Fannie New development regulation - at least 70% sold

Whoah, so everyone currently in contract without a mortgage contingency in a building under 70% (most of em) pretty much loses their deposit if their building doesn't close by March 1st? That's a little nuts. Even if they do close in time how can they sell their units in the future? How in the world does that help anything?

I'd say 70% sold is the nail in the coffin for new development or recent conversions where sponsors undoubtedly hold large % of units. New development buildings will obviously be rented. This could SERIOUSLY reduce the value in those recent conversions.

Yes, looks like the word is out. Fannie and Freddie will be looking for 70% in contract. There hasnt been any official changes although I believe Chase is already at 70% in most cases. We are definitely aware of the 70% pre-sale and will roll out with a portfolio type program to combat that allowing lower pre-sales. If youre buying in a building that may be affected, you can feel free to email me and I will update you with changes. Or Ill update on this site when changes occur. But this will surely eliminate many banks from lending in new coops and condos. And lots of lost contracts. I can only think of a handful of condos that are 70% sold today. sunny_hong@countrywide.com

So...buildings like East Hill who only have under 50% sold....no one will be able to get a loan...?
only those buying without need for a mortgage?

Will this new requirement increase sales at existing buildings? Thoughts?

How can it increase sales if you can't get a mortgage?

If your buying at an existing building you can get a mortgage because the 70% rule does not apply. That was my point.

oh that's true...people will stray away from new shiny developments and go back to older apts and just renovate if needed.....

I would think the nev developments will cut prices so they can reach that 70% sold as soon as possible. The longer they can't close, the longer they will have to pay off their loans with the bank.

Or the new devleopments will just turn into rentals or hotels, like the Jasper did.

Nothing is set in stone yet and there may be some exceptions. We'll just have to see. Right its generally 51% in contract across the board.

'Debra Shultz, director and senior mortgage consultant at Manhattan Mortgage, said she doesn't "really think [the new guidelines are] going to have a huge effect in Manhattan because most of the buyers are highly qualified."'

Gotta luv Debby.

The comment is a) not true (Wall Street), and b) unrelated to the issue, and c) STILL stinks of "Manhattan is special," which I've never believed.

This is HUGE. What it does is to stop new development from holding back inventory, because that will prevent people from getting a mortgage. It will also prevent buildings from being turned into partial rentals if the units don't sell because of:

"2. No more than 10 percent of the units can be owned by one individual, corporation, investor group or partnership."

This would also seem to prevent anyone in a co-op where the sponsor owns more than 10% of units (almost all non-eviction plans, even ones converted decades ago as units can be inherited) from getting a guaranteed loan.

Here come lots of market-rate rentals because under these conditions, in this market, with the demise of Wall Street, the decline in incomes, the risk aversion, no new development is going to be able to get to the 70% threshold.

Except, of course, in Long Island City.

Given the choice between watching customers walk away from closings and offering financing, developers will start to partner with lenders to offer financing on their buildings.

ali r.
{downtown broker}

I agree with Ali - That is if they appraise at the contract price. But usually bldgs work with a lender to make the deals work that are in contract, again if it appraises. Im digging into this a bit more with people I know in lending world. Curious to see what they have to say.

Fannie and Freddie has hinted when they set pre-sales at 51% that 70% wasnt too far away. Ali is right. We have already started partnering up with developments and when 70% hits buyers will definitely have less of a choice in shopping around for a mortgage.

This probably wouldn't affect preferred lender mortgages. This would affect buyers who don't want to go through the building's preferred lender bank.

"developers will start to partner with lenders to offer financing on their buildings."

In this environment, I seriously doubt it. Developers will want to, but banks won't. Why should they take on that risk? It would raise the price of the mortgage to the price of nonconforming loans, even for conforming loans. That guarantee is huge, especially in this market.

There's already a spread between treasuries and agencies, and they're basically the same thing. No one wants risk, and that's not likely to change anytime soon.

Ali, where are developers going to get the money to finance owners? "When your bank says no, Champion says yes!"

"When your bank says no, Champion says yes!"

LMAO.

For those who don't remember the real estate bust of 89-91

http://www.youtube.com/watch?v=lE62JLB9ezI

^^YouTube of the Champion Home Loan Commercial

Great find, 80s!

http://www.championmortgage.com/marketing/home.asp

If anybody's interested.

steve, you are showing again that you don't know what you're talking about. FNMA has different guidelines for preferred lender arrangements. The requirement won't be 70%. It probably won't even be as high as 51%, but that could change. Regardless, the preferred lender bank would not be taking on the risk.

more and more steve is showing that he is what is...an unemployed translator, and not an economic guru that he thinks he is. otherwise, he wouldn't be giving out free financial advice to total strangers on a website.

What are you talking about, LICC? Search on "preferred lender" on Fannie Mae's website and this is what you get:

Results for: "preferred lender" in: Entire Site

We found no matches on your search for "preferred lender".
Please search for other similar terms.

I think you have the wrong term.

