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Thursday, March 04, 2010

Anecdotal Real Estate Data Point

A friend came for dinner last night, and told us that she was trying to buy an apartment in Manhattan.  It was a condo, and she was shocked at the insane lending requirements - stipulated by the bank, not the condo board.  They wanted 40% down and for her to show another 30% of the purchase price in liquid assets!  To me, this says that the banks are going completely risk averse in the NYC high end real estate market.  I'm pretty surprised that even with 40% down they still have the big liquid assets requirement.  After all, the whole point of a big down payment is that it's the banks cushion against falling prices.  One might think that 40% would be enough cushion...

If anyone else has stories about discussions with mortgage lenders and the requirements they are demanding, please leave them in the comments section.

-KD

10 comments:

The Editor said...

Unless your friend is purchasing above 4m this is unusual. We would put a loan on the CUs book at 30-40% down with 10% liquid assets in reserve.
http://thegreatloanblog.com/

Anonymous said...

Does this say more about NYC real estate or how crippled TBTF and MoneyCenter NYC banks are, or both.

Yangabanga said...

I had a similar conversation last night with a mortgage trader. Roughly 30% up to about a million loaned. 50% past that. I'm guessing the liquid bit is just to guard against the lehman types who put up stock as "collateral" without sufficient cash flow to make the payments.

Kid Dynamite said...

TheEditor - i think the price was roughly $1.5MM, $2MM max - definitely not $4MM

Fuel55 said...

Similar scenario in Vancouver. 40% down from $1-2MM then 50% above $2M. Makes me feel safe that all my neighbours have at least $1.5M of skin in the game. This is surely part of the reason you never see a foreclosure in Single Family Homes in Vancouver westside. 10% liquid reserves usually sufficient.

Anonymous said...

Fuel55,

Re: rare foreclosures in Canada...

Are you sure it isn't more a function of "full recourse" policy in Canada?

http://www.american.com/archive/2010/february/due-north-canadas-marvelous-mortgage-and-banking-system

If you're underwater on your mortgage, and you are foreclosed upon, you still owe the difference. You cannot just walk away.

(Not a policy I would like to see here in the US.)

~~vlcccashmachine~~

wcw said...

Our credit union will loan against anything in town (San Francisco) with 40% down at their jumbo rate, ~70 bps spread to conforming. BofA (through whom we recently were required to prequal to bid on an REO) wanted enough down to bring the loan under the conforming limit (!) and still quoted a rate ~15 bps higher than the credit union's jumbo (!!). Per a friend's experience, Wells can apparently be pressured into slightly beating a broker/CU rate, but not until you hand them the paperwork and tell them it's their last chance.

Even without a normally functioning loan market, things in my neighborhood are going above the ask, like 2008-9 never happened. Baffling.

Anonymous said...

mortgages seem pretty easy to get for the cheaper stuff i am looking at. 3.5% down w FHA guarantee baby! their fees are high enough that i'd rather not use the program - but they charge the same fees to people with 500 FICOs. Hah! 20% down no prob. 10% down pay PMI.

Anonymous said...

I recently talked to a lender about a refi and they wanted 40% down, in addition to proof of income (secured note that pays for ten years at ~= 5X loan payments), and I currently have >50% of total loan value in cash and securities in an associated account. Credit score is >800.

This was for a conforming loan, non-jumbo. They also jacked the rate up by 0.25% over the "locked in" loan rate because of a decrease in appraised value over the last two years.

I told them to take a hike.

Anonymous said...

btw - had a chance to ask some NY RE brokers about this. both concurred. one said banks don't see the value in apartments at these prices. the other said it depends on the finances of the building - whether they have a lot of renters and decent reserves - but agreed the banks were not being cool about it. remind me - what portion of RE finance is provided by agencies these days?