Gov't (FHA) propping up Manhattan Condos
Started by ante148
over 15 years ago
Posts: 70
Member since: Apr 2008
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3.5% down on 3mm condos - where is the deleveraging? maybe this is old news - but I had no idea.. wow! “We need as many sales tools as we can have these days, and it’s one more tool.” "The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent" “Something has to happen for this product to be marketable,” Miller said. “I... [more]
3.5% down on 3mm condos - where is the deleveraging? maybe this is old news - but I had no idea.. wow! “We need as many sales tools as we can have these days, and it’s one more tool.” "The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent" “Something has to happen for this product to be marketable,” Miller said. “I just find the whole thing ironic that FHA is providing financing for luxury housing.” And the best quote of all... “The savvy developers did it first,” ...if they were so savy they wouldn;t need the gov't!! “The government is taking on more risk,” said Guy Cecala, publisher of Inside Mortgage Finance. “That’s the bottom line. They really can’t say no, because that’s their purpose. It’s to support the housing market when there’s no other funding.” Manhattan Luxury Condos Try FHA Backing in Sales ‘Game Changer’ 2010-08-13 04:01:01.7 GMT By Oshrat Carmiel Aug. 13 (Bloomberg) -- Whitney Gollinger, marketing chief for a Manhattan condo building with an outdoor movie theater and panoramic city views, is highlighting a different amenity to spur sales: the financial backing of the federal government. The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million. “It’s a government seal of approval,” said Gollinger, a director at the Developments Group of New York-based brokerage Prudential Douglas Elliman Real Estate. “We need as many sales tools as we can have these days, and it’s one more tool.” The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is providing a lifeline to new Manhattan luxury condominiums after sales stalled. Buildings featuring pet spas, concierges and rooftop lounges are applying for agency backing to unlock bank financing for purchasers. The FHA guarantees that if a homebuyer defaults on his mortgage, the agency will pay it. At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing since the agency loosened its financing rules in December, according to a database of applications kept by the U.S. Department of Housing and Urban Development. The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent. About 1,900 apartments in New York’s most expensive neighborhoods would be covered by the applications. Filling a Void The agency also offers insurance to half of all mortgages in a single building after previously setting a limit at 30 percent, according to the new standards, which expire in December. The entire property must be approved for a buyer to get backing. Most of those that applied in Manhattan are buildings converted to condos or built since 2007. The FHA is filling a void left after mortgage-finance agency Fannie Mae tightened its condo lending standards last year. The Washington-based company won’t back loans made in new buildings where fewer than 51 percent of the units are in contract, sometimes setting a requirement as high as 70 percent. That in turn makes mortgage lenders hesitant to make loans at developments under those thresholds, said Orest Tomaselli, chief executive officer of White Plains, New York-based National Condo Advisors LLC, which advises condominiums on how to adhere to Fannie Mae and FHA standards. ‘Not an Accident’ “It’s not an accident that the FHA is offering this -- not private lenders,” said Christopher Mayer, senior vice dean at Columbia Business School’s Paul Milstein Center for Real Estate in New York. “An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.” In New York City, the priciest urban U.S. housing market, the FHA insures loans of as much as $729,750, and permits buyers to borrow up to 96.5 percent of the price. No buildings in Manhattan applied for FHA recognition between 1998 and 2008 -- though in those years the program didn’t require an entire property be approved and condo buyers could seek FHA-insured loans on their own, Tomaselli said. New development in Manhattan represented 23 percent of the sales market in the second quarter, compared with 35 percent two years earlier, according to New York appraiser Miller Samuel Inc. About 8,700 new apartments in the borough were empty as of June, partly because of a lack of available financing for buyers, said Jonathan Miller, president of the firm. ‘Ironic’ Move “Something has to happen for this product to be marketable,” Miller said. “I just find the whole thing ironic that FHA is providing financing