New Development Financing Rule

Currently, pre-sale requirements are 51% (in contract). However, we do go as low at 33% with exceptions. It looks like Fannie Mae and Freddie Mac are looking to increase pre-sale requirements to 70% like it was years ago. Once and if the 70% pre-sale is officially in effect, we hope to have some sort of balance sheet type of program to offset that with lower pre-sale requirements and Im sure other banks will also. But to answer your question, it is 51% today. sunny_hong@countrywide.com

Sunny, is it difficult to borrow 90% on a new development? A friend of mine was in contract for a new development condo in Harlem. She was scheduled to close but the bank revoked the commmittment. She was told that the bank could not get PMI.

Shong- So what if the building is not 51% and you see in street easy a few sitting "in contract" ..are those people in trouble until a few more get into contract to make it to 50%...sorry I'm a little confused..how are people going to buy...cash only...until the 50% is fulfilled...

maraman - Im assuming it was 90% at 417k or below. PMI companies not willing to insure at 90% is a possibility, especially in Harlem. Im sure that bank tried every MI company out there. Has your friend tried a NO PMI option? That may be the other option.

ap2492 - If the building isnt 51% then we would have to request for an exception. Fannie and Freddie are changing the waiver/exception process once they implement the 70% pre-sale which will also include fees. Also, it really depends whether a building is like 45% sold or 25% sold. Exceptions are granted. We would have to take a look at the building, its sales velocity, offering plan, etc. But all in all, if it doesnt meet guidelines then there wont be too many closings. And I say there wont be "too many" because some will probably be able to close through relationships, etc. But all in all, if it isnt 51% then they will have to wait until those number are met.

If anyone is in contract in a building that is less than 51% in contract and that is holding up closings but wants to close, please let me know. Although I cannot promise anything, I am compiling a list on condos with less than 51% in contract that may benefit from new programs we are working on.

Sunny - no it is over $417k.

ap, for new development when you sign a contract hopefully you have a mortgage contingency where you can back out if you can't get financing- this wasn't necessarily the case in the gogo days. so 12 months later when the building is close to finished and you are about to close, you'll get your mortgage. there are no mortgages issued until the apartment is actually there - otherwise, what would the bank use as collateral for the mortgage? so the challenge is to get the "under contracts" on the bldg to 51% just prior to finishing units that need mortgages. though i believe it will get to 70% soon. so if at that time, only 40% of the units are sold, ppl under contract will not be able to get financing and the whole situation will fall apart. if over 51%, then everything proceeds as normal

and the Bank did not want to consider no PMI option.

Well, I dont know any bank that is doing 90% over 417k today. It can because they couldnt get MI or simply because their guidelines changed.

The Bank told her that it was because they could not get PMI and "other considerations". Thanks for sharing your insights, Sunny.

ap2492, i believe that "pre-sale" technically mean in-contract. So, 51% pre-sold means 51% in-contract.
I'm not 100% sure on that but it is my understanding.

To your point, it is next to impossible to pre-sell 51% of the units (or 70% in the near future) in all cash. I think that the banks basically want to see that people committed to at least x% of the apartments.

Sunny, why $417K, why not $650K. Didn't those numbers change in 2009?

elena
(broker)

lobo, you are right. It's not 51% sold(closed) units, it's 51% (or 70%) in-contract.

"Has your friend tried a NO PMI option? "

- what kind of option is that? 20% down or banks still do two loans 80% and 10% as home equity?

Elena, the 417k is still the regular conforming loan limit. However, in high-cost areas such as NYC, the loan limit was increased to 625,500 for 2009. But they are separate programs and have different guidelines. 90% allowed up to 417k and 85% up to 625,500 because of soft markets. Anything above 625,500 requires 20% or more.
As far as the no pmi option, we have programs where you can finance your MI. It is built into your rate. So instead of paying MI, you get a higher rate. Usually payments come out to less and sometimes its advantageous and sometimes not. And its certainly an option when you cant find an MI company to insure the mortgage.

Sunny, is it entire NYCity or just Manhattan (or sertain zip codes)?
Could you please give me a sample of Mortgage Insurance (MI) self-financing program. How does that structured?

thank you

elena
(broker)

The 625,500 is good for all 5 boroughs.
As far as the MI. Here is an example:

With MI:
600k loan at 85% financing at 6% = $3597.30 plus MI of $320 = $3917.30
Without MI
600k loan at 85% financing at 6.5% = $3792.41

As you can see the rate is higher but payments lower.
But it depends on the borrower as to which one is more beneficial.
If a borrower plans to pay down the mortgage and get the loan to value under 80% then they can get rid of the MI. Hence, borrower will have a 6% rate with NO MI at that point.
But another borrower may not be able to pay extra on his/her mortgage and doesnt expect value to increase much and would rather be paying everything to their mortgage at a lower monthly cost than to an MI company.

Hope this made sense.

Sunny,
80% LTV doesn't require PMI.

But at 85% LTV - do you really have a choise to go without PMI just by increasing your rate? Or rate increase comes from restructuring loan as 80% + 5-10% home equity or whatever they did before in order to avoid PMI?

Does $625,500 have to be 80% of a purchase price or it can be 90%?

Thank you
elena

No its as simple as that. Increase in rate at 85% financing witht no PMI. And no 2nd mortgage, 1 straight loan. $625,500 can be up to 85% of purchase price.