New mini-loan program for Bronx apartment houses.

Fannie Mae (FNM/NYSE), the nation's largest source of home mortgage funds and one of the largest investors in multi-family mortgages, is conducting a new $25 million "Mini-Loan" Experiment to help maintain the supply of affordable rental units in small buildings in The Bronx.

The program will provide funds for the acquisition, rehabilitation or refinancing of a buildings with 5 to 25 units, particularly focusing on financing affordable rental properties in the Northwest Bronx.

The mini-loan experiment targets properties that require from $100,000 to $750,000 in financing. Through a select group of three lending partners, the program will offer owners and potential owners 30-year fixed rate loans at attractive market rates. This type of financing generally has been unavailable for five- to 25-unit properties in The Bronx.

"This is a way for Fannie Mae to better understand and meet the financing needs of the smallest multi-family property owners," said Arnold Ifill, vice president for multifamily activities in Fannie Mac's Northeastern Regional Office. "Through this experiment, we hope to learn more about how the company can support the needs of owners and renters of smaller multi-family properties."

In the spring of 1997, Fannie Mae entered into a partnership with the National Training and Information Center (NTIC) to develop special initiatives in six targeted cities. As a result of that partnership, Fanni Mae developed the mini-loan experiment in conjunction with the Northwest Bronx Community and Clergy Coalition (NWBCCC) through a series of meetings with the University Neighborhood Housing Program (UNHP) founded by Fordham University and a team of owners and managers of smaller multi-family buildings.

"We have worked closely with Fannie Mae to put together the people - community leaders, owners and lenders - necessary to develop a program that meets the credit needs of smaller apartment buildings in our neighborhoods. We look forward to continuing the process of preserving and improving our neighborhood," said Dalma de la Rosa, vice president of UNHP and secretary of the NWBCCC.

"I think the mini-loan experiment will be great for The Bronx. It will provide funds for the owners of the smallest multi-family buildings, a segment of the market that may be the least served by conventional financing sources," said Richard Eaddy, deputy borough president of The Bronx.

While the mini-loan experiment will provide financing for small multi-family properties throughout The Bronx, Fannie Mae and its lender partners will place a particular focus on the densely populated urban community of the Northwest Bronx. More than 90 percent of that community's housing stock consists of multi-family units, and a majority of the neighborhood's 400,000 residents live in multi-family buildings.

Virtually all of the small multi-family properties in the Northwest Bronx - representing nearly 21,000 units, according to UNHP - are in need of some level of rehabilitation. Owners of small multi-family buildings say it is especially difficult for them to find affordable financing for their properties.

"The creation of new housing finance solutions for the low- and moderate-income communities of the Northwest Bronx is an important business opportunity that will allow Fannie Mae to address the financing needs of the owners of small apartment buildings," said Charles Jones, deputy director of Fannie Mac's New York Partnership Office. "Whether they are for-profits, non-profits or first-time 'mom and pop' borrowers, they all have experienced difficulty in obtaining small loans for their small buildings."

Michael Lappin, president of the Community Preservation Corporation (CPC), one of the initial lenders in the experiment, said 'Financing small multi-family buildings presents many challenges - the small number of units, management experience of the owners, and rehabilitation requirements of the properties - all can make this type of financing more difficult. CPC is extremely pleased to work with Fannie Mae to increase the availability of funds for these types of properties."

The Chase Community Development Group and Republic National Bank will be the other initial lenders originating multifamily mortgage loans in the experiment Loans will be delivered to Fannie Mac in pools of at least $1 million and converted into Mortgage-Backed Securities (MBS). The New York City Residential Mortgage Insurance Corporation (REMIC) will provide mortgage insurance for the loans generated under this experiment, and the New York City Employees Retirement System (NYCERS) will invest in the Fannie Mae MBS supported by the loans.

"We are extremely pleased to be part of this public-private partnership that will allow a New York City pension fund to make investments in multi-family properties requiring loans as small as $100,000," said Alan G. Hevesi, comptroller of the City of New York, who administers the investments of the City's pension funds.

As a further demonstration of the partnership and cooperation that the City of New York has provided in the development of this experiment, REMIC for the first time will issue its mortgage insurance at the permanent loan closing with evidence that the lender has applied for the city-sponsored J-51 Tax Abatement. Fannie Mae, also for the time, will accept delivery of multi-family loans with REMIC insurance and before J-51 benefits are fully approved. J-51 can significantly reduce real estate taxes on properties and may help ensure that the rental units financed remain affordable to moderate-income renters.

"In over 20 years of administering the program, New York City has never failed to grant J-51 tax benefits to a building owner that has properly filed an application," said Richard Roberts, chairman of the REMIC board of directors and Commissioner of the Department of Housing Preservation and Development. "We think this is a great example of a public-private partnership."