Anybody who is trying to to get a mortgage in a new condo development all ready knows how this song goes.... 

Unless the condo has 70% of the units sold (up from 51%), and no more than 10% of the units are owned by a single entity, or if more than 15% of the owners are behind in their condo fees, Fannie Mae will not issue a mortgage.  In cities like my home town of New York (or Las Vegas and Miami for that matter) that have 1000s of new units coming to market, Fannie's new tighter rules are really adding fuel to the housing debacle and killing prices  I understand that Fannie needs to protect itself from bad mortgages, but this is going to force many developers over the brink.  Unless a potential buyer can pay cash, how are developers expected to unload their units?  I think we will see the banks that hold the construction loans starting to offer mortgages to buyers, and we will see auctions as well as developers become desperate to fill their newly completed projects.  Nice work Fannie...way to get tough at just the wrong time!

Fannie Tightens Its Conditions for Backing Condo Mortgages

Rich Bouchner

Managing Director

Commodore Property Group

www.cpg-nyc.com

www.gotham-realestate.com

As many Gotham-RealEstate readers know, we have both a New York City real estate brokerage  as well as mortgage firm, which give us a unique view to both sides of a real estate transaction.  While there are many bargains to be had for those looking to buy a new York condo or coop, getting a mortgage can be a different story. Let's forget about jumbos for a moment, which have their own set of issues (see some of my prior posts), but even mortgages backed by Fannie and Freddie (those with loan amounts under $625K) are facing tough hurdles.Strong credit worthy borrowers are being forced to pay higher fees, wait longer or are just being rejected out right. One of the best ways to get our economic pumps primed again is to allow folks to take advantage of lower rates and to buy unsold homes.  Fannie and Freddie say that help is on the way...lets just hope that it gets to us in time to make a difference.

The article below from Bloomberg does a nice jo of summarizing the current mortgage dilemma.

By James Sterngold

Feb. 27 (Bloomberg) -- Brian Wickert, a mortgage banker in Butler, Wisconsin, prides himself on screening applicants carefully. That’s why he was stunned when a customer who sailed through four home loans tried to do a refinancing in January, only to be rejected by three national lenders.

The borrower’s credit standing and income were solid, said Wickert, 47, president of Accunet Mortgage. The problem was that, with home sales plummeting along with prices, the appraiser couldn’t find the required three comparable sales in six months within a one-mile radius.

“The business has gotten tougher than I’ve seen it,” Wickert said. “The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded.”

Bankers around the country say one reason the housing market hasn’t stabilized is that while mortgage rates have come down, hurdles have gone up. Rising default rates and bank losses have made lenders more risk-averse, leading to higher fees, increased insurance rates and difficulties refinancing loans.

The average rate on a 30-year fixed mortgage dropped to 5.07 percent for the week ending Feb. 26 from 6.63 percent for the one ending July 24, according to data compiled by McLean, Virginia-based Freddie Mac. Meanwhile, the percent of mortgage applications that led to closings fell nationwide to 59 percent in the first half of 2008 from 66.3 percent in 2006, the most recent period for which data is available, the Mortgage Bankers Association reported.

‘Too Tight’

“Underwriting standards have changed from lax to too tight,” said Lawrence Yun, chief economist at the Chicago-based National Association of Realtors. “The pendulum is swinging too far the other way. We can’t stabilize the housing market if buyers can’t get reasonable mortgages.”

Help may be on the way. Under the terms of President Barack Obama’s housing plan announced Feb. 18, as many as 4 million homeowners on the verge of foreclosure will be eligible to have their loans modified to reduce monthly payments. Another 5 million, whose homes are worth less than the principal of their mortgages, also may be able to refinance.

The program, which takes effect March 4, only covers borrowers whose mortgages are owned or insured by Washington- based Fannie Mae or Freddie Mac -- about 40 percent of the total, according to Inside Mortgage Finance, a Bethesda, Maryland-based newsletter. They must still prove they have a solid payment history and sufficient income to meet monthly payments, and the loan can’t be more than 105 percent of the appraised value of the home to qualify.

FICO Scores

Those not covered by the Obama plan will have to contend with lenders requiring higher FICO scores than in the past or charging upfront fees to borrowers with scores once considered excellent. San Francisco-based Wells Fargo &; Co., the second- largest U.S. home lender, boosted the minimum score for Federal Housing Administration and Veteran Affairs loans it makes through brokers to 620 on Jan. 27 from 600.