Do you mean DUS lenders?

"The requirement won't be 70%. It probably won't even be as high as 51%, but that could change."

Show me your source.

"Regardless, the preferred lender bank would not be taking on the risk."

Of course they take on the risk. The risk is guaranteed for a fee, but the bank assumes the risk.

This, from a self-admitted unemployed ('finished a job and waiting for another to come in') TRANSLATOR.

steve, I'll try to simplify so you can understand - the preferred lender bank would not be taking on the risk in the manner you implied in your comment above, that is the risk of issuing a mortgage not guaranteed by FNMA, as opposed to the lower degree of risk involved in issuing a mortgage that is involved with FNMA.

Keep basing your knowledge on website searches . . .

correction - . . . that is guaranteed by FNMA.

maybe you'd better translate it in Spanish or French first so he can more correctly help you. That is his area of expertise.

LICC, don't just make stuff up. Show me the source of what you're saying.

There is none.

Here is what it says:

"Fannie Mae yesterday informed the banking industry that it would raise the nationwide pre-sale requirements for new co-ops and condominium buildings to 70 percent starting March 1, one of several changes designed to reduce the amount of risky consumer loans in the market, according to documents obtained by The Real Deal."

If it is going to raise the requirements, then why would it reduce the requirements at the same time through some nonexistent "preferred lender arrangement"?

Being tech_guy, you're much like him: you make up stuff, provide no documentation, declare victory and try to move on.

You CANNOT get government-guaranteed mortgages on a building with less than 70% pre-sales. That is a HUGE hurdle. It doesn't matter what lender it comes from.

Moreover, you can't get financing if the sponsor or any other entity or individual owns more than 10% of the units:

"2. No more than 10 percent of the units can be owned by one individual, corporation, investor group or partnership."

Recall that that was a major issue in NYC in the crash of the 80's: sponsors going under because they didn't have enough cash flow to cover their expenses as not enough rent-regulated tenants took up their offer.

The developers may very well get the money to finance the purchasers from the bank that holds the construction loan. East Hill is offerring 90% financing from Commerce Bank. If Commerce Bank provided the commercial loan, it might very well behoove them not to have the developer go tits up (not that I'm saying Commerce did, just saying in general). The rate may be higher but the 90% financing may very well overcome that, then, as shong states, when the building is 70% sold, no more goodies.

Most Manhattan developments are not good examples, because most people need a mortgage greater than the conforming limit to buy an apartment of over $1M. As prices go lower, and in the emerging areas, this could have a much greater impact.

"If Commerce Bank provided the commercial loan, it might very well behoove them not to have the developer go tits up (not that I'm saying Commerce did, just saying in general)"

Maybe, but I wouldn't count on it. With property values falling it might just behoove them not to take on any more risk, take possession of the place and turn it into market rentals.

Or just force the developer to do just that, which is much more likely to happen.

"most people need a mortgage greater than the conforming limit to buy an apartment of over $1M"

Depends on how much you put down.

So steve reads a press release, declares himself an expert even though he has no experience in this area, and then spins as best he can to avoid having to admit he looks stupid. Typical.

Well, what do you expect? He's a translator. Economics/finance - not his area of expertise.

But he can translate 50 words/minute like nobody else on this site.

Steve, obviously it depends on how much you put down. I doubt there are oodles of people out there who have over $400K, who haven't bought, and are ready, willing and able to plunk it down on a new development condo.

" Economics/finance - not his area of expertise."

BA in Economics with Honors from George Washington University.

Sorry.

LICC - where's your source?

aboutready, you're probably right. It was merely a thought. I believe that Fannie's new regulation is going to be the norm, even for nonconforming mortgages. Too much risk in this environment.

Thanks for posting this Daerox. I had seen the headline but had not read the story, and didn't realize what a big deal this is.

For what it's worth, as someone who posts only occasionally: this board is getting really snarky. Almost every new discussion thread if loaded with snark. I'm sure if fun for you snarkees and snarkers, but it's kinda tedious for the rest of us.

snarky.

Luv that wurd!

I love the Stevejhx battles on Streeteasy. For what it's worth Steve, I think you held on pretty well on this one. So far anyway! Keep up the fight.

posts from stevejhx:

" Economics/finance - not his area of expertise."

-BA in Economics with Honors from George Washington University

-And it is true, Columbia University

For someone with an alleged undergraduate degree from two universities, it is very strange that stevejhx ended up as an unemployed (sorry, he likes to call it 'waiting for another job') translator. Anyone who actually listens to his advise is as foolish as the billionaire Madoff investors.

Whatever the housing market is, was, will be is irrelevant. Consult with a real professional if you are quandering buying/investing in RE. This guy claims to have an education in economics, yet chose to apply that education and be a professional translator, who is currently 'waiting for another job'.

Why would anyone who educated in economics spend 80% of their time giving FREE financial advise to complete strangers? I don't feel sorry for him, I feel sorry for anyone that entertains his lunacy.