MORTGAGE rates have dipped to their lowest levels in decades, but getting a mortgage in New York City these days often has less to do with buyers’ finances and more to do with circumstances beyond their control.
Your Money Guides
‘TORTUROUS’ Norman Calvo, the president of Universal Mortgage, says banks are now requiring documentation from buildings as well as home buyers.
Even if a prospective buyer has impeccable credit and reliable income, many banks are refusing to make loans if they don’t like what they find when they review the finances and bylaws of the building where the purchaser hopes to live.
Among the matters under scrutiny: the dollar amount and type of insurance a building has; the size of the building; the size of the apartment; and, in the case of new developments, the number of apartments sold and closed.
Mortgage brokers, real estate lawyers and agents say that the roadblocks some banks have thrown up seem almost arbitrary. “Banks are asking questions that I’ve never heard anybody ask before,” said Roberta Axelrod, the director of residential sales and rentals at Time Equities, a real estate developer and landlord. “They’re looking in much more detail into specific aspects of the buildings.”
Mortgage brokers say that bank requirements seem to change week to week and vary greatly from bank to bank. Many of the banks are responding to directives from Fannie Mae and Freddie Mac, two government-sponsored agencies that resell packages of loans to investors. Most of the requirements have been on the agencies’ books for years, but the credit crisis has prompted them to adhere to them much more rigorously than in the years when the real estate market was booming.
“It’s gotten torturous,” said Norman Calvo, the president of Universal Mortgage, a broker with offices in Manhattan and Brooklyn. “It’s still possible to get a mortgage, but the documentation required now is monumental because the questionnaires and insurance documents needed have to come not just from the purchaser but from the building, too.”
Mr. Calvo said he recently spent hours on the phone on behalf of a prospective buyer in an eight-unit building in Brooklyn, pleading with a major bank to ease off on its demand that the building be insured for a replacement cost of up to $2 million in the event of a boiler explosion.
“The whole building was only worth $796,000 and the boiler only cost $5,000 to replace, so the insurance company told us it was impossible to get that kind of replacement coverage,” he said. “But the bank wouldn’t budge.”
Smaller regional banks tend to be more forgiving because they are more familiar with the local market, mortgage brokers said, but they often cannot provide deals as attractive as those offered by larger national lending institutions.
While mortgage brokers can help buyers wade through the guidelines, buyers may be better off in some cases going directly to banks. Many large banks, including JPMorgan Chase, Wells Fargo, Citigroup and Bank of America, are for the most part no longer offering loans through mortgage brokers, preferring to have borrowers work directly with their own loan officers.
Banks of all sizes are now carefully reviewing the insurance policies that co-ops and condominiums hold, specifically to see whether a building has fidelity bonding, which is insurance against theft by property managers or by the building’s board of directors; whether its insurance has an A rating; and, if a building is in a flood zone, whether it has adequate protection.
The standards set by banks often put smaller buildings at a disadvantage. Many of them, for example, do not have fidelity bonding or may have insurance rated A-minus or even lower. (The ratings refer to an insurer’s ability to meet its obligations to policyholders.)
Avi Fisher, who recently sold his co-op in downtown Brooklyn, said he went through a few weeks of nail-biting uncertainty when his buyers informed him that their bank would not close on their mortgage because the 20-unit building had insurance rated only A-minus. “I talked to our property manager and he said this was going to cause a wave of problems all over New York because most buildings have A-minus insurance,” he said.
The buyers went searching for a bank that would make the loan despite the insurance rating and eventually found one, Mr. Fisher said. “I think they wound up going to the bank that owns the underlying mortgage on the building itself, so it worked out,” he said.
In neighborhoods like Battery Park City, which is in a flood zone, banks are now demanding very high levels of flood insurance.
Luigi Rosabianca, the principal of Rosabianca & Associates, a real estate law firm that does much of its business in Battery Park City, said that as a result, many buyers are finding that they have to add flood insurance to their homeowners’ insurance even if they’re buying an apartment on a high floor.
“The banks are concerned about buildings’ not having enough insurance for full replacement if there is a flood,” he said. “In the past, you always hada difficult bank now and then, but you didn’t have all the banks being difficult.”
Depending on how much coverage a bank requires, the additional insurance might cost a one-bedroom buyer about $2,000 to $2,500 more a year, according to Mr. Rosabianca.
Buyers in smaller buildings are also finding it very difficult to get loans or to refinance their mortgages. “If you have a co-op of less than five units, nobody wants to touch it,” said Mr. Calvo, whose Brooklyn office works with many brownstones of four units or fewer. He said some banks would agree to refinance a mortgage if they already held the mortgage.
For new loans, he said, his office has to do much more research to make a deal happen. Because most banks will agree to do only one loan in such a small building, his loan officers have to get mortgage information from every other homeowner in the building and then find a lender that has no loans there but is willing to work with a small building.
Banks unfamiliar with the New York City market often set guidelines that don’t apply. Ms. Axelrod of Time Equities said she had seen banks reject loan applications because they didn’t want to give mortgages to people in walk-ups, to apartments under 500 square feet or to buildings that don’t have parking.
“They think walk-ups are substandard housing, and they don’t realize that 500 square feet is actually a nice-sized studio in Manhattan,” she said. “And as far as parking — well, hello — we have to explain to them that most existing construction in the city doesn’t have parking and people are perfectly willing to buy in these buildings.”
In fact, many of the guidelines are designed to deal with problems that have arisen in the national marketplace, problems that the city has managed to avoid, said Melissa Cohn, the president of Manhattan Mortgage. “New York City is a big exception,” she said, “and the fact that we’re put under a national umbrella is certainly hurting our marketplace.”
For new construction, some banks will now make loans only if the building is at least 70 percent sold or 51 percent occupied. These standards make it very difficult for developments that are being sold before construction is finished. Ms. Cohn said some banks were willing to give waivers, but “a lot of the buildings that are still under construction are going to have trouble.”
Shaun Osher, the chief executive of Core Group Marketing, which represents many new developments, estimated that 90 percent of the dozens of projects that were being considered but not started have probably been shelved and that many of developments in mid-construction have also been put on hold.
“The developers can’t get construction loans because the buyers can’t get mortgages,” he said. “Everything is connected.”
As a result, many developers are looking for ways to self-finance by offering mortgages directly to prospective buyers.
Ms. Cohn held out some limited hope. “Everything changes on a day-to-day basis,” she said. “But I think it’s going to get worse before it gets better.”
0 comments
Post a Comment