for luxury housing.” The FHA loosened the condo rules because of “market conditions,” according to Lemar Wooley, an agency spokesman. “We are certainly cognizant of falling sales prices, limited availability of liquidity, etc., so we wanted to be flexible,” Wooley wrote in an e-mail. “The risk was considered before issuance of the temporary guidance.” The new rules are a “game changer,” said Ryan Serhant, vice president at Nest Seekers International, a brokerage with offices in New York and Florida. He’s marketing 99 John Deco Lofts, a 442-unit conversion project in downtown Manhattan that features a “zen” flower garden and Brooklyn Bridge views. The development, where sales began more than two years ago, had 10 units go into contract with FHA backing since approval in March. The FHA suspended its support for the building Aug. 3, according to the agency website. The property is working to have it reinstated, Serhant said. Eager for Approval Angela Ferrara, who markets the Sheffield condos on West 57th Street, checks every day whether the 597-unit property, which applied to the FHA in May, has won approval. Ferrara, vice president of sales for New York-based the Marketing Directors Inc., says she is eager to start touting the FHA backing to potential buyers. That’s a reversal from the past, when government loan programs weren’t necessary -- or advertised. “People would get the wrong idea, and think it was a different type of government-subsidized product,” Ferrara said. “It was almost regarded as a negative, particularly in the luxury properties.” Now, she said, “It’s actually became a widely accepted marketing tool.” The Sheffield promotes amenities such as concierge service, a pet spa and massage rooms, according to the project’s website. A neighborhood guide on the site lists chef Thomas Keller’s four-star restaurant Per Se as a nearby attraction, along with Lincoln Center, Carnegie Hall and Tiffany & Co.’s flagship Fifth Avenue store. ‘Great Solution’ The Sheffield’s owner, New York-based Fortress Investment Group LLC, took over the condo conversion project in foreclosure last August after the original developer, Kent Swig, defaulted on a loan. With 56 percent of the converted units sold or in contract, the building has about 230 units left to sell, Ferrara estimates. FHA is “definitely is a great solution right now,” said Tomaselli of National Condo Advisors, which prepared the FHA applications for Tempo and Sheffield. “The savvy developers did it first,” Tomaselli said. “But everybody else is catching up.” In the borough of Brooklyn, FHA support accounted for half of the 29 units sold at the 111 Monroe condos in Clinton Hill and a quarter of apartments in Williamsburg’s NV building, which is sold out after two years on the market, said David Behin, executive vice president at the Developers Group, a New York brokerage for new buildings. Limits to Success The FHA’s effectiveness will be limited in Manhattan because apartment prices are higher than in Brooklyn and the insured loan is capped at $729,750, Behin said. The median price of a Manhattan apartment in a new development was $1.4 million in the second quarter, according to Miller Samuel and Prudential Douglas Elliman. “With apartments over $1 million, FHA isn’t going to help you,” Behin said. “You’d have to put down 30 percent to get the loan of $729,000. And if you have 30 percent to put down, a bank will loan to you without FHA.” Borrowers backed by FHA are essentially buying mortgage insurance, said Debra Shultz, managing director at Manhattan Mortgage Company Inc. in New York. Buyers pay an upfront premium of 2.25 percent of their loan value, and a monthly fee equal to about 0.5 percent of the loan amount for at least five years, she said. Nationwide, the FHA insured 21 percent of all mortgages made in the second quarter, or $71.4 billion worth of loans, according to Geremy Bass, publisher of the Inside FHA Lending newsletter. That’s close to the $79.5 billion total value of all FHA-backed loans in 2007. Rising Defaults Nine percent of all FHA-insured loans were 90 days or more past due or in the process of foreclosure in the first quarter, compared with 7.4 percent a year earlier, data from the Washington-based Mortgage Bankers Association show. The agency doesn’t require a minimum credit score for the mortgage insurance, though many lenders who fund the loans insist on a rating of at least 580, said Shultz. The FHA is considering a minimum required score of 500, according to a notice the agency filed in the Federal Register on July 15. A person with a 500 rating is in the lowest one percentile of credit scores nationally and was likely delinquent on several accounts in the last year, said John Ulzheimer, president of consumer education for Credit.com, a