Neither a Borrower nor a Lender Be?
It has always been true that borrowing was easiest for people who did not need the money. Of course since the Lehman collapse even rich people have not had such an easy time borrowing money. And since Dodd-Frank (the bill which Congress enacted post-meltdown to more closely regulate the banking and mortgage industries) became law it is also becoming harder and harder for mortgage brokers to help buyers FIND money, both because more and more capital sources want to do their own loans and because the provisions of Dodd-Frank make it harder than ever for mortgage brokers to get paid. So here we are, in an environment in which money is hard to come by, mortgage brokers are more challenged than ever, and most funding sources want to be approached directly. Who can get a mortgage, and how?
At Warburg, we are increasingly working with direct sources. Met Life, with whom we now have an affiliation, has worked closely with us and our buyers on new development deals. They are smart and proactive in their strategizing to get loans made. Many buyers are going to Wells Fargo or to Chase or Citibank. We also like many of the local banks, which make the loans for their own portfolios.
If you are looking for a loan, it is worth finding out from your agent or the building’s managing agent what banks have recently financed in the building. While this can be a Catch-22, since banks are only willing to make a certain number of loans in a building before they reach their maximum, the advantage is that the bank must have previously approved the building in order to have loaned there. And bank approval of a building is no small thing. Until 2009 we never had a situation in which a buyer’s credit was approved and then the bank wouldn’t lend in the building. After the recession began, that became commonplace. Did the co-op have adequate reserves in their annual budget for capital projects? No? No loan. Did the building have adequate insurance in the opinion of the lender? No? No loan. And so it goes. Things are a little easier now, but make no mistake about it – the lending environment has changed forever.
And credit scores? Another absolute Catch-22 situation. Do you have TOO MANY cards? Uh oh – bad for your score! Do you have too few? Uh oh – bad for your score! Do you have cards you don’t use? Uh oh-bad for your score! And, my personal favorite, has your credit score been checked too often? Uh oh – bad for your score! Thank God they now have credit brokers who can help you scrub your score when you discover that, even though you pay your bills regularly, your credit isn’t so hot for reasons you absolutely can’t understand.
Finally, if your credit is good enough, and your bank actually has money which it is willing to lend, and your building passes muster, then the actual appraisal has to come in at the right number. New York is a specialized marketplace, but in the wake of the real estate meltdown and the subsequent regulatory intervention, banks have been forced to relinquished control over which appraisers assess the properties on which they are offering loans. So appraisers from outside New York, who sometimes don’t even know what a co-op is, much less how to distinguish the qualities of one from another, show up and completely misjudge our properties. When the appraisals come in low (and they NEVER come in too high) either the lender reduces the amount of the loan or the buyer wants to renegotiate the deal. That is another reason we like MetLife: they work with a panel of local appraisers who actually know the buildings we work in!
Luckily all these steps are a little easier than they were in 2009, so if you are trying today you probably WILL get a loan. There now, that wasn’t so bad, was it…?