Ever since the credit crunch barreled into Manhattan, New York City condo developers have partnered with preferred lenders to help their buyers get mortgages in a difficult financing climate.
Until recently, however, individual home sellers rarely got involved in buyers’ mortgage woes. But that is now starting to change, brokers say.
Taking a page from developers’ books, owners of resale apartments have started approaching lenders — before they even have a buyer in place — to find an institution that will lend in their building. Then, when they do find a purchaser, they specify in the sales contract that the purchaser must approach this preferred lender for a mortgage within a certain amount of time. That way, the seller feels confident that a qualified buyer will be able to get financing, and they can avoid wasting time on a deal that may fall through.
These preferred lender relationships were virtually non-existent in New York resales during the boom, but now, “it’s a whole new world,” said Leslie Modell Rosenthal, managing director at Warburg Realty. “I come across it in resales much more frequently.”
The process
For both buyers and sellers, using a preferred lender “eliminates financial headaches,” said Jennifer Lee, director of business development for the brokerage Aptsandlofts.com.
Here’s how it works: A homeowner decides to sell his or her apartment. To determine what kind of mortgage obstacles a potential buyer might face, the seller asks the building’s management company to fill out a “condo questionnaire” (or “co-op questionnaire”), which contains information about the building’s owner occupancy, commercial tenants and other areas of concern for banks. Then, the seller — often with the help of a mortgage broker — brings the completed questionnaire to various lenders and asks them to pre-approve the apartment for a loan, explained Rolan Shnayder, director of new development lending at H.O.M.E. mortgage bank.
With a lender in place, the seller can put a preferred lender clause in the sales contract. Usually, this requires the buyer to approach the designated lender for a mortgage pre-approval within a certain amount of time. The purchaser is free to get financing elsewhere if they find better terms, but the seller knows that at least one bank will likely give the buyer a mortgage. That, Shnayder said, eases sellers’ concerns about the mortgage contingencies that today’s buyers demand in virtually every sales contract. Having a preferred lender requires the purchaser to make a good-faith effort to get a mortgage, rather than using the mortgage contingency clause as an excuse to back out of the deal, he said.
Shnayder said about 5 percent of his resale clients are now stipulating preferred lenders in sales contracts. Until now, that was virtually unheard of outside of new developments.
“It’s standard in new development [contracts],” Shnayder said. “Why shouldn’t you have the same language [for] a resale unit?”
Saving time
Finding a preferred lender means more work for the seller’s agent and mortgage broker, but it can ultimately save time by ensuring that the deal closes faster, brokers said.
Shnayder estimated that some 10,000 condo units in New York City are considered non-warrantable, or ineligible for backing by Fannie Mae and Freddie Mac, because they don’t meet certain qualifications — a 10 percent reserve fund, for example. If a building is non-warrantable, many banks won’t lend there.
But many sellers don’t realize their buildings are non-warrantable until they find a buyer who then tries (and fails) to get a mortgage. This means the deal is likely to fall through, wasting months of seller’s time.
“If you find a buyer who’s going to get a loan and then find out 45 days into contract that they can’t close, then you have to re-list the apartment,” said Shnayder. “But if the seller has a preferred lender, they weed out all of those problems in advance.”
Ross Weinstein, managing partner of Brooklyn-based mortgage broker Exclusive Capital Consultants, said his company started helping resale owners find preferred lenders last year, after receiving requests from building managers.
“They were getting a lot of heat from residents who were saying, ‘I can’t refinance, and my buyer can’t get financing,’” Weinstein said. “We started offering them the same support that we give new developments.”
If a building is non-warrantable, Weinstein’s company helps sellers find “portfolio lenders” with more flexibility than the big banks, he said. Some of the lenders Weinstein has used for this purpose include Texas-based Nationstar Mortgage, Icon Bank, Astoria Federal Savings and Hudson City Savings Bank.
“It’s all about asking the right person for financing,” said Shnayder, who does the same kind of research for his clients. Because Shnayder’s company is a mortgage bank, he also has the option of simply underwriting the loan himself, which he said he does for about 85 percent of his business.
Most home sellers, of course, have no idea about any of this when they decide to sell their apartments. So it’s crucial for real estate brokers to be knowledgeable about the process, said attorney Neil Garfinkel, of Manhattan law firm Abrams Garfinkel Margolis Bergson. Along with Shnayder, Garfinkel recently started holding seminars to educate real estate brokers about various options for sellers, including obtaining a preferred lender.
“A seller putting an apartment up for sale doesn’t necessarily consider these things,” Garfinkel said, “but a good broker will recommend it.”
Shnayder echoed that, adding: “In the new regulatory environment that we’re in, there is so much red tape that it’s important to get a seller involved in helping their buyers get financing in any way they can.”