Since the start of the pandemic, mortgage lenders in New York City have tightened their guidelines making it more difficult to qualify for mortgage financing on a property located in any of the 5 boroughs. The Apple Peeled reported on this extensively in the closing months of 2020, and now we’re seeing these policy trends carry over into the new year.
The most notable changes so far have been made by the major retail banks that together capture the lion’s share of mortgage business in the city.
The most significant changes so far have been in reducing Loan-to-value (LTV) thresholds. In other words, lenders who offer jumbo mortgage loans (loan amounts that exceed $822,375) are requiring bigger down payments from property buyers.
As recently as November, there were several lenders that offered jumbo finance options totaling up to 90% of a property’s total purchase price. Situations like that are difficult to unearth today. In the most extreme instances, we’ve seen banks reduce their maximum LTV to 70% — in other words, a 30% down payment.
Last week we learned that it’s not just jumbo mortgage programs that are being scrutinized. Fannie Mae is taking steps to tighten guidelines for conforming loan sizes (below $822,375), particularly with regard to how it assesses condos and co-ops.
The first big change that the agency is contemplating, according to a source close to Fannie, is to require lenders to review a co-op’s by-laws, specifically with regard to the notification provisions when more than 15% of shareholders are at least 60 days delinquent with their HOA dues. In the past, co-ops have gotten away with adding language like “upon request” in lieu of being automatically required to notify each mortgagee in the building immediately after crossing the 15% threshold. The source said only “a small fraction” of the 22,000 co-ops in New York City have language that would meet the new requirement.
Another change that is being looked at by Fannie, according to the source, is to look at which sponsors may have taken a PPP loan through the CARES Act stimulus package. In theory a question like that could be added to a standard Fannie Mae condo questionnaire, and buildings that answer the question affirmatively could be in danger of being considered insolvent, and potentially ineligible for financing.
The Federal National Mortgage Association (FNMA or Fannie Mae) is a government-sponsored enterprise that purchases loans in bulk from mortgage lenders and guarantees them through the secondary mortgage market. When Fannie Mae and its sibling enterprise Freddie Mack purchase loans, they create liquidity for lenders, which allow them to fund more mortgages, propping up the housing market. Mortgage lenders must adhere to Fannie Mae’s guidelines to have the option to sell specific loans to the agency.
Separate from the overly cautious groupthink approach to guidelines that we’re seeing from many lenders, other recent developments are just as eye-opening. For instance, Citibank altered their loan officers’ pay schedule. Most loan officers receive commission checks on a monthly basis, perhaps one month in arrears. At least temporarily, loan officers at Citibank will receive a “draw,” which is akin to a base salary. The draw paid gets deducted from commissions earned, and commissions are to be paid in on a quarterly basis. One Citibank Loan Officer told us the news was “shocking” and has caused some employees to lose confidence in their employer.
With historically low rates available for the entire year, mortgage lenders closed loans in record numbers, but some lenders were better equipped to handle the influx of volume. One contact with a major bank told us he was, “better off not answering his phone” because he knows with his operations team so bogged down, he’ll do more harm to his reputation than it’s worth.