Earlier this month, Brooklyn Borough President Marty Markowitz urged Sen. Charles Schumer to investigate plans by Fannie Mae to raise the pre-sale requirements for mortgage loans in new condominium and co-op buildings.
Fannie Mae will raise the pre-sale requirement for new mortgage guarantees from 51 percent to 70 percent starting March 1, 2009. Many officials are concerned that the new policy that 70 percent of a building be sold out before Fannie will insure financing will put dozens of new condo projects at risk as individual unit buyers will be unable to obtain bank financing. Some banks may still lend in buildings that don’t meet the pre-sale requirements, but Fannie will not buy loans from those banks.
“Brooklyn clearly has its share of newly constructed developments that could provide home ownership opportunities if access to lending resources were readily available,” Markowitz wrote in a letter, dated December 2.
Markowitz wrote the letter to Schumer at the request of Ross Weinstein, managing partner of Union Square Mortgage Group, who wanted Markowitz to seek a temporary reduction in the guidelines so that new condo and co-op unit buyers could get financing.
“You’re pretty much going to render all the new condo construction projects unsellable at 70 percent,” Weinstein said in an interview.
Weinstein said the collapse of the securitization market means that most lenders will not approve new condo loans if they cannot sell a portion of them to Fannie Mae or Freddie Mac.
Brooklyn is considered at particular risk from the Fannie Mae decision, as average condo prices are well below the super jumbo levels seen in Manhattan. Submarkets like Williamsburg, Fort Greene, Dumbo and other areas, however, have a large amount of new inventory that has been converted to rentals because of the weak market.
Rich Schulhoff, chief executive of the Brooklyn Board of Realtors, says he has been working with the New York State Board of Realtors to ease the burden on home buyers.
“Anything in this market to make home ownership more difficult is probably detrimental to the economy,” he said.
Schulhoff says there are 937 condo and co-op units for sale on Brooklyn’s multiple listing service, which covers 70 percent of the borough’s inventory. He said sales are down more than 30 percent from a year-ago, however, prices are only down less than 5 percent. The relatively small drop in prices is due in part to the fact that developers have taken much of their available inventory off the market, or listed them as rentals.
Schulhoff said he has urged local officials to ask for a freeze on foreclosures and allow distressed homebuyers to pay their “buy in” loan payments on adjustable rate mortgages. Thousands of homeowners in New York have defaulted after interest rates ballooned on their adjustable rate mortgages.
Under the Economic Stimulus Act of 2008, Fannie and Freddie will guarantee mortgage loans up to $625,500 in high-cost cities like New York. The agencies traditionally back loans of up to $417,000. Freddie Mac has not yet revised its guidelines, according to local mortgage brokers.
As first reported in The Real Deal, Fannie Mae notified banks across the country of the new policy, as part of an overall effort to reduce the risk of bad loans in new condo buildings. Fannie Mae also plans to limit the number of units any one individual or company can own to 10 percent of the building, and will require all buildings with more than 20 units to have fidelity bond insurance, which covers employee theft.
The changes are designed to prevent banks from being overexposed to new condo or co-op buildings that are financially unstable. In Florida and Las Vegas for example, thousands of condo deals have defaulted as developers flooded the market with unsold inventory and individual investors failed to make mortgage and maintenance payments on their units.
As The Real Deal reported on its South Florida Web site, there is a 42-month pipeline of condos in Miami, with 25,000 currently for sale in the city’s multiple listing service, putting tremendous pressure on prices.
Weinstein, who urged Markowitz to write the letter to Schumer, said he has not yet received any response from Schumer’s office. Markowitz and Schumer were not immediately available for comment.