September 20, 2019

Mortgages: The Seller Chooses a Lender

Some sellers are finding lenders willing to provide financing for an eventual sale even before they put their condos or co-ops on the market; they then add language to the sales contract requiring buyers at least to obtain preapproval from the seller’s preferred lender.

The advance legwork can save sellers’ wasting time on buyers who can’t find financing on their own, said Rolan Shnayder, a partner and the director of new development lending for H.O.M.E. Mortgage Bankers in Manhattan. “Never is there going to be the excuse that I went to the bank and I was a great credit risk but they wouldn’t approve the building.”

The strategy is akin to a developer’s tactic of working with a preferred lender on a new condo offering. It cropped up in resales as banks became more careful about the types of buildings they would finance.

For sellers, “it’s not enough for the purchaser to be credit-worthy,” said Neil Garfinkel, a Manhattan real estate lawyer. “You have to make sure the building is warrantable.”

A warrantable building is one eligible for backing by Fannie Mae. Under Fannie’s guidelines, a building is nonwarrantable if one entity owns more than 10 percent of the units, or fewer than 70 percent are owner occupied, Mr. Shnayder said.

Also, the maximum allowable commercial space in a building is no more than 20 percent. And the building ownership must be putting in reserve at least 10 percent of yearly maintenance. “Newer buildings have that 10 percent in the budget,” he said, “but a lot of the older ones don’t.”

Being nonwarrantable doesn’t make a building “bad,” Mr. Garfinkel said. It just means it doesn’t fit the Fannie Mae criteria. He advises sellers to determine whether their building is warrantable before listing a unit. If it is not, then sellers should ask their real estate agent or other professional to recommend other potential lenders.

With a lender in place, the seller can add language to the sales contract that requires buyers to be preapproved by that lender. The buyer can still apply for a mortgage with another lender, but if that doesn’t work, “they agree to apply to this source which we know will lend in this building,” Mr. Garfinkel said.

A fair deal for buyers? Mr. Shnayder maintains that having a lender in place that has already approved the building can save a buyer time and the frustration of dealing with management companies.

But Daniel Gershburg, a real estate lawyer who frequently represents clients buying in new buildings in Brooklyn, warns that merely being preapproved does not guarantee that your mortgage application will sail through the process.

In working with developers’ preferred lenders, for example, he has seen applications held up long enough that his clients’ rate locks expire, costing them additional fees. “Once you’re at the whim of this lender, if they don’t follow through, there’s nothing you can do,” he said.

Jason Auerbach, a divisional manager of First Choice Loan Services, also notes that a preferred lender evaluating a buyer for preapproval is not allowed to share the buyer’s personal financial information with the seller. “The mortgage banker or broker has a fiduciary responsibility to their client,” he said, “not the seller.”

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Wealth Matters: Rushing Into a Mortgage Can Be Costly

But there are still many ways that buyers or investors can end up paying more than they should. And many of them are so embedded in the mortgage documents — and the mortgage rate itself — that consumers have to be vigilant to find them. That is especially true when buyers rush into a deal and do not take the time to make sure they are not paying thousands of dollars extra in closing costs and tens, if not hundreds, of thousands of dollars more over the life of a loan.

“People today are less concerned with pricing,” said Joe Parsons, a loan officer at PFS Funding in Dublin, Calif. “They’re more concerned about, ‘Can you get my deal done?’ There are so many more moving parts.”

Joseph Wilbur, for instance, signed a contract to buy a co-op apartment in Astoria, Queens, in March 2012 and made it clear that he wanted to close quickly because he and his fiancée were getting married in August. Mr. Wilbur said the mortgage broker told him that would not be a problem.

The couple finally had their closing on Dec. 13, after spending the first few months of their marriage living with his parents. A few days before closing, Mr. Wilbur said the broker gave him a good-faith estimate — the basic information about the terms of the mortgage and the estimated costs of the loan — that he should have had at the start. Shortly after that, he got the HUD-1 statement, which formalizes the closing costs.

“It became clear early on that the guy wasn’t all that knowledgeable about mortgages for co-ops,” he said. “He made a whole bunch of mistakes.”

But Mr. Wilbur pressed on because he wanted to close and did not want to lose the apartment. “As much as I was concerned that I hadn’t seen something that was telling me I was paying thousands more than I had expected, I just wanted to get through with this,” he said. “The fact that my wife and I were getting married shortly was more of an issue. I didn’t have time to start with a new bank and the whole application process.”

Mr. Wilbur’s story may be a worst-case situation. But what should buyers be aware of and how can they avoid feeling cheated?

Many buyers think the good-faith estimate is the cornerstone the mortgage process. It estimates the costs, like inspections and title insurance, buyers pay to close on a mortgage. But Mr. Parsons said the document did more to hide fees than illuminate them.