“A score of 700 was once near perfect,” said Gwen Muse Evans, vice president of credit policy at Fannie Mae, the government-controlled company that helps set lending standards. “Today, a 700 performs more like a 660 did. We have updated our policy to take into account the drift in credit scores.”

Consumer credit scores, called FICOs after creator Fair Isaac Corp., range from 300 to 850. The average FICO score on mortgages bought by Freddie Mac and Fannie Mae rose to 747.5 in the fourth quarter of last year from 722.3 in 2005, according to Inside Mortgage Finance.

Higher Fees

Accunet’s Wickert said that a 660 FICO score would have qualified most borrowers for loans with no upfront fees in the past. Now, someone trying to borrow $200,000 with a 660 score would have to pay a 2.8 percent fee, or $5,600, he said. Even someone with a 719 score would have to pay $1,750 in cash.

Wickert said that if customers don’t want to pay the fees in cash, he can increase the interest rate, since the wholesale banks he sells his mortgages to would pay more for the higher rate over the life of the loan. Before the crisis, a quarter-of- a-percentage-point increase in the rate was sufficient to cover a 1 percent fee. Now, Wickert said, he needs to double that.

Robert Satnick, a mortgage broker in California’s San Fernando Valley, said he has a customer whose efforts to refinance a loan at a lower rate might cost her about $600 a month more because the value of her condominium has declined.

The owner has good income and a FICO score in the high 700s, he said. The dilemma is that the value of her home has dropped to about $400,000, the amount of her mortgage. As a result, banks will charge her an upfront fee of 1.75 percent on a 6 percent refinancing. She also has to buy private mortgage insurance, adding another $63 a month to her cost.

‘Out of Reach’

“This is now a great opportunity to buy or refinance,” said Satnick, 44. “But getting the mortgage has gotten so hard it’s putting those properties out of reach of a lot of people.”

Another strain on consumers is a planned increase by Fannie Mae of add-on fees called loan-level price adjustments, which lenders often pass on to borrowers. Someone with a 699 FICO score borrowing 80 percent of the value of a home used to pay 1 percent in price adjustments. As of April 1, Fannie Mae will raise that to 1.5 percent. For a borrower with a 659 score, the adjustment will climb to 3 percent from 2.25 percent.

“These are targeted pricing adjustments aimed at aligning price with risk for the highest risk products in the market today, including interest-only loans, cash-out refinancings, low credit scores, high loan-to-value loans and condos,” said Fannie Mae spokeswoman Amy Bonitatibus.

Staff Reductions

Another issue is that mortgage lenders have eliminated jobs, slowing down the approval process.

“We’re very thinly staffed because we don’t know how long this will last,” said Christopher M. George, president of CMG Mortgage in San Ramon, California, referring to the global financial crisis.

George said he has gone from almost 800 employees in 2006 to 250. Nationwide, employment in the mortgage industry declined to 280,000 in December from 505,000 at the peak in February 2006, according to data compiled by the Mortgage Bankers Association in Washington.

Even with a smaller staff, George said, his underwriters do more checking than in the past. Before the crisis, he said, CMG asked borrowers to fill out an Internal Revenue Service form that allowed the lender to confirm income information, though it rarely sent the form to the IRS. Now, George said, CMG sends the form in before the closing, scrutinizes appraisals and contacts banks to check on the account balances of the borrowers.

“Everything is checked, and that makes it harder for some people,” he said.

Refinancing Program

Fannie Mae, taken over by the government in September after losses on its mortgage holdings, says it is doing what it can to help borrowers and is urging mortgage bankers to do the same.

A new program called DU Refi Plus that takes effect April 4 is intended to make it easier for consumers to refinance their mortgages, even if the value of their homes has declined. Lower FICO scores will be accepted, the requirement for an appraisal or home inspection will be waived in some cases, and borrowers will be able to submit a single pay stub to confirm their salaries rather than more extensive documentation.

Fannie Mae says it still won’t be easy to make low mortgage rates more accessible.

“There needs to be some creativity to get back into the marketplace and get through this fear,” said Fannie Mae’s Evans. “The message we’re trying to promote is we can’t be afraid to lend. We want to get back to the mentality of looking at prudent ways to say ‘Yes.’”

Wickert, whose mortgage-approval rate has declined to 93 percent from 98 percent a year ago, said the issue requires a flexibility that only a few lenders are showing. The customer who was rejected by three banks got her mortgage approved by a fourth, which focused on her high income and credit score, not the appraisal rule, he said, adding weeks to the process.

