Anticipating a drop in foreign buyers looking to buy Miami condos, the developers of The Crimson in the city’s Edgewater neighborhood have begun marketing campaign aimed at luring local first-time and second-time buyers via a Fannie Mae program. The program provides loans of up to $417,000 for preconstruction units.
“At the end of the day, a good and balanced real estate market is also based on domestic demand, not just foreign demand,” said Stephan Gietl, a principal of Mckafka Development, the firm building The Crimson. “Relying only on international buyers is a risky proposition.”
The Crimson became the first preconstruction project in Miami since the housing crash to win approval from Fannie Mae after the Federal Housing Finance Agency issued a new directive in December aimed at making home ownership once again more attainable for an increasing number of Americans.
In some cases, buyers nationwide using Fannie Mae who have never bought a home or who have not owned one in the past three years will be able to put as little as 3 percent down. Yet, down payments for homes at the 90-unit tower will be significantly higher. Gietl said buyers at The Crimson, located at 601 Northeast 27th Street, probably will need to put down 15 percent to 35 percent for the remaining unsold units. The building is currently 70 percent sold.
Still, critics of Fannie Mae and other government-controlled mortgage providers like Freddie Mac say the new loan assistance program is a recipe for long-term disaster that could lead to another real estate collapse.
“We have seen this movie before,” said Edward Pinto, director of the American Enterprise Institute’s International Center on Housing Risk. “And we know how it ends. These type of risky loans are the reason we ended up in a horrible situation that just about cratered the global economy.”
If prices for South Florida condos begin to fall, unit owners who used a government-backed loan to make the purchase could quickly owe more than the home is worth. “Florida has a boom and bust history,” he said. “Before the last crash, Florida was leading the parade with home prices going up and delinquency rates were low.”
Today, four Florida cities are in the top 10 of the nation’s major metro areas with the most “seriously underwater” homes through the end of last year, according to a report released last week by research firm RealtyTrac. Miami ranks sixth. RealtyTrac also reported that Florida took the top spot for the highest foreclosure rate in 2014.
Gietl said there are new safeguards in place to make sure buyers can pay back the loan, such as credit worthiness. “It is very similar to going to a regular bank for a loan,” Gietl said. “You have to show evidence, such as a stable income, that you can service the loan throughout its entire term.”
The Crimson’s Fannie Mae loan program is managed by New Penn Financial, one of the largest direct mortgage lenders in the U.S. New Penn also handles other loan programs for foreign nationals on behalf of The Crimson.
Gietl also noted that buyers who qualify for Fannie Mae still need to come up with a hefty down payment. “Our cheapest unit is $500,000 and the maximum amount of the loan is $417,000,” Gietl said. “We’re talking about another $83,000 in order to close.”
Furthermore, The Crimson is the only Edgewater project offering a Fannie Mae option so that Mckafka doesn’t have to compete for buyers and can be more selective about marketing the program, Gietl said. “I don’t see other projects rushing to do what we are doing,” he said. “If they see it working, I’m sure they will copy it.”
He insisted making some units available to local buyers is a good strategic move considering the growing strength of the U.S. dollar and the weakening of several foreign currencies in South America and Europe. “Developers need to start thinking about opening new markets in Miami,” Gietl said. “The domestic market is the most obvious one.”