Federal Housing Authority Now Insures Mortgages for Luxury Manhattan Condos

[amborin]

Manhattan Luxury Condos Try FHA Backing in `Game Changer'

By Oshrat Carmiel

(Bloomberg) -- Randall Zisler, chief executive officer of Zisler Capital Associates LLC, talks with Bloomberg's Julie Hyman about the implications of the Federal Housing Administration insuring mortgages for luxury apartments. 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. (Source: Bloomberg)
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 are listed at $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 now 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.

Seeking Approval

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 maintained 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.
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.

snip

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.
New development in Manhattan represented 23 percent of the sales market in the second quarter, compared with 35 percent two years earlier, according to New York appraiser Miller Samuel Inc. About 8,700 new apartments in the borough were empty as of June, partly because of a lack of available financing for buyers, said Jonathan Miller, president of the firm.


snip

The agency’s backing of luxury condos “doesn’t look good,” said Andrew Caplin, a professor of economics at New York University who co-wrote a paper titled “Reassessing FHA Risk.”
“Manhattan wealthy people -- is this really who the FHA was set up to support?” he said in an interview.

snip

http://www.bloomberg.com/news/2010-08-13/manhattan-luxury-condos-embrace-federal-help-in-game-changer-for-sales.html

[Dappleganger]

1. But welfare for the rich is OK...

they are more equal than the rest of us.

[Travis_0004]

2. FHA isn't free, nor is it welfare

You pay a premium to use an FHA loan. What if FHA loans on higher cost places turn a profit, and allow them subsidize cost for lower income borrowers? That would seem like a great thing to me.

Too many people have knee jerk reactions, and instantly think anything involving the rich is bad, without knowing most of the details. I don't know all the details either, but I'm not going to say this is good, or bad without knowing more.

Give me one downside of allowing companies to sell condos (which average Joes got paid to build).
A wealthy person buys the condo, and if FHA turns a profit, they use the money to help lower income people.

[Raineyb]

3. Who pays a premium? It allows you to buy a home with less money down

lower insurance costs, and lower closing costs. Those are BENEFITS not premiums to the person getting the loan.

There is nothing Average Joe about a 800,000 + condo. These are luxury apartments and they should NOT be backed by FHA loans. Rich people can afford to get non FHA loans, they should not be sucking up resources that can go to people with lower mortgage needs.

[Travis_0004]

5. Then how does the FHA make money?

Look it up. FHA is entirely self funded. Its cost the tax payers nothing. If you don't believe me, look it up on Hud.gov.

When you get an FHA loan, there is typically closing cost, for FHA, which can be rolled into the mortgage, and they must pay insurance in their monthly payment, very similar to PMI insurance.

Once again. If these expensive condos have a default rate that is similar to the average default rate on FHA loans, then FHA breaks even or even turns a small profit. What is wrong with that. There is no sucking up resources, as income from these loans can be used to fund other loans. They may even be creating resources for people with lower mortgage needs.

[Hannah Bell]

7. wtf?

[Warren Stupidity]

4. The downside is the exposure on high end low down payment loans.

Wasn't 'loosening the rules' exactly how the crisis of 2008 got started? This rule change is an attempt to bail out developers who bought lots of NYC real estate on spec, condo-ized it, and then found themselves unable to unload their 1-3M units.

[Hannah Bell]

6. wtf?