corporation (FDIC) supply detailsabout their holdings on a quarterly basis, including theirmultifamily real estate holdings, which varyconsiderably among this years respondents. Twelvesurvey respondents report their multifamily real estateholdings to the FDIC, with values ranging between

$19.0 million and $7.4 billion.2 Seven of this yearsinstitutions reported multifamily holdings of over onebillion dollars, while three institutions had holdings ofless than $100 million. Compared with last year, theaverage multifamily real estate portfolio of our surveyrespondents increased by 8.7%, to $1.83 billion.

Cross-Sectional Analysis

Financing Availability and Terms

In February 2010, the average interest rate for newmultifamily mortgages was 6.28%, a decrease of 0.19percentage points, or 2.9%, from the previous February(see graph on this page and Appendix 1).

Likewise, the average interest rate reported bylenders for the 2009 calendar year was 6.18%, just0.10 percentage points lower than reported February2010 rates, and a 0.08 percentage point (or 1.4%)

Average Interest Rates for New Loans to Rent Stabilized Buildings, 1981-2010

0%

5%

6%

7%

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17%20

05

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2008

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2010

Multifamily Mortgage Interest Rates Decrease Over Prior Year

Source: Rent Guidelines Board, annual Mortgage Surveys.

4 2010 Mortgage Survey Report

decrease from calendar year 2008. As in prior years, a small number oflarge lenders provided the vast majority of the total volume of new andrefinanced mortgages. Of all respondents, five provided 86.9% of thetotal volume of new mortgages.

Average interest rates increased slightly during the year among theinstitutions surveyed, despite the fact that the federal funds and discountrates set by the Federal Reserve Board remained constant throughout2009. Only in February 2010, too late to have any impact on interestrates charged by institutions in our survey, did the Fed raise the DiscountRate the interest rate at which depository institutions borrow from theFederal Reserve Bank of New York by one quarter of one percent toreach 0.75%, but left the Federal Funds Rate the interest rate at whichdepository institutions lend balances at the Federal Reserve to otherdepository institutions unchanged, at 0.25%. The Fed maintained itslow rates throughout the year as the U.S. economy attempted to growitself out of a sizeable recession and significant job losses.3

Surveying institutions regarding their refinanced mortgages foundthat virtually all of them offered identical or similar terms to those fornew loans. The average current rate charged for refinanced mortgages asof February 2010, 6.28%, was the same as the average current ratecharged on new originations and 0.21 percentage points lower than lastFebruary. (See Appendix 1) In addition, at 6.17%, average 2009refinancing rates were 0.14 percentage points lower than the prior yearsrefinancing rates.

Unlike interest rates, points (up-front service fees) that were chargedfor new and refinanced loans increased from the prior year. Amongsurvey respondents, they ranged from zero to two points, with foursurveyed lenders charging no points on either new or refinanced loans.

The average service fee charged on new loans by lenders was 0.79points, a 0.18 percentage point increase from last years average of 0.62.Average fees reported in the survey have remained around or below onepoint since the late 1990s (see graph on next page). Average points forrefinanced mortgages were almost the same (0.83) as that charged on neworiginations.

Lenders surveyed, for the most part, remained flexible in the loanterms they offered their borrowers. Since survey respondents typicallyprovide a wide range of terms rather than a single number, it is achallenge to give a precise average for the range of terms offered byinstitutions, but they remained similar to those offered in recent years.Mortgage terms reported by respondents fell within a wide 5- to 30-yearrange. Five lenders offered terms as long as 30 years, while just oneoffered a maximum of five years. This continued mortgage term flexibilityover recent years is in great contrast to terms found in the surveys of theearly- to mid-1990s, when close to half of respondents offered maximumloan maturities of just five years.

Actual LTV - the typical loan-to-value ratio of buildings inlenders portfolios

Debt Service - the repaymentof loan principal and interest

Debt Service Ratio - netoperating income divided by thedebt service; measures the riskassociated with a loan; thehigher the ratio, the less moneyan institution is willing to lend

Loan-to-Value Ratio (LTV) -the dollar amount institutionsare willing to