“It’s essentially a useless document for the consumer,” he said. “It lumps a lot of costs into the figures that are carried onto the good-faith estimate rather than itemizing them.”

Rick Allen, chief operating officer of, a Web site that allows consumers to search for different mortgages, ran three sets of closing costs in the first week of January for the same mortgage in the New York area and got three different good-faith estimates.

The estimates for closing costs on a $300,000 house with a 30-year mortgage at a rate of 3.5 percent were between $6,911.78 and $9,742.97. The biggest differences were the origination fee the bank charged, the discount the bank gave — or did not give — for the particular interest rate and the cost of title insurance from a third party. The origination fee and the mortgage credit vary because they are one of the ways the lender makes money from the loan.

“The reality is the consumer needs to do lots of homework,” Mr. Allen said. “The government would say that you need to apply with multiple lenders and get multiple good-faith estimates. But providing an application is not always a painless process.”

He said offers a guarantee on the closing costs within $50. But borrowers would still have to compare various lenders to know that they were getting the best estimate.

Of course, most people don’t do that. Elizabeth Safran, who owns her own public relations company in New York, said she asked a friend in her apartment building whom he had used.

“My main criteria for refinancing was to bake the closing costs into the loan so there would be no cash out of pocket,” she said.

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Square Feet | The 30-Minute Interview: Gary Jacob

Q Exactly how many apartments are in Glenwood’s portfolio?

A I’m not at liberty to share that. Leonard Litwin is very private about that, although you could go on the Web site and pretty much figure out the number of buildings. I go to meetings with him with banks, and they ask, ‘How many units do you have?’ His answer is ‘thousands,’ or ‘many.’

Q How involved is Mr. Litwin, in his mid-90s, in the company?

A He’s still actively involved in everything we do. He comes to the office every day, goes to all of our meetings and has final say on almost everything. He’s actively involved in our new construction projects — he pores over the architectural plans to make sure we have the proper amount of closet space and is very detail-oriented. He certainly won’t retire.

Q Was Mr. Litwin your mentor?

A Absolutely.

Q What are your duties?

A I’m the face to the public of Glenwood. I’m the person who handles all the site acquisitions and financing. His daughter, Carole Pittelman — she’s technically an executive vice president — handles the construction projects and oversees the management division as far as expenses and renovation of units. I work hand in hand with her and Mr. Litwin helping to run the company.

Q So how is business?

A Business is, knock on wood, very good. We did end up taking a dip in rental prices. We had to give concessions, and we were paying the brokers for a few years as rents started going down in 2008. By January 2009 they hit a low point. The rental market has since come back — the demand is there.

Q When the market was booming, did Glenwood ever consider converting to condos?

A We’ve never, ever converted any of our buildings. Leonard Litwin did have some experience building co-ops before I joined the company in 1973. But in my 38 years here we’ve never contemplated building a condo, and we never even thought about converting anything. He really enjoys his buildings. He also feels that over time the value goes up, and he’s been proved right.

Q What’s your vacancy rate portfoliowide?

A We now have the lowest vacancy in three years: it’s 1 percent. It might have been 2.5 percent a year and a half ago.

Q Is the new Emerald Green building fully occupied?

A Yes. We’ve been renting them rapidly, without concessions and without paying broker fees.

Q You have applied for LEED certification there.

A We’re hoping to get a silver certification.

Q What’s the status of the Crystal Green?

A We finished the excavation, and now we’re coming out of the ground to get to the ground-floor level. We should be able to start renting maybe next spring, with completion by next summer.

The Crystal Green will have 199 units on 39th Street, and as part of the same project, we’re building a six-story, six-unit building, which will be very high end, on the 38th Street side. It’ll stand on its own, and we might give those tenants the services of Emerald Green, which is right across the street.

Q Glenwood recently closed on a parcel from Fordham University on Amsterdam Avenue and 62nd Street, with the plan to build another residential tower. What’s the status of that?

A We’re hoping to break ground in October. It’s going to be a 54-story building — very deluxe with lots of glass. This is adjacent to Lincoln Center.

Q What else are you working on?

A We’re working on two other projects — also residential rentals, both on the West Side — but it’s too soon to talk about them. We’re in the process of acquisition. One of them is a distressed opportunity; the other one is not.

Q Your focus has been on sustainable construction.

A We believe it’s the right thing to do for the environment. It’s also a good marketing tool, and to some extent tenants ask about it.

Q Glenwood has also invested in electric car chargers.

A We’re outfitting some of our garages with outlets for electric cars. We already have three chargers in Emerald Green. But there aren’t enough electric cars out there yet — I think the auto companies have to catch up — so they’re not getting a lot of use. But we’re ready for it.

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