consumer and credit education company based in San Francisco. Taking on Risk “The government is taking on more risk,” said Guy Cecala, publisher of Inside Mortgage Finance. “That’s the bottom line. They really can’t say no, because that’s their purpose. It’s to support the housing market when there’s no other funding.” Until they heard about FHA, Asha Willis and her boyfriend, Cesar Rivera, didn’t think they would buy a place for at least five years -- enough time to save a 20 percent down payment, she said. The couple reasoned that they earned enough to make monthly mortgage payments, and began an apartment search in February, limiting their hunt to buildings with agency backing. Willis, an attending physician at Maimonides Medical Center in Brooklyn; and Rivera, a sales associate at Chelsea Piers in Manhattan, toured several glass and steel high rises and decided on a one-bedroom at Toll Brothers Inc.’s Two Northside Piers in Williamsburg, Brooklyn. It didn’t have FHA approval at the time, but developers promised it was on its way, Willis said. Contract Contingency “Our contract had a contingency that if they weren’t FHA approved we could get out of the contract,” said Willis, currently a renter at Manhattan’s Stuyvesant Town. Prices at the building range from the “high $300,000s” to more than $2 million, according to Adam Gottlieb, project manager for Northside Piers. The property, which began sales in October 2008, received FHA approval in June. Shultz, whose Manhattan Mortgage has sourced FHA loans for buyers in Brooklyn, the borough of Queens and on New York’s Long Island, said the last month brought a sudden surge of calls from would-be buyers seeking FHA insurance for Manhattan purchases. “It’s definitely breaking through to the Manhattan market,” she said. At Tempo, which is still under construction, developers are hoping that FHA approval will appeal to buyers of lower-priced units and inch the number of contracts signed to the 51 percent that conventional mortgage lenders require, Gollinger said. About 15 percent of the 98 units are under contract. The developers plan to tout FHA support in e-mails and other promotions in a sales push next month as the building nears completion, Gollinger said. “I never even dealt with this,” she said. “All of a sudden it became an absolute must.” [less]
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Nothing better than a few developers lobbying local politicians for their own express benefit. Will be interesting to check out the campaign donations. Hopefully tax payer money will not be at risk.
Huh? How can taxpayer money not be at risk already?
If the government is providing an insured mortgage the tax payer is at risk.
And the government IS providing an insured mortgage already, both here and elsewhere, right?
Inonada, your argument is that essentially since the gov't has assumed mortgage credit risk elsewhere, it should do so in more instances and more often. And 3.5% for a Manhattan condo is a high risk proposition. Even the GSE's have stricter standards.
Again, this is being done at the urging of developers who have successfully lobbied local politicians who no doubt will be looking for future campaign support.
What are you talking about? I'm simply asking why you implied taxpayer money is not already at risk. Because you think a realized loss is required to be at-risk? I am merely trying to understand your use of words.
FWIW, I think (and have thought for many years, even before the crash) that the government should be out of the mortgage business as it distorts the market and greatly fueled the bubble. Something akin to the op-ed by Poole here would make me happy in regards to Freddie/Fannie:
http://www.nytimes.com/2010/08/12/opinion/12poole.html?_r=1
I agree with you , the government should get out of mortgages, but the calls for this are not realistic. Getting the government out of the mortgage business will take years. Any solution with Fannie/Freddie will most likely involve changing the name on the front door and continuing business as usual. I read the Poole thing, he's smoking something. The gov't right now represents north of 90% of the mortgage market. I just dont' see why we should be increasing it at this time and every gov't action we see with regards to lowering interest rates or engaging in new loan modification programs will only chase away investors from supporting/investing in this market in the future. A rational investor can only demand greater premium to compensate for the incresed prepayment and default risk associated with all the gov't intervention in both the conforming and nonconforming mortgage market.
8700 empty new condos in Manhattan? Then how can inventory really be 11,000? More proof that numbers are skewed by shadow inventory.
