Haven't posted in awhile. Business has been pretty good lately, despite all the whining I do on this blog.
FHA is changing some of their condo guidelines which should play well in the NYC market. First off, they are lowering the required pre-sales to 30% which will help many of the new developments offer FHA loans until they reach that magic 51-70% threshold needed for FNMA approval. Another nice thing is that they are willing to allow condos with a right of first refusal clause in their by-laws if it's shown that it's not used for discrimination. That will play well in NYC where almost all of the condos have this clause.
There are a few pull backs in the new guidelines as well, such as a 50% concentration limit, and the requirement that the condo be transferred into the hands of the Homeownwer's Association 12 months from the time of the first sale. This doesn't matter as much to existing condo buildings, but new development condos will hate it since they may not be finished with construction within that timeframe.
All in all, I say "thanks."
Showing posts with label condo. Show all posts
Showing posts with label condo. Show all posts
Saturday, December 05, 2009
Tuesday, June 23, 2009
The Condo Approval Morass
It's not enough to qualify and approve the borrower, nor has it ever been, but when someone is buying in a condo or coop, the building must also be approved. This has become increasingly more difficult as condo / coop approval departments are overloaded increasing turn times, but also as Fannie Mae and Freddie Mac begin enforcing rules that up for years were not enforced.
One major hurdle with existing condos and new development condos is a line item in the budget for reserves that equals 10% of the budget. In most, if not all, of the other states in the Union, this is not an issue. But here in New York, it's becoming increasingly more of an issue. New York City has always gotten away without creating a reserve funds for 2 reasons. The first is that the NY Attorney General's office, which approves all condo offering plans, doesn't require it. The second is that here in NY the argument was made that if the budget ran low, or if a capital improvement was needed, there would be a special assessment to pay for it. Fan/ Fred went along with this, but not anymore.
So most budgets on new developments (though they are faster to change, needing the sales) and existing condo project don't have a reserve line item in the budget. They frequently have a contingency line item, but it doesn't add up to anywhere near 10% of the annual budget.
What do you do? Create a reserve analysis, that's what. You'll have to show that the contingency is enough for the capital improvements without a special assessment to the condo owners. This can be done by aggregating the amount that the contingency will accumulate in the next years before any major improvements or repairs need to be done. This is especially useful with new development where the assumption is that since it's newly built, it will be 10-25 years before the building will require a new roof, exterior work or other major expenses or improvements.
Another hot button is the pre-sales requirement for Fannie Mae approval. This has increased to 70% of the units for most developments. This is coupled with a new math in determining the pre-sales in a building as well. Sponsor held units are now counted, whereas before they were not, also any rental units (here in NYC some apartments in a conversion are rent regulated making it difficult to remove tenants) are now counted. Before they were not. Also any investor owned units are not counted. So what you have left is all of the owner occupied and second home units in a building. That can be tricky for areas like Miami, LA, SF, Vegas and NYC. This is on top of an already down market, so it's reducing the deal flow even more, since many banks will not offer financing in a building that is not approved by Fannie Mae. Even if the mortgage is not being sold to them, it's considered the gold standard for condo / coop approval.
If the building is a ground up new construction and less than 200 units, then it's possible to get it approved at 51% pre sold. If it's a conversion of any size then it's more likely to be 70%. There is a process by which Fannie Mae will do a full review of the building and approve it at a lower pre sale, but generally speaking it needs to be at least 51% pre sold (remember these need to be owner occupied or 2nd home buyers) and have good sales velocity. Also the developer needs to pony up a $1200 application fee along with $30 per unit for the review. There is quite a bit of documentation that is needed as well.
If that wasn't enough, the scrutiny of the building's insurance coverage has also gotten a bit tougher. The Fidelity Bond coverage is a bit more restrictive, also if the building's coverage does not cover an individual unit from the studs in, then the homeowner will need to buy insurance to make up the difference.
