Property Grunt

Friday, March 30, 2007

What about Manhattan? Part 2

I want to thank everyone for responding to my entry. Even the ones that were more interested in snarky comments than strong arguments chocked with information.

Tom Acitelli, the Serjeant at Arms of the real estate section of the New York Observer, alerted me of a column that he had written several weeks ago about the Sub Prime Crisis in relation to New York City. In his email, he has stated to me that a sub prime crisis occurring in Manhattan is practically impossible because of the way Manhattan real estate works.

In Manhattan, though, the number of sub prime mortgage originations remains negligible. The prohibitively expensive housing here means less potential buyers and tighter reins on those who do make the sales cut. If you’re going to get a hefty loan for a $500,000 studio, you’re going to have to have good credit—or be backed up by someone with such (paging Mom and Dad).

But even if a buyer has good enough credit to get a loan for the typical 10 percent Manhattan down payment as well as a mortgage, co-op boards, which serve as gatekeepers for much of the borough’s for-sale housing, might still reject a buyer with shaky credit.

In short, in Manhattan, subprime mortgages aren’t common because they can’t be common. The system’s evolved to one favoring those with good credit or a lot of liquid money.

“Most of the borrowers in Manhattan are well-qualified,” said Jeff Appel, a senior vice president at Preferred Empire Mortgage Company.

Tom's article does shed a bit of light on Manhattan's stance on the Sub Prime Crisis and I do recommend that every one read it. However it has raised another question.

Wait for it.


OOOOOOOOOH. Grunt. Will you please s**t the f**k up? Is this what you do in your spare time?

Just bear with me folks. Just for a moment. Remember this part from Tom's article?

In short, in Manhattan, subprime mortgages aren’t common because they can’t be common. The system’s evolved to one favoring those with good credit or a lot of liquid money.

“Most of the borrowers in Manhattan are well-qualified,” said Jeff Appel, a senior vice president at Preferred Empire Mortgage Company.

I have witnessed this system in action when I saw one buyer who had an impressive portfolio of assets. But the board turned the buyer down due to the buyer's rather small salary and the fact the buyer was a bit snooty during the interview.

In order to get past the board you better have the goods. That means your finances have to be impeccable, especially if you are dealing with a co-op. A condo, you have a little more wiggle room.

But as Tom pointed out you need either good credit or a lot of liquid money. Some people have one or the other. But not everyone has both. Which leads me to my next question. What if having good credit and liquid money isn't enough?


Whoa, whoa. Just wait a second. Please bear with me. The evidence that Tom has presented is an airtight argument that Manhattan will not be affected by a sub prime fall out.

But that doesn't mean Mahattan is out of the cross hairs of the overall mortgage crisis. Like I have said before. A mortage is a mortgage. Sub prime or not. If you can't keep up with the payments, well then you are f**ked no matter how much money you make.

This article from Reuters points this out.

"Everyone's looking at subprime. The rock they aren't looking under are the adjustable rate mortgages and teaser rates and low money-down loans," said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world's biggest bond manager. "It's going to affect prime as well."

Kiesel said he sold his Newport Beach, California, home for more than $1 million in May last year after the property appreciated more than 20 percent in two years. He believes delinquencies and defaults will rise, weighing down most of the housing market.

California, with 3,384 foreclosures of higher-scale homes since December, is leading the nation, followed by Florida and New York, according to RealtyTrac. The MBA doesn't track foreclosure data by home value.


Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start.

"To define the problem as a subprime problem is short-sighted," Rosner said. "It's really seeing the tip of the iceberg as the iceberg."

As Tom stated before, you either have good credit or lots of liquid cash in order to survive in Manhattan. But will that be enough for those people who took the ARM option or those funky jumbo loans? As this article has pointed out, it isn't just the little guy getting squashed. The big bosses are getting slammed too.

Sheriff Leo McGuire presides over foreclosure auctions in Bergen County, New Jersey, where the bidding for a home reached $1.2 million last June -- a record for one of the wealthiest counties in the nation.

Homes sold on the auction block for as much as $852,000 this month -- more than quadruple the median home price in the United States. County officials believe they are close to setting another record soon.

This is Bergen f**king County which is the Chappaqua of New Jersey. People run here in droves for the school system and the community. It is a far cry from Newark. Yet their getting their asses kicked in right now.

Grunt. Stop acting like an alarmist dumbass.

Folks, all I am doing is raising these questions. Even with co-ops being vigilant in who gets into their buildings, there are still alot of condos out there. And as I have said before, Manhattan is insanely expensive even for doctors, lawyers and other professions that are known for their high salaries. There is a multitude people out there who have made other non-traditional arrangements for their financing in order to buy a piece of the Manhattan dream. Will they be able to sustain themselves through the end of days? Or will they be hearing these words?

"It's sad. It's just an awful feeling," she said. "You hope that you can come up with a financial plan to help people remain in their homes, but sometimes it's not the best thing for them."

These days, her calendar of eight counseling sessions a day, 40 a week, remains full. Increasingly, she offers different advice than devising financial plans to save her clients' homes.

"If they can't afford it, sometimes the best thing for them is to walk away," Guzek said.