Schumer described the predatory equity scam: "The entire predatory equity enterprise is a house of cards built on a foundation of fantasy and greed. The whole thing collapses when there is any depreciation—or even leveling— in the property's value, which is the reality we now face. It is a dangerous trend that is damaging both the quantity and quality of our stock of affordable housing and we must take aggressive action to stomp it out."
Schumer said the danger to the tenants living in such a building arises once the deal is done and the new owner has to start paying the huge premiums and interest payments attached to the overpriced mortgage. Then, he said, the developer must do one of two things, and sometimes both, that are catastrophic for the tenants living in the building:
1) The landlord has to kick out enough of the tenants to increase the rental income enough to pay the debt service, or
2) In order to meet the debt service and maintain profit levels, the landlord has to cut services and maintenance, allowing the building to fall into disrepair.
The upshot of how the predatory equity scheme plays out, Schumer said, is that both options open to the landlord diminish the stock of affordable housing in the city and diminish the quality of life for the tenants.
This is an enormous impact that predatory equity schemes could have on the city's regulated housing stock in a few years, Schumer said, which underscores the need to take action to head off the crisis.
Schumer Sounds Alarm About Serious Threat To Existing Affordable Housing Stock