“A lot of people are frustrated because the rates look good, but someone has raised the bar on them,” Wickert said.

The Wall Street Journal hits the nail on the head in this article.  Our mortgage business, Commodore Mortgage Group , gets calls everyday from New York area mortgage clients who need a jumbo mortgage....and boy, is it tough to find them a lender....  especially for those who need a mortgage for a coop or condo. As I have said in previous posts, the banks need to start using some of the TARP money for jumbos if the housing market has any chance of stopping the bleeding.

By NICK TIMIRAOS

Washington is trying to ease the mortgage crisis by helping people refinance into home loans with better terms. But one group is being left on the sidelines: borrowers with loans too big to qualify for government backing.

President Barack Obama's housing stability plan, announced last week, excludes such borrowers from nearly all of its mortgage-bailout provisions. Instead, it focuses on middle-income consumers who have lower, so-called conforming loans. Such loans top out at $417,000 in most parts of the country, though they can run as high as $729,750 in certain pricier markets, such as parts of California, New York and Hawaii.

View Slideshow

Bryce Boyer for The Wall Street Journal

Neil Littman, who lives near Boulder, Colo., says conforming-loan limits in the area are too low.

Anything bigger is called a "jumbo" loan -- and not only is the government ignoring this segment of the market, so are lenders, few of whom are originating or refinancing jumbo mortgages. The reason: Jumbo loans are too large to be guaranteed by a government-backed mortgage agency, such as Fannie Mae or Freddie Mac, meaning banks assume the risk if the loan goes bad. In the current lending environment, few banks want to take on any risk.

That's hurting borrowers like Pete Zipkin, who's the kind of affluent customer that banks once coveted. The 35-year-old technology executive -- who says he has a spotless credit record and at least 20% equity in his home -- has come up empty-handed in his search for a jumbo mortgage of more than $1 million for his recently built five-bedroom home in Alamo, Calif., near San Francisco.

Unable to find a fixed-rate mortgage when his construction loan expired last fall, Mr. Zipkin now has a variable-rate loan that adjusts monthly. The rate is currently 5%, but it can go as high as 12%. He says banks have turned him down in part because they are worried about falling home prices in California, even though price declines in Alamo, where the median home price is $1.3 million, have been less severe than in the rest of the state.

"If somebody has the income, the equity and the credit rating," they should qualify for a loan, Mr. Zipkin says.

'Buying Down' a Mortgage

Many homeowners in high-priced markets are experiencing similar difficulties, and are left with few options other than to raid their savings or retirement accounts and use the cash to "buy down" their mortgages. In some cases, home buyers need to put up a large down payment, often 25% or more, to qualify for a jumbo mortgage. Others are bypassing jumbos altogether and putting up enough cash to become eligible for a lower-rate conforming loan.

"Every single day I'm talking to people who have a jumbo loan, and I can't do anything for them," says Jeff Lazerson, a mortgage broker in Laguna Nigel, Calif.

While total mortgage originations fell by 17% in the fourth quarter from the previous quarter, jumbo originations fell by 42% to $11 billion, according to Inside Mortgage Finance. That's the lowest volume ever tracked by the trade publication, which has figures dating to 1990.

ING Direct, a unit of ING Groep NV, is one of the few lenders that is boosting jumbo originations, though it requires a minimum 30% down payment in the most expensive housing markets, up from 20% earlier last year. For condos, ING requires a minimum 45% down payment.

"If you have been able to ... save for a down payment, that to us speaks volumes about your character," says Bill Higgins, ING's chief lending officer.

Like most jumbo lenders, ING offers mainly "hybrid" adjustable-rate mortgages that carry a fixed-rate for five or seven years and then reset annually to an adjustable rate. ING is offering initial rates as low as 5.5% for a seven-year adjustable-rate jumbo mortgage. Last week, the average for a 30-year conforming mortgage was 5.22%, according to HSH Associates, a financial publisher.

Higher Rates

Jumbo borrowers have always paid slightly higher rates than conforming-loan borrowers, in part because luxury homes can be harder to sell quickly for their full price if a homeowner defaults. But the gap between jumbo and conforming loans, historically around 0.3 percentage point, is now about 1.55 points, with jumbo rates averaging about 6.77%.

