NYC lenders tightening lending standards

JPM has been a higher-priced, more skittish lender all year long. But First Republic is also tightening standards, according to my discussions.

From the article:

“Every single lender is ratcheting up their risk requirements. Right now, if you look out 24 months, can you say what the value of a new construction condo unit would be in Manhattan? I would think that a lot of these units would see a greater than 30% reduction in price.”

https://www.bloomberg.com/news/articles/2020-11-06/manhattan-apartment-weakness-spurs-tighter-jpmorgan-jumbo-loans

Bank of America put this policy of 30% down in place back in the spring. they essentially put all their mortgage bankers on a monthly stipend, as they were allowing very little lending activity. My understanding is the bank was slightly panicked by the very high percentage of mortgagees who deferred their mortgage payment during the pandemic.

Wells Fargo and Citi have been excellent of late. We recently(last week) had three clients lock in jumbos at 2.3% on a 30-year fixed, this required a $1 million deposit (Wells).

Keith Burkhardt
TBG

Wells gives 0.5 points off for relationship pricing at the $1m level, so 2.3% seems about right considering the 30 year is at 2.8. They also have much better tech than Citi. The Citi application process is a huge pain that I hope never to repeat.

That said, when I spoke to Wells about an NYC property during the crisis, they were tighter than several other banks, and tighter than they later proved to be in Nowhere. I think they tightened faster than others in NYC, and others have now caught up.

So annoying that purchase rates continue to be much more aggressive than refi rates.

This will change. Purchase is much more profitable for everyone involved. With the ops overwhelmed, banks are focusing on purchase by raising prices on refi. Once purchase slows, refi rates will come down.

I told y'all this was coming. But what do I know?

"The change suggests JPMorgan sees more price declines to come in the borough. It could also depress deals further by forcing buyers to come up with bigger downpayments when they are already stretching to purchase in one of the costliest U.S. housing markets."

Unless sellers know something JPM doesn't, this is a pretty telling indicator of where the market is likely headed. Of course, forcing 30% downpayments makes this a bit of a self-fulfilling prophecy.

What have people been saying is causing downward pressure on Upper Eastside Coop prices? High cash requirements (along with other financial constraints like post closing liquidity, etc but banks are also raising credit restrictions as well as down payment requirements).

A 30% down loan gives greater flexibility in assembling securitized loan portfolios. The article should have said: "The change suggests JPMorgan needs to have more high quality debt to drive their loan securitization business, as buyers of those securities look to have less low-quality exposure to the urban markets, and JPM wants to avoid the capital charge incurred by holding higher risk loan portfolios on their own books."

In an interview with Bloomberg yesterday Bruce Richards of Marathon Capital talked about picking up loan packages from banks who wrote them but didn't qualify for MBS pipeline.

@Aaron: I don't think that changes anything about where people feel the market is headed. When normal Manhattan mortgages are considered "low-quality exposure" by bond buyers, that's not exactly a vote of confidence on where they think the market is headed.

You can use all sorts of criteria to judge risk of a mortgage (bad credit, etc) but in my experience being underwater trumps any grading of how credit worthy the borrower is. Since in practice all residential mortgages in NY (and most other places) are non-recourse even "high quality" borrowers have a tendency to walk away when they no longer have skin in the game. And while everyone points to subprime mortgages to blame the financial collapse and Great Recession on, when it comes to foreclosures they were much higher in the Prime sector.
https://www.nber.org/digest/aug15/us-foreclosure-crisis-was-not-just-subprime-event

For a loan amount up to $1,265,000, one could get a high balance Fannie loan, then a second HELOC.
For purchase, up to 85% LTV.

@30 yrs
When did NYS become non recourse?

In theory you can get any loan for anything. The question is what rate. 85% HELOCs aren't exactly cheap and plentiful.

streetsmart,
NB I said in practice for residential loans. How many cases are you aware of where banks went after residential borrowers for deficiency judgements where there wasn't fraud in the inducement?

Also note how NYS defines deficiency in foreclosures.

Hard to argue how this is good for the market but I wonder how much of a difference it will really make. I had to put 30% down in 2017 to get the best rate on a jumbo loan.

Would be interesting to see data over time for the amount being financed. I was always under the impression that a big chunk of the market was cash deals anyway, but maybe that has changed.

I think some of the claims of the percentage of all cash deals were overstated because you had foreign buyers using shadow financing to avoid paying mortgage recording tax.

My HELOC lender has a maximum rate of 2.99% depending on FICO score, 30 year term, First ten years draw period, no early termination fee. This of course is not a fixed rate loan, but I think it still is a good deal. With a Fannie Mae first, there are no reserves required.

@30 yrs., yes lenders don’t usually do deficiency judgments, but I haven’t kept up with this lately. But there are non recourse states, and NY is not one of them.

My point was that if lenders don't go after deficiency judgements then borrowers are going to behave as if the loans are non-recourse. Add to this if lenders wish to avail themselves of expedited foreclosure in NYS (which pretty much all of them do) there is a condition they wave deficiency judgements, and that in NYS "deficiency" isn't defined as "loan amount minus sales price" but rather "provable current value minus sales price."

I remember in 1987 I bought an apartment in Lincoln Towers For $339,000 right before the stock market crash. This was then considered a lot of money. When the 1987 stock market crash happened, the real estate market changed, (Before that it was pretty hot with about 12% interest rates) but it didn’t crash until 1991; true prices dropped a bit after the stock market crash. In hindsight I see that this was the worst real estate crash I have witnessed, worse than the financial crisis. Prices dropped about 30%, but the market didn’t turn around until about 1998.

I've given a similar timeline here many times so I agree. However segments of the market fared much worse by 1992 than down 30%. I don't know if I can count how many foreclosures I sold in Tudor City between $8,000 and $20,000 each. At 200 West 20th St which converted in 1989 with outsider prices between $90,000 and $120,000 (approx) I sold 6 studios in the first 6 months of 1992 between $27,000 and $42,000. Banks walked away from Coops they were foreclosing on rather than pay the back maintenance. I won't bore everyone again with the details of the 2 BR we bought in Crown Heights for $2.50. I could go on but I'm sure I've already overstayed my welcome on this subject.

I know brownstones in south Harlem for $1 too, but that was the good old days like when gold was $23/ounce , you will never be able to catch again

Yes, and when will we ever see the local utility buying and renovating brownstones in neighborhoods? (see Brooklyn Union Gas' "Cinderella" project in the 1960s).