Great zombie combo piece...Rushmore?

My take is if the sponsor believes he has some shaky deals that won't close and NEEDS THE 71% threshold. He'll delay as long as possible the iffy closings so he can hold them up to the bank as signed but not closed... Urban diggs follows.. Zombie Condos: The Mortgage Zone Posted by Jeff Bernstein on May 17, 2009 at 8.28 PM Zombies.jpgI thought I would share some more information from the Zombie... [more]

My take is if the sponsor believes he has some shaky deals that won't close and NEEDS THE 71% threshold. He'll delay as long as possible the iffy closings so he can hold them up to the bank as signed but not closed... Urban diggs follows.. Zombie Condos: The Mortgage Zone Posted by Jeff Bernstein on May 17, 2009 at 8.28 PM Zombies.jpgI thought I would share some more information from the Zombie condo study we continue to work on here at Guild Partners. As we try to quantify sell-out velocities on the condominium projects that are in the unenviable position of trying to sell in this environment, we are picking up some data points that I think are relevant to our potential condo buyers here at Urban Digs. So here goes: In most of the buildings we have looked at the pace of sales has slowed considerably in 2009. In fact, in one, there have been no sales in 2009 (where a sale is defined as the filing of a deed....and frankly we have no way of knowing what the normal elapsed time is from closing to deed filing, so these sales could have actually closed last year). Considering the hurdles thrown up against getting a mortgage in a building that is not 71% sold, I am sure you won't be surprised to know that in the buidlings we have researched at least a third of the units sold since the close of 2008 were bought for cash (or least no mortgage has been registered yet). You might also be surprised to know, that considering the state of the market, it only looks as if 10% or so of the units sold were sold to bulk buyers/investors, and that is only if one assumes that every unit purchased by an LLC, Corporation or LP is an investor. I am sure there are reasons why someone, especially the very wealthy, might buy one of these units through a partnership, even if they planned to live in it. Just to briefly review the current state of affairs as it pertains to mortgage financing of condominiums; Fannie Mae has declared New York City to be a declining market, and as a result, their policy is not to allow conforming mortgages to be made in buildings with fewer than 71% of the units contracted for (note this is contracted for, not closed). Now savvy Urban Digs readers know that Fannie doesn't do Jumbos and that many condo sales in New York City fall into the Jumbo bucket anyway (despite the boost to the Jumbo definition enacted under the Economic Stimulus Act of 2008). However, most big banks take their underwriting cues from Fannie Mae (titter titter), and so they have also adopted the 71% rule, at least from what I have been told. So, I was curious to know what mortgage lenders, if any, were lending in the condominium buildings we are looking at, and what kind of Loan-to Value ratios (LTVs) they were accepting. So which lenders are extending mortgages to those buying in condo buildings in New York City. I have actually compiled a list of the lenders who have lent to buyers in the buildings we are researching, where the mortgage was filed since January 1. Now recall, the only data I have is on actual sell outs of units indicated by a deed having been filed, I don't actually know how many contracts have been signed in a building (and frankly, contracts don't seem to be worth that much in this environment because people want out of them and exploiting lost of loopholes to get out). As a result, the list of lenders I am going to share with you is not necessarily a list of folks who will do loans in buildings that are not 71% contracted, but they are folks intrepid enough to do deals in new condos where from our research, more than 1/3 of the potential sales haven't closed. So here is the list. Zombie%20Mortgages.jpg As you will notice, there are a couple of lenders on this list who aren't exactly household names, and many are very local players. Interestingly, where these institutions have been making loans they are all taking a very similar approach. They are lending at low loan to value ratios, that is, the median loan being made is just 59% of the purchase price of the condominium. Now this makes a lot of sense (banks doing something sensible?....I know). The big worry for a bank lending to a new condo with lots of unsold inventory is that anyone who wants to sell will be creating like unit to like unit competition and could potentially drive the value of a particular condominium configuration in a building way down, in their search to find liquidity. By lending a smaller percentage of the purchase price, banks insure that if they have to foreclose on a unit and sell it they won't take too big bath. Interestingly, the