I imagine the default rate for FHA buyers in Manhattan will be significantly higher that the average 9.4% due to higher carrying costs and higher costs of living. I wouldn't touch an apt in any of these FHA buildings -- not even for investment. The problems these buyers cause when they default are well documented in other cities.
inventory is 7116...that does NOT count shadow stuff where the developer keeps unsold inventory off market with no record or no status. Inventory is 7116 for all rebny active listings that are being updated regularly, have a record, and are set to an ACTIVE state
I agree with you Ino. They need to phase out FHA loans because it is artificially propping up the entire market. Right now banks and private institutions don't want to hold 30 year mortgages because that is the work of the FHA. So they are pushing jumbo buyers into 5/1 year arms --with great rates. Except what happens when the 5 year gig is up? Another leg of the melt down? I am trying to refi now and every single person I talk to is pushing 5 years like it is the second coming.
The market will never normalize if FHA can't even draw the line at luxury housing.
Urban: do you have an educated guess for what percentage of the 8700 empty new condos might be reflected in the 7116 inventory? How many of the 7116 inventory are condos -- new or old?
The facilitating of 97% LTV loans is bad news. The borrowers will have virtually no skin in the game a great deal of incentive to default later on should values decrease. In such a situation the owner will undboutably stop paying common charges and their will no equity in the property. There will be less rcourse available to the building other than to engage in a plenary action.
knowing the data issues behind the scenes, redundancies, and double counting of listings in two states at one time (think ACTIVE + OFF MKT at same time or ACTIVE and CSGN at same time), I would not quantify the level of shadow inventory unless we did it using our data cleansing algorithms. But right now, we did not attempt to measure shadow inventory, only off mkt.
So for the '8700' question, I really dont know. Im not sure its that high. Of the 7116 active inventory, I can ask what % is coop vs condo, as of right now, the analytics dont separate them. So, while you can search the UES, 1-2m, 2BTH market, you cant fine tune that to only measure coops or condos...the data would be too small and the charts would look like steps.
If "socialist" Denmark, Canada, the UK, etc does NOT have anything like Fannie, Freddie, FHA, or ANY sort of government mortgage agency, and yet have similar home ownership rates (and in the case of Canada and Denmark, no recent housing bubble) surely the "free market" US can do without it.
All we do is subsidize LARGER houses for higher income people, not MORE home ownership. This is most obvious when you compare the US to Canada and Australia, which also have wide open spaces, similar levels of home ownership at all income quintiles, but smaller homes on average for middle- and upper-middle class owners.
The only reason 96.5% financing is needed is because house prices are too high relative to income.
Manhattan may be a slightly different model due to its appeal to weathly non residents, but in the end it all comes back to income and rent ratios.
tax deductibility of mortgage interest is another form of regressive government subsidy and risk assumption/encouragement
shouldn't be
They could remove the interest tax deduction and have room lower the tax rates. A much better solution which gets the government out of interering with economic allocation of resources of which they have a terrible track record.
RS, Poole is proposing Freddie/Fannie go away over the next 10-15 years. Why do you think he's smoking something? On this, or on something else?
Apt23, the reason banks may be pushing 5/1 ARMs is because it is more profitable for them. Let's use the rates published by Wells Fargo: 5.125% for fixed, 4.25% for 5/1 ARM. Right now, the 30-year Treasury yield is at 3.87%, giving a spread of 1.255% on the 30-year fixed. The 5-year Treasury yield is at 1.47%, giving a spread of 2.78% for the first 5 years, and I assume 2-3% after the reset over 1-year Treasuries or whatever is specified.
I know there are many factors I'm missing, but on the face of it, the 2.78% spread seems a lot juicier than the 1.255% yield. As such, I'm not sure why you think the 5/1 ARM rates are attractive other than it being a lower number.
FHA!FHA! FHA! Lemmings and govt. Marriage made in utopia. Where we will bed 72 virgins and NYC re never goes down!
Shong gets a bigger cut on the 5/1. Don't buy what the bankers sell you.
Inonada, I just don't see it,
If we're talking straight-line over ten years then the private market would have to account for 20% of the mortgage market two years from now. We seem to be moving in the opposite direction. However I'm all for moving in that direction of the government exiting the mortgage market.
