JUST 3.5 % DOWN: Taxpayer Funded FHA Now Guaranteeing Manhattan Luxury Condo Mortgages - Another Stealth Bank Bailout

Whitney Gollinger, marketing chief for a Manhattan condo building with an outdoor movie theater and panoramic city views, is highlighting a different amenity to spur sales: the financial backing of the federal government.

The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.

“It’s a government seal of approval,” said Gollinger, a director at the Developments Group of New York-based brokerage Prudential Douglas Elliman Real Estate. “We need as many sales tools as we can have these days, and it’s one more tool.”

The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is providing a lifeline to new Manhattan luxury condominiums after sales stalled. Buildings featuring pet spas, concierges and rooftop lounges are applying for agency backing to unlock bank financing for purchasers. The FHA guarantees that if a homebuyer defaults on his mortgage, the agency will pay it.

At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing since the agency loosened its financing rules in December, according to a database of applications kept by the U.S. Department of Housing and Urban Development. The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent. About 1,900 apartments in New York’s most expensive neighborhoods would be covered by the applications.

Filling a Void

The agency also offers insurance to half of all mortgages in a single building after previously setting a limit at 30 percent, according to the new standards, which expire in December. The entire property must be approved for a buyer to get backing. Most of those that applied in Manhattan are buildings converted to condos or built since 2007.

The FHA is filling a void left after mortgage-finance agency Fannie Mae tightened its condo lending standards last year. The Washington-based company won’t back loans made in new buildings where fewer than 51 percent of the units are in contract, sometimes setting a requirement as high as 70 percent.

That in turn makes mortgage lenders hesitant to make loans at developments under those thresholds, said Orest Tomaselli, chief executive officer of White Plains, New York-based National Condo Advisors LLC, which advises condominiums on how to adhere to Fannie Mae and FHA standards.

‘Not an Accident’

“It’s not an accident that the FHA is offering this -- not private lenders,” said Christopher Mayer, senior vice dean at Columbia Business School’s Paul Milstein Center for Real Estate in New York. “An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.”

In New York City, the priciest urban U.S. housing market, the FHA insures loans of as much as $729,750, and permits buyers to borrow up to 96.5 percent of the price.

No buildings in Manhattan applied for FHA recognition between 1998 and 2008 -- though in those years the program didn’t require an entire property be approved and condo buyers could seek FHA-insured loans on their own, Tomaselli said.

• Continue reading (there's MUCH more) at Bloomberg

Comments

[DailyBail]

How Britain Is Tackling The Problems America Continues To Ignore

http://www.economist.com/node/16791720

[DailyBail]

WASHINGTON (MarketWatch) -- In a sharp critique of Federal Reserve policy by a sitting policy member, Thomas Hoenig said Friday that interest rates near zero were "a dangerous gamble" in a period of moderate growth.

http://www.marketwatch.com/story/hoenig-calls-fed-policy-dangerous-gamble-2010-08-13

[dropouteconomist]

Actually, this is a common misconception about FHA loans provided by HUD. FHA does not use any tax payer funds to run its mortgage operation as it is a self funded program. Buyers choosing to use the FHA loan program currently pay a 2.25% up front mortgage insurance premium (UFMIP) which is used to run the program and off set any losses. Additionally, borrowers are currently required to pay .55% annual MI payment spread over 12 months. This means on an 729,750 mortgage the buyer pays 2.25% ($16,419.37) to HUD and then makes 334.47 monthly payments to HUD for up to 16 years.

These are supposedly changing in October to 1.25% UFMIP and .90% in annual payment since FHA is bearing more of the burden these days...but this program does not use tax payer funds....and borrowers can choose not to use the program.

[DailyBail]

@ Drop Out Economist

most of us understand that already...the point is that the FHA is going to need a bailout...it has taken on extraordianry risk in the past 18 months in order to support housing....it is a ticking timebomb...the only Q is how large of a bailout will be needed when their mortgage bets fail...see these stories...

http://dailybail.com/home/future-bailout-mortgage-mystery-at-the-fha.html

http://dailybail.com/headlines/fhas-dilemma-back-loans-or-stay-solvent.html

http://dailybail.com/home/more-homebuyer-tax-credit-madness-20-year-old-uses-fha-loan.html

http://dailybail.com/home/congressman-issa-on-moodys-the-countrywide-bribery-cover-up.html

http://dailybail.com/headlines/fha-bailout-coming-soon-to-a-theater-near-you.html

[DailyBail]

a little more...nyc condos have MUCH further to fall...FHA gets a 3.5% cushion....yet shiller and others think condo prices could still fall 25% in manhattan...that makes for a pretty substantial loss for fha and ultimately taxpayers...

[dropouteconomist]

Well, the problem is far larger than just FHA....and unless the government decides to allow real price discovery in housing and therefore the banks...we will slog through this for years and are already seeing the game of cook the books and hold properties off the market faltering. The government had the opportunity to do the correct thing... bring in failed banks, wipe out shareholders, clear assets at true market and make bond holders as whole as possible....but instead we are in this disaster. Even though this would have cause a deeper recession it would have been shorter.

[DailyBail]

could not agree more...you are one of us...take the pain up front and move on...instead we got a change to fasb 157 and now it's mark to whatever the hell you want...so the game of charades continues...indefinitely...

[S. Gompers]

"so the game of charades continues...indefinitely... "

I think it is more like a badly rigged game of musical chairs...

http://www.youtube.com/watch?v=8oivBF-H99Y&feature=related

[S. Gompers]

Holy cow! I made it...

http://www.endoftheinternet.com/

[texasdar]

Or as Ellen plays on her TV show, Blind Folded Musical Chairs. When the music stops you sit back and laugh your Ass off as they waller a round blind trying to find a empty chair.

Its a blast, unless your the last one standing.......!

[Z]

I thought this was the end of the internet...

Katie Couric blaming Dubya for Al Gore's divorce.

Shouldn't it begin and end with Al Gore?

[Z]

http://www.youtube.com/watch?v=8yI1-_1E9OY&feature=related

[Thermopylae]

We mentioned this topic (3.5% down) in light of recent topics regarding banking policy and censorship. Feel free to reference "Coventry League Blogentary" to read the short blog post. In contrasts the efforts in Beijing which now requires 40% down, up from 20% down...

[robertsgt40]

“An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.”----No kidding. If a bank thinks the deal will go south, why would the govt(taxpayer) buy into it? That's easy. Guaranteed profit at taxpayer expense. Even Stevie Wonder can see thru this one.