highest LTV loan made by anyone except Wells Fargo, was a 77% LTV loan by Patriot National (a small well run Connecticut bank), and this loan is still a bit below the classic (or now back in fashion) 80% LTV loan. Further, Wells Fargo who is the only one doing 80% or higher LTVs, is letting customers get this leverage level by using 2 seperate loans. My guess, although I don't have a way of verifying this, is that the second loans are much higher interest rate second liens. I personally have an issue with this way of thinking about underwriting, which I will be writing a piece about, but suffice it to say that in many corners this would still be viewed as a more conservative method than giving a straight out 80% LTV loan. So there you have it, even if you can't afford to be an all cash buyer of a condo these days, you may be able to find a low LTV mortgage. You might even be able to find a lender who will lend on a condo in a building where less than 71% of the units have been closed (or may even be in contract). There are bargains to be had out there. Condo developers have turned to bulk investors to move product indicating a willingness to flex on price to move units. * Comments (1) * Permalink * Add to del.icio.us * Digg this! * Add to Technorati * Add to Reddit Fitch Slashes Prime RMBS to Junk Posted by Noah Rosenblatt on May 15, 2009 at 3.41 PM A: Not that it matters right? Green shoots, green shoots! Hey bartender, pass the kool-aid, Jo-Bu needs a refill! No surprise here, expect more as time goes on and the problem expands to higher quality debt classes. jobu.jpgVia HousingWire.com, "Fitch Slashes Prime RMBS to Junk": Fitch Ratings downgraded multiple Citigroup Mortgage RMBS series from triple-A to junk today after placing them on negative rating watch. The ratings agency made the downgrades as part of an ongoing review of prime and Alt-A RMBS transactions as the housing downturn continues to unwind. Many of the vintage 07 series involved in Citigroup’s RMBS downgrades migrated to double-C from triple-A but several made the leap to triple-C from triple-A. The agency also slashed five series of Bear Stearns RMBS from triple-A to double-C, and one from triple-A to triple-C. Bank of America Funding’s RMBS on the most part maintained its triple-A rating, although a single series previously placed on negative ratings plunged from triple-A to triple-C. Fitch recently revised its surveillance methodology for prime and Alt-A residential mortgage-backed securities to incorporate ResiLogic’s mortgage loss and default model, which determines a base-case loss expectation in conjunction with a transaction specific assessment of the pool’s actual performance. This is the part when performing stuff starts to non-perform, spreading from subprime to alt-a to prime. This is NOT just a subprime problem, and at this stage I don't know how anybody out there can possibly argue this. This is an overall debt problem and includes whole loans on the books of financials in addition to securitized assets that are starting to deteriorate in the higher quality debt classes. I wondered about this when I questioned whether the stock markets were getting the duration of this problem right, in early April referring to Mike Mayo's note that as one class of the banks balance sheet gets cleansed, another deteriorates: Not sure how he confirmed that the whole loans were only marked down to an average of 98 cents on the dollar, but from what I am hearing many of these loans are marked down more and sitting on 'accrual (hold) books', which are marked on the spot based on loan defaults and overall book performance - you are not selling, so mark-to-market is meaningless. By the nature of being a hold book this is nothing new, illegal or other - just how it is. Loan loss provisions are done on a quarterly basis, not as assets stop performing. If the total loans in the book deteriorated 5%, well then the entire book is remarked down 5% from the previous mark or par. It's backward looking. In this regard, Mike Mayo is correct to assume future adjustments because only the eternal optimist would think that higher quality debt classes are completely unaffected by this slowdown; heck the low bids for these loans are telling you that there is downside risk not priced in properly. So it is fairly safe to say that whole loan books considered good with no plans to be resold in PPIP, are behind the curve in terms of their current market value and present a valid concern for the future. In addition, if banks are allowed to suspend mark to market accounting on these loans and carry them at par or close to it then PPIP will have no influence since there will be no upside for the banks to take something off the books. Moving on to the point, while one toxic area of the banks books gets cleansed by PPIP we should expect another area to start increasing in toxicity due to the nature of this crisis. Interesting times ahead as we deal with the second phase of this crisis. [less]