Do you see the country willing to end the tax payer taking on the credit risk of other people's mortgages? I don't.
I'd somewhat separate FHA from Freddie/Fannie. In their traditional roles, it seems to me that Freddie/Fannie added to systemic risk because they were subsidizing the entire market. The FHA, on the other hand, only had its hand in a small portion of the market (low income). Although one may debate whether or not we should be encouraging/subsidizing homeownership for lower-income families (or all families for that matter), it seems to me encouraging/subsidizing ala Freddie/Fannie created significant systemic risk (because they do the entire market) while doing so ala FHA did not (because they only do a fraction of the market).
What we are seeing now is triage on the housing bubble. Like it or not, the economic fallout from letting things run their natural course without support would be very bad. So, the government holds its nose and puts its full brunt to stabilizing prices. Make no mistake, if the natural course were allowed, the taxpayer would still be on the hook (think FDIC) AND we kill the economy. If you want to talk about your $100K sitting in the bank as being at-risk money despite your previously-given FDIC guarantee, then there's something to discuss, but otherwise the taxpayer is on the hook.
As such, Freddie/Fannie and the FHA have become the bearers of providing said brunt because it's an easy/practical way of doing it. Pretty everyone agrees that the current solution is not correct longer term, but let's not confuse the mission thrown onto the FHA (prop the entire housing market, which would translate to systemic risk if done forever) with its traditional one (encourage homeownership by low-income families, which probably does not entail large systemic risk).
Which brings us back to the title of this thread. Fannie & Freddie are getting religion on good underwriting (maybe even zealous) and the FHA is stepping in to fill the void lending to luxury condos with 3.5% down.
And it's worse by the way, it was pointed out that the Fed has now gotten into the busness of creating money, something they were never supposed to do. How? By buying Fannie & Freddie Mortgages which will not be guaranteed past a certain point with lines to the u.s. treasury. If the mortgages default, the Fed has essentially created money out of thin air something only the Treasury is supposed to do.
"Do you see the country willing to end the tax payer taking on the credit risk of other people's mortgages? I don't."
Yes. I think the administration, and the legislature, actually see the problem and generally believe it's in the best interest of the country to reduce the roles of Freddie/Fannie long-term. And they are working on getting the masses to see it their way. How do politicians do this? With words: the sheeple are easily swayed by rhetoric, and the politicians know how to dole it out.
I believe we are beginning to see the change in the rhetoric on Freddie/Fannie. The sheeple are for "encouraging homeownership" but are against "heads corporation wins, tails taxpayer loses". The rhetoric has decidedly shifted toward the latter, as has been now planned since the crises took hold (e.g., "we'll deal with Freddie/Fannie when the time is right", i.e., when the housing market has stabilized).
97% LTV loans is ridiculous. Why is this still going on? Disgusting
>they are pushing jumbo buyers into 5/1 year arms --with great rates. Except what happens when the 5 year gig is up? <
Exactly, Apt23. Don't let those SOBs push you into that 5/1 year arm BS. Those "great rates" are sucker rates. Go for a 15 yr or a 30 yr fixed. I hate 5yr loans, ya have to start looking to refi in yr 4 & if rates are high, yer screwed.
>Apt23, the reason banks may be pushing 5/1 ARMs is because it is more profitable for them. <
Exactly, inonada. Lender doesn't give a dang about borrower.
it maka me so mad!!!!!!
Inonada, you may be right.
Backing away from all the rhetoric one typically hears. The adminisrations of both parties have usually been aware of the dangers of Fannie /Freddie. It's the congress that's been the problem. I'm not sure about the legislature. The financial reform legislations hasn't gone as well as it might have.
The Volcker rule got watered down, Geithner has so far refused to craft the rules of how it will be enforced and the new consumer regulator reports to the Fed the same guys who refused to regulate in the first place. And tons of exemptions for derivatives...