Some banks, though, are quoting much-higher jumbo rates. Mortgage brokers say that indicates that lenders are reluctant to make jumbo loans and are setting their prices high to deter new deals. For example, Taylor, Bean & Whitaker Mortgage Corp. in Ocala, Fla., recently listed a 7% rate on a 30-year fixed-rate jumbo loan, but charges up-front origination fees equal to 5% of the loan.

Real-estate professionals say that the lack of financing for high-income consumers is putting extra pressure on affluent communities and causing prices to fall even further. "The million-dollar-and-above market is sinking like a lead weight," Mr. Lazerson says.

Frustrated Buyers

That is frustrating potential buyers like Brandon Steele, a vice president of marketing for a food-products company, who was approved by his credit union for a $990,000 loan last year to buy a home in the Sherman Oaks section of Los Angeles. He had hoped to move his growing family out of the single-family house he has rented for the past four years and into a larger one. Those plans fell through when his credit union told him in December that they were getting out of jumbo lending.

"We thought we were being prudent by not jumping into the housing market when it was overinflated," he says. "It's a catch-22. Now that we want to purchase, we cannot get financing."

Mr. Steele says that he and his wife have high incomes and a solid credit rating, but that the money he had planned on using to make a larger down payment was lost in the stock market. He says his only option now is to wait for home prices to fall another 20% or to save an additional $100,000.

"Short of moving into a two-bedroom apartment or not funding my 401(k), I can't save that kind of money in a year," he says. "If you live in a high-cost area, there's a whole different standard. Everything's a jumbo loan." Mr. Steele says that for now, he's hoping his credit union, where he's been a customer for 10 years, will reinstate his pre-approved status and fund the loan.

The lack of financing is particularly acute in markets where rising home prices have made jumbo loans a necessity for even middle-class borrowers, such as New York City, coastal California and Washington, D.C. "If you own a $650,000 home in many parts of this country, you're not a wealthy person by any stretch, and you're being cut out of any relief," says Guy Cecala, publisher of Inside Mortgage Finance.

Around 4% of all borrowers have loans that exceed conforming limits, according to an estimate by First American CoreLogic. But that share rises in high-cost states such as California, at 17%, and New York, at 8%.

Some jumbo clients -- enticed by historically low conforming rates -- are willing to dip into their retirement savings to lower their balances. Neil Littman, for one, estimates that he'd save $300 a month if he paid $25,000 to bring his loan down to the $417,000 limit in Erie, Colo., a bedroom community about 30 minutes east of Boulder.

"Right now I'm trying to conserve cash, but to get the savings on the interest rate, I'm willing to put more money down," says the 38-year-old, a commercial real-estate broker.

Mr. Littman, who purchased his four-bedroom home in April 2007, laments the fact that the Boulder area doesn't have a higher conforming-loan limit. Median home prices in Boulder are nearly $650,000, though median prices for the county are much lower, at around $360,000.

Raiding the 401(k) Account

Other borrowers are raiding their 401(k) accounts in order to qualify for a cheaper mortgage. Jon Eisen, a San Diego mortgage broker, says that one of his clients -- a dentist with a $1 million jumbo loan -- is considering pulling $450,000 from a retirement savings account to pay down his "interest-only" adjustable rate mortgage, in which principal payments are deferred for a set period. That would allow him to refinance into a fixed-rate conforming loan.

Randy Kobata, who lives in Santa Monica, Calif., says he's considering taking $70,000 out of his savings to pay down his mortgage in order to get to the conforming limit. He isn't able to refinance his adjustable-rate jumbo loan from Washington Mutual Inc., now a unit of J.P. Morgan Chase & Co., because the value of his two-bedroom home has declined by $100,000 in the past two years. Meanwhile, the 31-year-old, who works in commercial real estate, has asked the bank for a rate reduction.

Rather than dip into savings to get a better rate, some advisers say, clients are better off holding tight. "If your home has lost 15% in two years, why pay down just to refinance?" says Craig Vogt, a mortgage broker in Brooklyn, N.Y. "It's like losing money two times."

My business partner, Gene Choi,and I were interviewed today by NBC in our New York office for a story on the mortgage bailout plan proposed by President Obama.  We watched the speech in our conference room with NBC reporter Mike Taibbi and then he chatted with us for about 20 minutes to get our feedback.  I think that we did a pretty good job of digesting the mortgage bailout plan on the fly, but you would never know that by the 10 seconds that we actually appear on air!  Hey, that's show biz...

Here is the piece.  Commodore on NBC Nightly News Let me know what you think.

