I know that it should come as no surprise, but the knee-jerk reaction of the lending industry has begun to have an adverse effect on Manhattan condominiums. Fannie Mae is enforcing guidelines that they made exceptions for in the past, added some new ones, and will not buy a loan from a bank if the building is not in compliance. Consequently, the major banks won't write loans in buildings that don't have FNMA approval. They and other lenders are also following Fannie Mae guidelines for loans that are way above FM limits as a way of creating a more secure/marketable portfolio. In the past, if a building did not have FNMA approval, it was easy for the banks to find investors who would buy packaged loans. However, that secondary mortgage market has dried up, and the banks are relying on FNMA.
In the free-wheeling days of easy money, when the banks were giving anyone a loan on almost any building, apartments in New York condominium buildings were able to command a premium. Condos were selling at a 20 to 25% premium over comparable co-ops, partly because there seemed to be no rules, and board approval is not an issue. [Oversimplified? Yes; but please read on...] Co-op boards typically only allow a maximum of 75% financing, and the range is anywhere from 80% to no financing allowed (in many "old money" buildings). Co-op boards require approval if an owner/shareholder wants to refinance, and generally do not allow lines of credit using the shares as collateral.
Condos are still selling for a premium over co-ops, but there's trouble in paradise. Manhattan Co-ops are being looked upon more favorably by the banks in today's world, due in part to their relative financial stability.
Fannie Mae is enforcing their guideline that does not allow a single entity to own more than 10% of the 
units in a building. [Rent-stabilized units are usually exempt] Owners in several luxury buildings in Manhattan are watching the value of their home plummet further than it already has, because the major banks won't underwrite loans in the building. Earlier this week one of my customers wanted to pursue an apartment in "The Corinthian" on 38th Street in Murray Hill. My procedure includes calling one of my mortgage brokers to check on a building before getting involved in negotiations. The Corinthian has 864 units, one of the nicest pools in Manhattan, a health club, playroom, etc. There is a huge marble-clad lobby with a doorman, a concierge, and a valet. Imagine my surprise when I was told that the building is on the declined list, and one of the reasons is that the sponsor still owns 16.5% of the units; and hasn't sold one in five years. My buyer could get a loan from a portfolio lender, but the interest rate is more than ½% higher than what Citibank/Wells Fargo/Bank of America/Chase are charging. The other reason that The Corinthian is on the declined list is also affecting many other condo buildings in New York:
The condominium's budget does not include a line item calling for a 10% reserve fund. Whereas co-ops usually have maintained reserve funds, most condos here in Manhattan have kept their common charges as low as possible, and institute an assessment if they need to make a capital improvement/repair. Condo boards are kicking up a fuss, because they will have to increase their common charges to cover the 10% reserve. A Catch-22 is that when they raise the common charges, it will also result in a decrease in values, but at le
ast buyers will be able to get FNMA loans.
It has become more important than ever for a buyer to work with a qualified real estate professional who knows the market, and has a support team (lenders, attorneys, etc) that can help to navigate through the financing and legal mine field that faces us today.
Go to www.LouSnitkin.com for New York Apartments
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