I think what we saw with the OTS is a hint of things to come. We heard lots of rhetoric over a failed regulator with lots of funny C.K. Lee footage and AIG. Well they did shut it down, only all the same people are now working for the OCC now and will be in positions of regulatory power. So no that note, I think we'll see new agencies acting in some similar capacity to Fannie & Freddie. I hope I'm wrong. I would very much like to see a private solution here.
"Exactly, inonada. Lender doesn't give a dang about borrower.
it maka me so mad!!!!!!"
I don't know why this makes you mad. Perhaps you should read some Hobbes: "all people are born selfish and will only seek their own interest". Now, maybe it isn't ALL people, but it's a good assumption to have in the back of your mind whenever someone is trying to sell you something.
Inonada, We need a king?
I like the idea of easing financing restrictions on new developments, but I don't see why allowing 3.5% down has to be part of the equation.
If someone is going to put 20% down on a new condo in nyc, they should be able to get financing ---- assuming the appraisal justifies the price, that is.
why is everything always done 1/2 assed?
We need to have the private markets function again. Unfortunately the gov't interventions and programs work against the interest of any money that might come in and scares them off. Why lend at 5% if the gov't is going to come in and force a write-down or pre-mature refinance.
thanks for the Hobbes, read that in 6th grade.
It makes me mad because:
1. borrowers don't know what they're doing & get taken advantage of. Maybe some of them are dumb, but that doesn't mean ya have to bamboozle them, &
2. when they default, it goes on the taxpayer's bill
Dwell,
I've taken out mortgages. I read the docs, I understood it.
It's not rocket science. Maybe they're smarter than you give them credit.
If someone borrows it all, there's not much stopping them from walking away when it doesn't work out.
Inonada -- I'm not sure why you think the 5/1 ARM rates are attractive other than it being a lower number.
I am too conservative for a 5/1 but I gotta say, when you see the dif on the monthlies on your excel, your heart palpitates.
What is weird to me is that it is harder to get a 30 yr. More hoops than getting a 5 yr which sends up alarm bells for me. More shenanigans. I am going to see if it is possible to track the number of 5 yr arms. If numbers of arms go up, we all just might want to short the market in about 4.5 yrs.
howsabout a 7/1?
Couple of things I'd like to point out: FHA loan amounts are limited to $729,750. So someone buying a 3M condo won't be getting an FHA loan.
W67: not true. We don't get paid more for selling certain products. All products are the same and makes no difference to me from a compensation point. Does the bank benefit? Perhaps.
sunny.hong@bankofamerica.com
River,
I'm guessing you're not the type to over leverage or default.
There are a sufficient number who have over leveraged, short-sold or defaulted & this has greatly contributed to (&/or caused) the current crisis.
If so many are sufficiently intelligent, then why'd they buy at bubble prices?
"If so many are sufficiently intelligent, then why'd they buy at bubble prices?"
Peer pressure. "Keeping up with the Joneses" is the American way. That and intelligent people often do stupid things. That's being human I guess.
so now, the FHA will insure the mortgage, and then the FED will buy it after it has been originated. What's left for banks? For once i feel like a lobby group is pulling for ME, the "system" is working/rigging for ME! LOL. Can't complain if it keeps OUR real estate UP!
Seems to me this comes a year and a half late for Manhattan -- at this point our mortgage crunch is over, and it's pretty easy to get conforming loans.
ali r.
DG Neary Realty
Mortgage standards are still tight in Manhattan. For most its 30% down if they want to buy and that doesn't address all the new rules the government has introduced into the mix.
What new rules? Income verification?
http://www.cooperator.com/articles/2114/1/Squeeze-Play-/Page1.html
"The most onerous of the new requirements are mandated reserve fund contributions, a 15 percent limit on condo fees delinquencies, and the specification that the condominium itself obtain FHA approval—this resulting in reams of additional paperwork for community associations."
How does this effect sales in Manhattan? Mandated reserve requirement is 10%---hardly a back breaker. Would you buy into a condo that had more than 15% delinquency on fees? I wouldn't.
This is yet another example of your over the top generalizations and exaggerations meant to get a rise out of people.
Stop it.