While many commercial banks have dropped out of the mortgage lending business in New York due to the crash of the financial markets, several rival institutions and some nontraditional players have emerged in a new battle for market share in the city and the surrounding suburbs.
As the now-defunct Washington Mutual has fallen off New York’s mortgage lending scene, banks like Wells Fargo and JP
Morgan Chase have been expanding their piece of the residential mortgage pie. Other lenders, such as Citibank, which received a $40 billion government cash infusion last month, and HSBC, have grown more cautious, either pulling back on jumbo loans or cutting relationships with third-party brokers.
It’s notable that some banks are using this economic meltdown as a way to get a stronger toehold here. “We are definitely lending,” said Neil Bader, area manager at Wells Fargo Home Mortgage. “Our market share in the New York area is at an all-time high.”
The San Francisco-based bank has emerged as the leading originator of jumbo loans in the New York area in recent months. It is one of the few commercial lenders that is actively underwriting high-end condos, co-ops and even home renovations.
“Clearly there is some standing inventory in New York, and there has been some tightening across a plethora of banks,” said Robert Donovan, senior vice president at Bank of America, which acquired Countrywide in July for $4 billion. “We see it as an opportunity to grow market share.”
In 2007, Wells Fargo originated 5,783 jumbo loans in the New York metropolitan area, more than any other commercial bank, according to federal Home Mortgage Disclosure Act data. The bank was followed by JPMorgan Chase, Washington Mutual, Citigroup and Countrywide.
On a dollar basis, JPMorgan Chase led all New York area banks with $4.45 billion in loans, or 10.7 percent of the market. It was followed by Washington Mutual, with $4.2 billion, or 10.1 percent, and Wells Fargo at $3.97 billion, or 9.5 percent.
Initial HDMA statistics for 2008 will not be available until March, according to a Federal Reserve spokesperson. However, those market figures are likely to show a dramatic shift because of all the recent bank failures and financial mergers.
For one, federal regulators took over Washington Mutual earlier this year and sold it to JPMorgan Chase. Also, in October, Wells Fargo finalized a deal to acquire Wachovia, making the combined bank the second-largest mortgage originator in the U.S.
Meanwhile, strict new guidelines from Fannie Mae and Freddie Mac have caused turmoil in the multifamily market here. The agencies will not guarantee mortgage loans at buildings with less than 51 percent of the units sold, which means banks cannot sell these loans on the secondary market.
As a result, many homebuyers who signed contracts prior to the September credit crisis are now being asked to deposit anywhere from 25 to 60 percent of the purchase price on new condo units — or even pay cash. In other cases, buyers are going through four to five different banks before they can get final approval on a loan.
“Most of the banks will lend, but will only go up to conforming or super-conforming limits,” said Julie Teitel, senior vice president at GuardHill Financial Corp., a Manhattan-based mortgage banker and brokerage. “We still have three or four banks with awesome rates that will still do loans above $629,000. But they are stopping loans for any reason.”
It’s also no secret that virtually all traditional lenders — even those that are expanding market share — have tightened their underwriting standards in New York.
JPMorgan Chase, for example, has made significant changes on its jumbo loan product, instituting a maximum 85 percent loan-to-value ratio and a minimum credit score of 660.
It will also no longer underwrite investor-owned units, second homes or any Florida condos.
Officials at the bank said they did not have New York-specific data, but noted that across the country, third-quarter loan originations fell 33 percent from the previous quarter to $37.7 billion, down 4 percent from a year ago.
Lisa Breier Urban, a Manhattan-based real estate lawyer, said that Bank of America turned away one of her clients who was buying an apartment at LeHavre on the Water, a luxury 1,024-unit co-op complex in Whitestone, Queens. Urban says the bank turned her client down because the developer had pledged his unsold shares as collateral on another project.
“I now make sure people have their financing in line before they sign a contract,” said Urban. “The best-case scenario is to buy in a building where you’re approved and the building is approved.”
Bank of America officials declined to comment on any specific loan, but said general guidelines are required to reduce the risk in certain buildings and at certain price points.
The bank offers a 30-year fixed-rate jumbo loan for up to 80 percent of the value on a $1.5 million sale, and 75 percent on sales up to $3 million. Donovan, the senior vice president there, said the bank is also willing to underwrite loans in New York condo buildings with less than 51 percent of the units sold because it believes the risk of underwriting in new buildings is less than that of watching prices fall in an oversaturated condo market.
“Having empty standing inventory is negative in the marketplace in terms of pricing,” said Donovan.
Brokers and legal sources say other big lenders like HSBC have been sitting on their deposits for months, not approving loans in the New York market, while Citibank’s terms for jumbo loans are so strict that very few customers will accept them. After teetering on the brink of collapse last month, Citi escaped ruin with its government cash injection, which was designed to restore confidence and shore up liquidity.
For its part, HSBC says it is still lending in New York, but in November the firm said it would stop selling mortgages through outside brokers.
For luxury apartments in the multimillion range, an increasing number of mortgage brokers are turning to nontraditional loan sources, including insurance companies, credit unions, pension funds and private banking divisions of commercial banks.
Under the Economic Stimulus Act signed by President Bush, Fannie Mae and Freddie Mac will guarantee loans up to $729,750 in high-cost areas like New York, which reduces the risk for lenders. Therefore, many banks in New York are approving loans up to the federal limits and then asking borrowers to pay the remaining balance in cash.
Debra Schultz, director and senior mortgage consultant at Manhattan Mortgage Co., said UBS has launched a new program that allows high-net-worth individuals to set up a credit facility based on non-real estate assets, and then use that money to finance a mortgage.
For example, a client can borrow up to 70 percent of the value of blue-chip stocks or mutual funds, 90 percent of the value of high-quality bonds, and 97 percent of treasury bills. If a client qualifies, they can avoid having to go through appraisals, credit checks and other paperwork.
“It’s kind of like a margin loan, but a margin loan on steroids,” Schultz said.
Miami-based Gibraltar Private Bank and Trust is another bank that has expanded its reach among wealthy New Yorkers.
“I’ve gotten calls from people who were two to three weeks from closing [a mortgage loan] and their bank has changed its mind,” said Janit Greenwood, managing director and New York market manager at Gibraltar.
Barry Landsman, a real estate attorney with Pryor Cashman, said that the uncertainty has become too much for some buyers.
“For the first time in the 10 years I’ve been doing this, I’ve had my first two deals where my client just walked away,” Landsman said. “It’s not pretty out there.”