A couple of weeks ago, I had put my hand on a list from Bank United, where they were "blacklisting" many condominium buildings in South Florida, mostly in the area of downtown Miami and Brickell Avenue.
This is one more issue that real estate owners have to tackle today.
Finding a buyer is difficult enough. Finding a cash buyer for a unit at one of these buildings, is way harder.
Loans to foreign nationals are being made but at a much higher interest rate, and with larger down payments and this has discouraged many such buyers.
This new issue is complicating ever more the situation in areas already hit by foreclosures, high interest mortgages, and buyers' backing out of their contracts.
The problem is spreading, as I found out today in an article published in the
Daily Business Review:
February 13, 2008 By: Polyana da Costa
Beatriz Bustos has been trying to sell her Brickell condo for about a year.She has found a few prospects and has gotten close to sealing a deal several times but all the potential buyers ran into the same obstacle — they couldn't get financing.
"No one qualifies for financing," said Bustos, who is facing foreclosure.
But the problem isn't the buyers, it's the building — the Vue at Brickell.
What Bustos didn't realize is that her building has been blacklisted by lenders as have dozens of other condos in South Florida. Banks and mortgage lenders compile lists of buildings they find too risky for lending, and they refuse to finance purchases there.
And that further complicates the obstacles faced by owners of condo
units in these buildings.
Bustos bought the condo for $690,000 as an investment in 2005 and now can't afford the monthly expenses of nearly $5,000 that include two mortgages and association fees.
It's already tough to find buyers in the current market. And this drastically limits options. Bustos and other condo owners like her can't refinance, can't sell and unless they find a cash buyer are likely headed to foreclosure.
The Vue at Brickell is one of dozens of condos across mortgages.
In the Vue's case, the "high foreclosure rate and declining value" in the building is cited by BankUnited as the main reasons the property should be shunned.
The Vue is also on a list maintained by Popular Mortgage, but brokers say the project is widely avoided in the lending industry.
But the Vue is far from being alone.
Local and national lenders continue to add to the dozens of projects to the lists of condos that don't meet their loan criteria. Banks and other real estate lenders are loath to admit they have inventoried projects they refuse to lend in. To avoid controversy, some lenders instead say they keep lists of eligible projects.
The Daily Business Review obtained lists by three large local lenders, including Washington Mutual. Executives at other financial institutions refused to confirm their banks maintain such lists or did not want to comment for this article.
"Many of the lenders are not open about it," said one mortgage broker who asked not to be identified. "But when you send them an e-mail to inquire about a loan and they respond by saying they are not lending in that building, you assume they have an internal list."
These kinds of lists have always existed, said Michel Fayad, managing director of Miami-based American Mortgage Lending, but they were much shorter and didn't have as much impact on a lender's decisions in the past. The downturn in residential real estate — in particular the
condo market — has lenders on high alert.
The Washington Mutual document, which includes eligible and non-eligible projects nationwide, cites more than 40 ineligible projects in Miami-Dade County, about 25 ineligible in Palm Beach
County and about a dozen projects in Broward County.
A BankUnited list shows the majority of the projects the bank has categorized as "non-permissible-condominium projects," are in Miami. Most were added to the list in January.
BankUnited's list also includes the reasons the bank considers the various projects off limits.
In most cases properties are to be avoided for "high investor concentration and declining market value," but some are included because of pending litigation, delinquency issues with the homeowner's association, high foreclosure rates or how many loans a bank already has on units in the building.
The lists include finished buildings and projects still under development.
Prominent projects on BankUnited's list include the Related Group's 50 Biscayne and 500 Brickell; Terra Group's 600 Biscayne and 900 Biscayne, and Cabi Developers' Everglades on the Bay.
Executives at the sales centers for the projects declined to comment and messages left for the developers were not returned.
"Nonwarrantable"
There are a variety of reasons why a building would be branded as ineligible for lending. Most factors reflect criteria set by Fannie Mae and Freddie Mac, but some are based on lenders' internal risk-based criteria.
Loans that meet the standards of Fannie Mae [Federal National Mortgage Association] and Freddie Mac [Federal Home Mortgage Corp.] are eligible to be sold in the secondary market to the two government-sponsored but privately owned mortgage finance giants. For that reason, lenders have always found it safer to issue loans in projects that are eligible to be sold to those companies.
"Lenders need an exit strategy," said Grant Stern, owner of Miami-based Morningside Mortgage Corp. "If a condo is nonwarrantable they may lose that exit strategy."
A building may be deemed "nonwarrantable" if a large number of its condo units are owned by investors. About 70 percent of the building must be owner-occupied for it to be considered suitable to be sold to Fannie or Freddie, Stern said.
