A downtown Manhattan Web site called The Broadsheet tells the tale of a condo owner with good credit whose applications for refinancing his mortgage at Wells Fargo and JPMorgan Chase were rejected.
The banks said they based their decision on a Fannie Mae rule that discourages banks from making loans on apartments in buildings in which a single entity (even the sponsor) owns more than 10 percent of the units.
Unable to get specific answers from loan officers about how any condo where the developer retains a substantial presence (there are hundreds in Manhattan alone) could be eligible for financing, the unidentified applicant went directly to Fannie Mae and discovered the following:
“When I finally tracked down the people who are in charge of mortgages for condos, they explained to me that most banks were not interpreting these rules correctly.The Fannie Mae executive I spoke to said that banks in places like New York actually have much more leeway than they realize.”
This executive pointed out that the new rules do not apply to every bank and to every market on a blanket basis. “He said that banks are encouraged to apply for exceptions, which are granted all the time,” the applicant recounted.
The catch, this executive said, “is that many loan officers don’t even know that this process exists. So many applications that should be approved are instead rejected.”
After the Fannie Mae executive and the applicant’s loan officer spoke, the loan was approved.
The other good news is that JPMorgan Chase and Citigroup say they are expanding their programs for “jumbo” mortgages, though underwriting standards remain extraordinarily strict for virtually all lenders.
According to Bloomberg, JPMorgan resumed buying new jumbo loans made by other lenders this month after halting purchases in March. And Citigroup is offering the loans through independent mortgage brokers again. (Jumbo loans exceed limits by Fannie Mae and Freddie Mac – from $417,000 to $729,750, depending on the local market.)
Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly amount since Inside Mortgage Finance started tracking that data in 1990. In the first quarter, Bank of America was the largest jumbo lender, with almost $9 billion in new loans, followed by Citigroup, according to newsletter National Mortgage News. JPMorgan ranked sixth.
While competition for jumbo loans is increasing, lenders aren’t accepting riskier debt, said David Adamo, chief executive officer of Luxury Mortgage Corp. in Stamford, Connecticut. Some banks won’t let would-be borrowers count bonuses as income to help them qualify, he said. Grant Stern, owner of brokerage Morningside Mortgage Corp. in Bay Harbor Island, Florida, told Bloomberg in an interview that underwriting standards remain “pretty ridiculous.” One client was rejected even though his assets excluding the house about equaled his mortgage, Stern said. The borrower’s income was deemed too low.
Asked about what kind of person can now qualify for a jumbo mortgage, Melissa Cohn, president of the Manhattan Mortgage Co. loan brokerage, responded, “Someone who is God. Basically they will want you to qualify with no more than, say, 40 percent of your income being used for all of your debt service,” she told Bloomberg Television on June 10. Criteria may also include 25 percent down payments, good credit history and “good liquidity in the bank after closing.”
Interest rates on typical 30-year fixed-rate jumbo loans are about 1.03 percentage points higher than on conventional loans.
For up-to-date information on the mortgage business, you can check my biweekly newsletter.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022