Flush times for New York State’s suburban mortgage lenders

Manhattan couples seeking a quieter lifestyle and room to grow are keeping the Westchester housing market humming along — and generating big business for the mortgage lenders.

Whether it’s towns nearest the city like Larchmont and Bronxville, or those farther out on the train line like Chappaqua and Scarsdale, the region continues to benefit from the flight of relatively affluent families getting priced out of Manhattan.

The effects are clear. During the third quarter of 2016, Westchester experienced the most sales activity of any quarter in at least 35 years, according to a Douglas Elliman [TRDataCustom] report.

For mortgage lenders, Westchester and its next-door neighbor Fairfield County in Connecticut are increasingly attractive markets that offer plenty of upside with less risk and complexity than are found in Manhattan.

“It’s not a sexy market like Manhattan. You’re financing white picket fences for people who make very good money,”  said Ray Rodriguez, TD Bank’s regional sales manager for Metro New York. “Most people move there for the same reasons: more land and good public schools.”

The only problem is that the region’s strong school districts and ample mass transportation options are luring homebuyers at such a pace that the pickings are getting slim. Westchester’s inventory of single-family homes stood at barely four months of supply at the end of the third quarter, the lowest level in 13 years, Elliman statistics show.

What is going on behind the scenes in the hot Westchester and Fairfield markets? Mortgage industry insiders tell us what they are seeing now — and what they expect ahead with new leadership in Washington and the Federal Reserve raising interest rates again.

Bob Donovan
Divisional sales executive, Bank of America

Have you seen big changes in the Westchester and Fairfield markets?

Our market share of mortgages for home purchases is increasing significantly in this area.  Job stability, home equity and other economic factors have made people more comfortable with looking for a new home.

Mortgage rates spiked in the immediate aftermath of President-elect Donald Trump’s election and the Federal Reserve raised interest rates again. What do you expect going forward on that front?

Rates are still at historic lows and support a robust market for buyers.

What are the most significant/surprising trends going on in the mortgage industry in Westchester and Fairfield these days?

Both markets are extremely competitive. As with many other areas of the country, limited inventory keeps the market competitive, and buyers must be prepared to move quickly .

Another area where we’re seeing more interest lately is home equity lines of credit. People are leveraging the equity in their homes in a variety of ways. Home improvement is most common, but some are using these funds to pay for their kids’ college, while others are taking advantage of low interest rates to pay off their other, higher-interest-rate debt.

What’s going on with all-cash buyers in Westchester and Fairfield?

Cash buyers make up a significant percentage of the market as a whole. We don’t break down this particular information in our own data, but I would estimate it is north of 40 percent.

What kinds of documentation and down payments do lenders want to see now?

Requirements vary by loan size and credit score as well.  Typically buyers are putting down 20 percent or more in higher-priced markets like Westchester. As far as documentation requirements, those vary as well, but buyers should be aware that today’s mortgages require full documentation. We provide jumbo financing up to 95 percent of the purchase price in our Doctor Loan program and up to 89.99 percent with other programs.

How do Westchester and Fairfield compare to other tri-state areas for mortgage lending?

To some degree, lending in Westchester and Fairfield is less complicated than in Manhattan.  Typical property types are single-family in Westchester and Fairfield, wherein NYC there is the added complexity of reviewing cooperative and condominium projects.

Mary Frank
Divisional lending executive, Citibank home lending

How is the mortgage industry doing right now in Westchester and Fairfield counties?

Refinancing demand is slowing as rates escalate; we expect to see a move toward more purchases in 2017. In both regions, unsold days on the market are longer. Entry-level homes have the shortest listing times (generally 75 days or less), while luxury homes are approximately double that. 

Are more jumbo mortgages being issued?

There has been a steady rise in jumbo volume year over year. There is less lender competition at the jumbo level; therefore, we are gaining greater market share. There are few to no secondary lenders in the jumbo marketplace today.

What are the biggest challenges facing mortgage lenders in Westchester and Fairfield?

Millennials are staying in apartments at an all-time high. Also, renters who want to explore a luxury home without purchasing can still have a lifestyle associated with New York City. The cost is far less, and travel remains convenient.

We are beginning to see corrections on luxury home pricing, which shortens marketing times. There is a surplus of luxury inventory and, conversely, a lack of inventory in the first-time homebuyer market.

What kinds of residential buyers are most and least likely to get loans these days?

There is an ongoing demand from first-time homebuyers for affordable housing. Due to limited inventory, however, those buyers face greater challenges in obtaining their preferred housing. Most likely buyers are “move up” and downsizers. Many “move up” buyers are likely to relocate from NYC to retain the proximity to jobs, etc.

How do Westchester and Fairfield differ from other local mortgage markets?

Westchester and Connecticut are the “bedroom communities” of Manhattan. Relocation from Manhattan to these communities is often very desirable. Properties in the entry-level segment often receive tremendous interest and sell quickly.