The number of pre-sales; litigation involving developers, condo boards, vendors or unit owners; condo association financial problems; and many other factors are also used to measure the risk.
Fannie Mae maintains a list of approved projects and provides lenders with the guidelines and a questionnaire to determine project's eligibility.
A project's eligibility can be revised as the status of the building changes. When a project is found ineligible under Fannie or Freddie guidelines, it may or may not affect the lender's decision but in the past six months the ineligible status has caused many lenders to stay away from those projects, Fayad said.
Lenders also are making decisions exclusive of outside guidelines, said Fayad, who used to work with 45 lenders willing to provide financing in a variety condo projects. That list of lenders has dwindled to about 20.
South Florida mortgage brokers say three Miami projects are notorious for being rejected by lenders — Jade at Brickell Bay, The Club at Brickell Bay and The Vue at Brickell.
The Jade and The Club at Brickell appear on at least three lists of projects ineligible for financing, including lists from BankUnited, Washington Mutual and Popular Mortgage.
Ocean View, a Sunny Isles Beach condo conversion project, appears in multiple lists, according to mortgage brokers, including one maintained by local lender Popular Mortgage.
A West Palm Beach condo conversion project, 2560 S. Ocean Drive, also appears on multiple lists. Representatives of the project's developer, Miami-based VH Capital Partners, did not return calls by deadline. Not all hope is lost
As difficult as it is to find financing, there is hope. Even in extraordinary cases like the Jade, buyers are still able to get financing, but a substantial down payment is required, Fayad said.
He said after many attempts he found a lender willing to finance a Jade condo for a buyer who was buying a unit out of foreclosure from a bank.
Miami-based Sunset Lending approved the loan, but the buyer had to put 40 percent down.
Foreign buyers, who want to take advantage of a weak dollar and who could rescue many condo developers in need of sales, are being asked to put down as much as 70 percent of the purchase price and many lenders won't provide financing to them at all, Fayad said.
Projects considered ineligible for financing by traditional lenders are finding more acceptance from "hard-money lenders," he said, but that comes with a price. Hard-money lenders normally are private investors willing to issue loans on real estate properties that are nonconforming with bank standards. They normally lend on shorter terms with higher interest rates and require lenders to put at least 30 percent down.
Buyers that normally would pay a 5 percent to 6 percent interest rate, should expect to pay more than twice as much when borrowing from "hard-money" lenders. With proper timing, some buyers and owners still might find financing, even if their building does not meet some of the lending guidelines. "I would like to think it can't get any worse," Fayad said. "But some lenders are still catching up. You may find a project listed as ineligible with one lender, but while the other lenders catch up, you may be able to get something for that building. Once they all catch up it will be much tougher."
Real estate broker Alejandro Diaz-Bazan, principal of Miami-based South Florida Foreclosure Group, said the condo market is being forced into a cash-buyer's market.
He is selective of potential buyers he takes on and requires they be pre-approved for loans. Even his high-income buyers are finding limited financing.
"They are putting down 40 to 50 percent of the loan value" he said, citing one client who had a Wachovia account in the seven digits and had to put down 50 percent on a recent purchase of a Miami condominium.
In many cases, if it is widely known that a building has been flagged, a lender that may not have compiled a list won't even take the loan application, he said. "It hurts the value in the building
tremendously." For that reason lenders tend to be careful how they categorize ineligible projects.
Melissa Gracey, a spokeswoman for BankUnited, said the bank's list is "risk-based."
"It's based on a lot of different factors and a lot of them mirror criteria from Fannie Mae," she said. Gracey said she didn't have more information about the lists and that the bank would not have a mortgage department representative available for comment by deadline.
Washington Mutual and Popular Mortgage executives also did not return calls for comment.
Developers of about a dozen prominent projects on the ineligible lists also did not return calls seeking comment on how the lending cutbacks affect their projects. But in many cases, developers are no longer involved and have sold out the buildings.
Before lenders begin to reconsider lending in the troubled buildings, there would have to be a sign of stability, Fayad said. The number of foreclosures would have to drop; more units would have to be owned by residents, not investors; and the condo market in general would need to improve.
But for now, lenders have to get used to realistic lending practices, Fayad said.
"These guidelines always existed but lenders were willing to go the extra mile," he said. "Now they are not, and we are back to giving mortgages to people who should have mortgages." In other words, speculators and risky borrowers need not apply.
"This is just the result of mistakes that should not have been made. A lot of people will be at loss before this market adjusts."
Henry B . Nathan is a Licensed Florida Realtor. Please visit my website to search for:
Florida Condos, Aventura Condos, Fort Lauderdale Condos,
Miami