Managing Agents don't seem to be stepping up to the plate in this changing world either. They aren't completing questionnaires fully so that the building can be properly assessed. This is despite the fact that in NYC, they charge a fee for its completilon, sometimes as high as $125. They need to understand that they are doing their owners a disservice by not completing the questionnaires and providing as much information as they can to help the approval process along. Everyone in the process understands that it's a hassle, but it's not the man on the street's decision, it's much, much higher up than that.
One major hurdle with existing condos and new development condos is a line item in the budget for reserves that equals 10% of the budget. In most, if not all, of the other states in the Union, this is not an issue. But here in New York, it's becoming increasingly more of an issue. New York City has always gotten away without creating a reserve funds for 2 reasons. The first is that the NY Attorney General's office, which approves all condo offering plans, doesn't require it. The second is that here in NY the argument was made that if the budget ran low, or if a capital improvement was needed, there would be a special assessment to pay for it. Fan/ Fred went along with this, but not anymore.
So most budgets on new developments (though they are faster to change, needing the sales) and existing condo project don't have a reserve line item in the budget. They frequently have a contingency line item, but it doesn't add up to anywhere near 10% of the annual budget.
What do you do? Create a reserve analysis, that's what. You'll have to show that the contingency is enough for the capital improvements without a special assessment to the condo owners. This can be done by aggregating the amount that the contingency will accumulate in the next years before any major improvements or repairs need to be done. This is especially useful with new development where the assumption is that since it's newly built, it will be 10-25 years before the building will require a new roof, exterior work or other major expenses or improvements.
Another hot button is the pre-sales requirement for Fannie Mae approval. This has increased to 70% of the units for most developments. This is coupled with a new math in determining the pre-sales in a building as well. Sponsor held units are now counted, whereas before they were not, also any rental units (here in NYC some apartments in a conversion are rent regulated making it difficult to remove tenants) are now counted. Before they were not. Also any investor owned units are not counted. So what you have left is all of the owner occupied and second home units in a building. That can be tricky for areas like Miami, LA, SF, Vegas and NYC. This is on top of an already down market, so it's reducing the deal flow even more, since many banks will not offer financing in a building that is not approved by Fannie Mae. Even if the mortgage is not being sold to them, it's considered the gold standard for condo / coop approval.
If the building is a ground up new construction and less than 200 units, then it's possible to get it approved at 51% pre sold. If it's a conversion of any size then it's more likely to be 70%. There is a process by which Fannie Mae will do a full review of the building and approve it at a lower pre sale, but generally speaking it needs to be at least 51% pre sold (remember these need to be owner occupied or 2nd home buyers) and have good sales velocity. Also the developer needs to pony up a $1200 application fee along with $30 per unit for the review. There is quite a bit of documentation that is needed as well.
If that wasn't enough, the scrutiny of the building's insurance coverage has also gotten a bit tougher. The Fidelity Bond coverage is a bit more restrictive, also if the building's coverage does not cover an individual unit from the studs in, then the homeowner will need to buy insurance to make up the difference.
Managing Agents don't seem to be stepping up to the plate in this changing world either. They aren't completing questionnaires fully so that the building can be properly assessed. This is despite the fact that in NYC, they charge a fee for its completilon, sometimes as high as $125. They need to understand that they are doing their owners a disservice by not completing the questionnaires and providing as much information as they can to help the approval process along. Everyone in the process understands that it's a hassle, but it's not the man on the street's decision, it's much, much higher up than that.
Sunday, December 23, 2007
Preferred Lender in Bridgeview Tower
Sunday, May 13, 2007
1 BR Riverdale Coop for Sale
Check out the walk-through here.
Check out the listing here.
And of course, for financing on this purchase, click here.
Location: Riverdale
Check out the listing here.
And of course, for financing on this purchase, click here.