Higher-end properties experience longer times on the market, have a smaller pool of potential buyers and are competing for attention against a surplus of luxury properties.

Major price adjustments have spurred sales here as sellers become better attuned to the realities of the marketplace.

Drew Kessler
M&T Bank vice president and residential mortgage manager for Westchester County

How is the mortgage industry doing right now in Westchester and Fairfield counties?

The mortgage industry is doing well, with purchase transactions levels last seen pre-2008. The need for financing is greater today compared to any time this decade. Coupled with historic low mortgage rates, this past year has been a tremendous time to purchase a home or refinance an existing mortgage.

Mortgage rates spiked in the aftermath of Trump’s election, and now the Fed raised rates. What do you expect on that front?

It has been no secret for some time that mortgage rates were going to rise. It has always been a question of when, not if. The time now seems to be upon us.  The expectation is for rates to continue to rise, however remain low by historical standards.

Lenders have loosened the rules governing jumbo mortgages in the last few years. What’s going on with those in Westchester and Fairfield?

Jumbo financing is alive and well. Rates are comparable or often lower than conventional financing, and some institutions have decreased the down payment and equity requirements to obtain this financing.  Overall volume in the region is up due to a higher volume of purchase transactions and the increase in equity homeowners have benefited from in recent years.

What new mortgage trends are catching your attention?

On December 10, Fannie Mae launched a new program that allows for a more seamless transaction for the borrower. In some cases the need for an appraisal may be waived and providing documentation may be reduced. These items are not being overlooked. Rather, due to technology advancements, this can be done behind the scenes with third-party vendors that verify the information on the application. 

What problems do the Westchester and Fairfield markets face?

The biggest issue remains the lack of housing inventory in the region. While home sales are up and continue to rise, there is pent-up demand from buyers who are looking. With a limited inventory supply, the growth of the market is being hampered.

This is known as a “step-up” environment, in which a homebuyer enters the market with the thought of living in a property a couple of years while building equity and then stepping up to the next level and continuing this process. Ultimately, after three to five transactions, they wind up in the home they will live in for an extended time. With inventory specifically in the midlevels extremely low, this is stalling the ability for a homeowner to do this.

What kinds of documentation and down payments do lenders want to see now, and how has that changed?

Documentation requirements have remained stringent over the past couple of years, as lenders must be able to demonstrate a borrower’s ability to repay the financing being provided. While more I’s need to be dotted and T’s need to be crossed, today’s borrower can finance as much as 100 percent of the purchase price in specific scenarios. In the jumbo space, more lenders have been open to reducing their down payment requirements and allow for financing greater than 80 percent.

Ray Rodriguez
TD Bank’s regional sales manager for Metro New York

How has the mortgage business been for you in Westchester and Fairfield?

We’ve had a boomlet in refinancing in the last six months. Rates unexpectedly dropped. Of course that changed after the election. Still, no one saw it coming. No one expected it. It was a very good problem to have.

In a lot of the areas in Westchester, the people now have two children. They didn’t want to spend Manhattan prices, so they moved to Westchester. Now they have an acre of land and a backyard.

We call it the “train line effect.” You start looking in Bronxville, realize you can’t afford it. You go to Scarsdale and realize the property taxes are high. Then you get up to Northern Westchester — and I live right next to Chappaqua — and you can actually afford it. They follow the train line until they find the price point that fits in their budget.

President-elect Donald Trump has said that he’ll dismantle Dodd-Frank Wall Street reform laws. What’s the reaction been within the mortgage and banking industry to his surprise election?

From the industry view, it’s business as usual.

What do you expect on the mortgage-rate front now that the Fed raised short-term rates and signaled more hikes ahead?

You’ll see incremental changes. But overall, money’s been cheap.  The benchmark 10-year Treasury note had the Fed’s 1/4-point rate hike priced in well before it happened. The indication of three rate hikes in 2017 sent the yield to the highest close since September 2014, and mortgage rates followed. So 30-year rates should hover from 4 percent to 5 percent, unless there is unexpected disruption in the markets. I expect that we will see more demand for adjustable rates in the upcoming year.

What are the most significant trends?

In Westchester there aren’t a lot of modern homes. They don’t offer amenities like the large kitchen with an island or big master suite. So people will do a construction and permanent finance. They’ll buy the older ’60s home for $500,000 and know they need another $500,000 to renovate, and finance it all at the time of purchase with the same interest rate. We see a lot of renovations going on.

What are the differences from Manhattan?

NYC and Westchester are different animals. In NYC, you see more cash buyers. And there’s not a huge demand for a $4 million place in Westchester. In Manhattan, there’s a big demand.

Anything else?

In Manhattan you’re underwriting two things: the customer and the building. The biggest concern for anybody: Will my building be approved? In Westchester, you’re underwriting the customer. Of course you’re looking at the property, but it’s not like the property could go bankrupt or a board member commit fraud. In my opinion, it’s less risky.