Lenders drop mortgage brokers

Some big banks are cutting out mortgage brokers and having lending generated by their own people. That could be bad for consumers.

YORK (CNNMoney.com) -- Some big banks have cut back on doing business with mortgage brokers - and if the trend continues, many mortgage brokers could close down.

That may be bad news for consumers because fewer brokers could lead to a less competitive marketplace and more expensive home loans resulting from consumers not being able to easily comparison-shop rates.

"The banks want to get rid of mortgage professionals to reduce competition," said Alan Rosenbaum, founder of GuardHill Financial, a New York City-based brokerage firm. "It's not good for consumers."

A few years ago, according to Rosenbaum, mortgage brokers were responsible for 80% of the mortgage-lending business in America. He said that's probably under 70% now and dropping.

The actions of two big banks have helped push that percentage down.

JP Morgan Chase (JPM, Fortune 500) announced in January that it would end its so-called wholesale operations. It will no longer fund loans arranged through brokers, instead it will make loans mostly through its own offices. And Citigroup (C, Fortune 500) said it will cut back the number of mortgage brokers it works with to 1,000 from 10,000.

"Our customers are best served when a mortgage officer works directly with them, explains our products clearly and then helps them carefully evaluate the choices in light of their personal financial situation," according to an internal Chase memo.

However, brokers say they perform a needed consumer service by monitoring offers from an array of lenders, picking and choosing the best deals. That helps keep rates low because lenders have to make their terms attractive to keep their volume flowing.

Borrowers going into a Chase branch for a mortgage loan would, on the other hand, only receive the terms available through Chase. If brokers disappeared, borrowers would have to shop all the individual banks to compare deals.

Marc Savitt, president of the National Association of Mortgage Brokers, suspects that banks like Chase may think they can increase profits by cutting out the middlemen, but the added costs of bricks-and-mortar operations will ultimately make the business less efficient. Loan officers may find themselves sitting around waiting for customers to come in rather than fielding applications from mortgage brokers.

Chase opened a slew of new branches lately, including 2,200 as part of the Washington Mutual acquisition it made this past fall.

"Five years ago, we had 600 branches, now we have 5,000," said Thomas Kelly, a Chase spokesman.

Despite Chase and Citigroup's actions, John Courson, president of the Mortgage Bankers Association, does not think all mortgage brokers will be driven from the business.

"Every lender has its own business model," he said. "Chase made a decision to only lend through its personnel, [but other large lenders] will still need loan production. Mortgage brokers will continue to be an important part of the mortgage channel."

Chase took the step of discontinuing its wholesale lending for two main reasons, according to Kelly. For one, "The best people to originate the loans, we believe, are those working in our bank branches," he said. Secondly, Chase determined that loans originated by brokers defaulted at higher rates than did bank-originated loans.

The brokers scoff at that. "Mortgage brokers don't develop their own products, their own guidelines and parameters," said Savitt. "They take applications; Chase makes all the decisions."

"Mortgage brokers have been blamed for everything from tooth decay to global warming, and it's baloney," added Allen Hardester, a Maryland-based broker.

He pointed out that no mortgage broker ever underwrites a loan, creates a loan program or approves an application. Lenders always have the final say.

And, if the loans from brokers did perform poorly, it's because lenders encouraged, nay prodded, brokers into bringing them more and more poor-quality customers during the boom years. Subprime mortgages were very profitable, before they started to default at higher and higher rates.

"The lenders dangled large carrots in front of brokers," said Rosenbaum. "They told me, 'Unless you give us more subprime business, I can't improve your pricing for your good customers.'"

Now, he hardly deals with big banks at all. "We haven't done much business with them for more than a year. Banks are throwing the baby out with the bath water. They don't know the good mortgage brokers from the bad."

So far, the other big banks, Wells Fargo (WFC, Fortune 500) and Bank of America (BAC, Fortune 500), have not followed Chase and Citi's leads. "[These] lenders may be looking at this as an opportunity," Savitt said. "They said they were committed to the broker channel and would expand it," he said.

If that's true, it shouldn't affect the market too much even if two big-hitters drop out.

"It will remain a competitive environment," said Courson.

Plus, he said, the there will be a flight to quality. "I think even for banks that continue to take mortgage broker-originated loans, there will be much higher standards."

That includes requiring brokers to show greater stability by demonstrating higher net worth and posting higher surety bonds (a kind of performance guarantee).