March 31, 2013--Not a New York State of Mind: Avoid lenders who are not from around here…
Taking a Snap Shot of Residential Lending
If you are in the process of buying an apartment and if you are obtaining financing in connection with that purchase, you are now well aware of how difficult completing the underwriting of your loan can be, even if you have outstanding credit and significant income and assets. Factoring in ever changing Fannie Mae, federal and state banking laws and regulations, increased scrutiny of the co-op or condo’s finances, and chaos in the residential lending space generally, getting a loan to the closing table, under the best of circumstances, is a challenge.
An Ingredient to Keep out of the Soup
With increased market activity and with many purchasers coming to New York from another state or from outside the country, lenders who hail from other places are finding their way into the New York market. As Jimmy Durante was fond of saying, "everybody likes to get into the act". Purchasers who insist on using out-of-state lenders who claim to be familiar with the New York co-op and condo environment do so at their peril. Borrowers who are told they have “preferred status” because of the size of the account balances they maintain, will be in for quite a shock when the guys in underwriting show up in the hazmat suits. To say that there is a vast schism between the sales and account people and the back office underwriting departments cannot be overstated. No matter what assurances a customer is given by his account representative or the sales person at the bank, all bets are off on whether the loan will fund until the loan application documents have been put through the spin cycle several times.
Use the Pre-Approval Letter for Kindling
Despite everything that has transpired in residential lending over the past five years, borrowers still wish to believe that obtaining a “pre-approval” letter from a lender actually means something. It does not. As I have pointed out many, many times, even the issuance of a loan commitment letter, chock full of conditions, has a long way to go before a cleared to close letter is issued and the happy talk at the closing table commences.
Residential Reality: Borrowers Beware
The overheated market that we find ourselves in has a unique feature. Unlike the last go round when the lending spigot was left open and unattended, funding for residential loans is extremely difficult at the moment. The market appears to be driven by low inventory and pent up demand, but the financing component continues to foul up transactions and leave borrowers in difficult situations, particularly if they are lulled into signing all cash contracts. Sellers have become quite demanding in the past 90 days and that trend will continue for the foreseeable future. That being said, make sure your lender is active in our market and has a recent lending history with the co-op or condo in question. Chasing a low rate with a lender who doesn’t understand the how the isle of Manhattan operates, is a huge mistake.