Many explanations are being offered for the fall of Signature Bank. Massachusetts senator Elizabeth Warren erroneously blames Donald Trump and the 2018 legislation he signed easing financial regulations imposed by Dodd-Frank. Dodd-Frank’s partial namesake, former Massachusetts congressman Barney Frank, blames cryptocurrency. But there’s one culprit at least partially responsible that no one is talking about: New York’s Housing Stability and Tenant Protection Act of 2019 (HSTPA).
As I’ve previously stated, the law has worsened quality of life for tenants and exacerbated the state’s housing shortage. But it has also adversely affected Signature Bank.
The Real Deal, a real-estate media outlet, recently noted, “Signature was one of the largest lenders to rent-stabilized buildings, which have seen their values drop since New York state lawmakers passed reforms in 2019 limiting rent increases. The legislation drastically reduced the amount of money that lenders could make from these loans — and increased the risk of delinquency.”
Signature executives initially downplayed the impact of the rent law’s overhaul on its portfolio but soon began feeling its effects. As the Real Deal, noted, “a typical five-year loan made in 2018 will mature this year, meaning many of Signature’s customers who borrowed against properties at peak value will be forced to refinance this year at lower values and much higher interest rates.”
This complicates the Federal Deposit Insurance Corporation’s (FDIC) efforts to sell the outstanding $4 billion of deposits and $60 billion of loans pertaining to Signature’s digital-banking business excluded from the sale of its assets to New York Community Bancorp’s Flagstar Bank.
Now, progressives in Albany want to impose what would effectively be universal rent control across the entire state that would force many small landlords out of business and make the housing crisis even worse than it already is. Signature’s woes are another reason to reject this ludicrous proposal.