Sun-filled Riverdale 1 Bedroom
This delightful coop on the river side of Henry Hudson Parkway is on a high floor, offering gorgeous Riverdale views and lots of light from windows to the north and south. The Windsor offers a full time doorman, gym, parking, in-building laundry, outdoor swimming pool, storage, bike room and express bus service to the subway and the Metro North. The apartment offers many windows, a dining area, great closet space, windowed kitchen, a balcony facing south for all day sunlight in a quiet well maintained building. Southern & Northern Exposure for All Day Light
Balcony with Sweeping City Views Lots of Closet Space 24 Hour Doorman
Outdoor Swimming Pool In-Building Parking Available (no waiting list) Windowed Kitchen Dishwasher
Balcony with Sweeping City Views Lots of Closet Space 24 Hour Doorman
Outdoor Swimming Pool In-Building Parking Available (no waiting list) Windowed Kitchen Dishwasher
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Information
Contact Information
Pricing
Asking Price: $220,000.00
Flexibility: Negotiable
Additional Pricing Information: 80% Financing$658 Maintenance (42% Deductible)
Homeowner Dues: $658
Property Location
4705 Henry Hudson Parkway
Bronx, NY 10471
Bronx, NY 10471
Features
Bedrooms: 1
Bathrooms: 1
Parking: In-Building
Year Built: 1960s
Located on Floor #: 9
Floors in Bldg: 14
Square Footage: 700 approx
Agent Name: Jeffrey Loyd
Broker: Hydra Property Group
MLS #: 4705 Henry Hudson Parkway 9F
Attributes
Appliances
Range/Oven
Full Refrigerator
Dishwasher
Microwave
Building Amenities
Exercise Room
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Equal Housing Opportunity
VFLYER ID: 866308
Monday, March 26, 2007
Condo Conversion Update
Well one thing I could do is get the current mortgage holder to allow the conversion and move the lien to the condo still owned by the original owner of the 2 family.
They are keeping one of the units as their home. Currently they have 2 mortgages totaling more than the value of the remaining condo that they own. However if they payoff the Home Equity Line of Credit the proceeds from the sale of the other side of the house they are making a condo, then the existing first mortgage is less than 75% of the value of the condo they are continuing to live in. Confused yet?
So if I can get the existing lien holder to allow the change in property type and transfer the lien to just one of the units instead of the whole building, that might be a solution. There are, however, complications. First off, the mortgage is being serviced by a different company that the original lender, so that means dealing with 2 entities on the issue.
Also a change a property type effectively puts the mortgage in default and the lender could call in the whole note forcing the payment of the entire mortgage, which is a significant amount of money. More than the sale.
They are keeping one of the units as their home. Currently they have 2 mortgages totaling more than the value of the remaining condo that they own. However if they payoff the Home Equity Line of Credit the proceeds from the sale of the other side of the house they are making a condo, then the existing first mortgage is less than 75% of the value of the condo they are continuing to live in. Confused yet?
So if I can get the existing lien holder to allow the change in property type and transfer the lien to just one of the units instead of the whole building, that might be a solution. There are, however, complications. First off, the mortgage is being serviced by a different company that the original lender, so that means dealing with 2 entities on the issue.
Also a change a property type effectively puts the mortgage in default and the lender could call in the whole note forcing the payment of the entire mortgage, which is a significant amount of money. More than the sale.
Tuesday, March 13, 2007
Condo Buyers: The Stats
CondoDomain.com did a 2 month study on internet condo buyers in 33 markets in the US and Canada and found:
46% are young professionals, 20% are first time home buyers
78% are looking for a home for themselves (primary residence), 12% are looking for a second home
45% want to buy in a high rise building, 27% want to purchase in a low rise building
73% want to pay under $450,000, although 1% is willing to pay over $3,000,000 for their home
It seems that the luxury buyers were unwilling to register for this survey, and may be under-counted.
It's not so different than I might have expected, but it's nice to look over the data and establish a marketing plan.
46% are young professionals, 20% are first time home buyers
78% are looking for a home for themselves (primary residence), 12% are looking for a second home
45% want to buy in a high rise building, 27% want to purchase in a low rise building
73% want to pay under $450,000, although 1% is willing to pay over $3,000,000 for their home
It seems that the luxury buyers were unwilling to register for this survey, and may be under-counted.
It's not so different than I might have expected, but it's nice to look over the data and establish a marketing plan.
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