Managing mortgage madness

Editor's note: This article is reposted with permission by The Real Deal. Click here to view the original article.

By MELISSA DEHNCKE MCGILL

NEW YORK -- Everyone in the real estate industry knows that the price of admission for a mortgage has gone up. And just about everyone agrees there's good reason for that, given that loose lending standards were largely responsible for the financial mess that plunged the economy into a recession and sent real estate into a tailspin.

With the days of quick and easy jumbo loans and 100 percent financing now merely a memory, mortgage brokers have had to completely alter the way they do business.

This month, The Real Deal talked to mortgage brokers and other mortgage industry professionals to find out how the industry is doing in New York City.

While nearly everyone said business is up compared to a year ago, when they were dealing with the immediate aftermath of the Lehman debacle, new federal guidelines designed to protect borrowers and inject more transparency into the system have slowed down the process of securing a mortgage.

And the relationship between banks and mortgage brokers is strained, with fewer banks offering fewer products. As one mortgage broker said: "It's all cookie-cutter stuff; not every borrower fits into a box neatly."

But while credit scores still need to be high, brokers say there are other ways for buyers who don't fit into the box to get a mortgage. And if buyers qualify for FHA financing, they can get a conforming loan with as little as 5 percent down.

Meanwhile, mortgage activity was driven by refinancings last year, but many say that well will soon run dry, especially if mortgage rates go up.

For more on which buyers and buildings are fueling mortgage activity in New York, what kinds of mortgages are being financed and the new standards mortgage brokers are dealing with, we turn to our panel of experts.

Richard Bouchner
Managing director
Commodore Property Group

Q: We know that the mortgage industry is changing day-to-day, but what are the latest trends you're seeing in New York City?

RB: We are seeing very few folks coming to the table with deals above $729,750 [the current loan limit for Fannie Mae and Freddie Mac]. As a broker we don't have resources that are funding above that loan. In the past, to keep clients happy, I have referred out larger loans to private banking contacts I have. There are no guarantees with these sources, but if they like the client, the private banks are more apt to lend out of their own portfolios. Another trend we're seeing is where folks are coming to us, particularly first-time buyers, to buy condos with an FHA loan. There are more developments that have been prescreened and it is possible, although difficult, to do spot approvals for an FHA deal.

Q: What is the most concerning trend you're seeing in the New York mortgage industry right now?

RB: There are fewer places to go for mortgages and all the banks out there are offering the same products. It's all cookie-cutter stuff; not every borrower fits into the box neatly. For self-employed people or folks with a lot of assets but credit that is a little dinged up, it's very difficult to get a mortgage.

Q: What sort of credit scores are banks demanding now, and how does it compare to a year ago?

RB: A year ago to 18 months, 680 was the price of admission, and sometimes lower if you had good income and good assets. Then it went up to 700, and now in many cases it is up to 720. That doesn't mean you can't get deals done below 720, but 720 is the new platinum score. I have a deal in Tribeca for a $729,000 [apartment] and the gentleman has a 690 score. That's fine; it is not going to affect him. He's got plenty of equity and everything else is good. But if you are on the fence with some other issues, that score might become an issue. ...CONTINUED

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