CPG's take on the current NYC real estate market.

Inventory of New York residential properties has risen for the past 3 months and has stayed over 6,000 for about 2 weeks now. While 6,000 may sound like a large number, there still is not excess inventory and that is the key conclusion to be gleaned from the most recent market data. Remember, inventory has dropped significantly during the past few years as a result of strong sales volume. While inventory numbers are now ticking up, they are not near historical levels that typically warrant fierce seller competition. As long as there is not fierce competition among sellers, prices should remain stable.

Inventory is the metric to monitor as the full effects of the credit crisis are revealed via an economic slowdown and job losses. While it seems that the Fed has averted, at least for now, a systemic financial meltdown and will do everything in its power to continue to do so, we are now entering a period when we will begin to see the economic fallout from the credit crunch. Once the effects trickle down to the New York economy, we will have a better idea as to the near and mid-term direction of inventory and pricing.

Bottom line analysis: Apartments that are priced correctly are selling, though they are staying on the market longer. Savvy buyers who are confident in their future job status are shopping a bit more, but those armed with the right data to make informed decisions, are still buying.

Rich Bouchner
Commodore Property Group

Crisis? Who Said Anything About a Crisis?

I love it...let's get rid of the soap to save some bucks.....do as I say, not as I do. The titans rule!!

By PETER EDMONSTON
New York Times
Published: April 2, 2008

THE subprime contagion seems to be everywhere on Wall Street — except in the real-estate spending habits of investment banking chiefs, hedge fund managers and private equity bosses.
While the mortgage markets have been convulsing, Wall Streeters have been completing one big-ticket deal after another, buying condos, co-ops and town houses at some of New York’s most prestigious addresses.

In January, Lloyd C. Blankfein, chief executive of Goldman Sachs, closed on a $26 million duplex at 15 Central Park West, one of Manhattan’s hottest new buildings. Scott A. Bommer, a hedge fund manager, bought a Fifth Avenue co-op for $46 million. And Edgar Bronfman Jr., part of a private equity consortium that owns the Warner Music Group, spent $19.5 million for his own Fifth Avenue co-op.

As the mortgage mess deepened, the deals rolled on. In February, Raymond C. Mikulich, until recently the head of the real estate private equity group at Lehman Brothers, paid $17.9 million for a four-bedroom apartment at 15 Central Park West. Then Philip A. Falcone, a senior managing director at Harbinger Capital Partners, a hedge fund, closed on a deal to buy the Upper East Side mansion that once belonged to Robert C. Guccione, founder of Penthouse magazine, for $49 million.

James E. Cayne’s $28 million purchase of two units in the Plaza was not the biggest deal, but it was among the most awkwardly timed. A few weeks after the second deal closed, the Wall Street firm where he is chairman, Bear Stearns, collapsed.

Some new/old posts from my blog w/ another host...

No more 100% Financing

It looks like the days of no money down home purchases are finally behind us. CLTV's (cumulative loan to value) which is the term applied to the total value of a first mortgage combined w/ a second mortgage divided by the value of the home, have been reduced to 90% or lower, and now the mortgage insurance companies no longer will provide MI for 100% financing for one loan . This isn't really a bad thing though...I mean come on. shouldn't a homeowner have some skin in the game?
Summary:Due to recent MI company restrictions, Homecomings Financial announces changes to the Conforming program effective March 28, 2008. Conforming ProgramOur MI partners recently announced that they will no longer insure loans with LTV/CLTVs greater than 97%, regardless of the DU recommendation. This restriction will hold true for both LPMI and BPMI. Because of this restriction, the maximum LTV/CLTV will now be 97.000%. The RLM will be updated as soon as possible to reflect these changes.
Posted on Friday, March 28, 2008 at 10:38AM by Rich Post a Comment


Fannie and Freddie not helping as promised

I had a nice conversation last week w/ Colin Gustafson of the NYSun about how frustrating the new super conforming loan programs sponsored by Fannie and Freddie are turning out to be for our mortgage clients. The fees are high and the credit requirements and loan to value limits are tough. Take a look at the article below from today's NYSun....it appears as though other New York mortgage brokers agree.



New Government Mortgage Program Said To Be ‘Useless’ CMG in the NYSun
By COLIN GUSTAFSON, SPECIAL TO THE SUN March 26, 2008

Mortgage lenders are beginning to offer a new type of mortgage associated with President Bush’s stimulus package that is intended to offer potential buyers lower rates, and so far the program has not been effective, brokers claim.

Chase Lending Bankand Wells Fargo have begun implementing fees and guidelines for mortgages of up to $729,750 that will now be guaranteed by the quasi-government home loan agencies Freddie Mac and Fannie Mae, while other large lenders, including CitiMortgage and Washington Mutual, are expected to follow suit in the days ahead.

It had been that Freddie Mac and Fannie Mae could guarantee loans only up to $417,000, but the stimulus package ups the guarantee limits to provide relief for more homeowners. The going rate on the new, so-called super-conforming loans is about 6.6%, compared with 5.9% on mortgages that are less than $417,000.

These super-conforming loans come with several restrictions: They are limited to condominium and single-family homeowners, shutting out buyers of co-ops, which make up a majority of New York housing stock; there is a limited window for applications before the program expires at the end of the year, and there are limits on cash-out refinancing, a common practice where buyers refinance their mortgages for more than they currently owe on the loan and pocket the difference.

With so many restrictions, less than 10% of New Yorkers will be eligible for the lower-rate loans, the owner of the Manhattan Mortgage Co., Melissa Cohn, said.

The limits on cash-out refinancing are especially burdensome, brokers say. While Fannie Mae prohibits most cash-out refinancing, Freddie Mac will allow it up to $100,000, and only to refinance no more than 75% of the home’s value. To borrow at this 75% benchmark, the buyer also must have a credit score of at least 720.

Manhattan attorney Ariyike Diggs, for example, had been planning to cash out on her $400,000 mortgage by taking out a lower-interest $440,000 loan — but her mortgage broker was unable to seal the deal because her credit score was 10 points shy of Freddie Mac’s cutoff, according to a principal at mortgage firm Commodore Mortgage Group, Richard Bouchner.

In addition to the lending caveats, the lenders themselves are tacking on additional fees. Chase Home Lending, for instance, has announced it will add between a 2% and 3% fee on broker commissions that will likely be passed on to the borrowers in the form of higher rates.
“The new loan limits were supposed to save a lot of borrowers,” Mr. Bouchner said. “Now that the banks have allowed Freddie and Fannie’s guidelines to trickle down into their system, we’re seeing that this isn’t the life preserver that homebuyers had expected.”

While there are caveats, and the rates are not as cheap as the smaller mortgages that Freddie Mac and Fannie Mae guarantee, they are lower than mortgages that are not backed by these agencies. The going rate for a mortgage of about $700,000 is more than 8%, brokers say.
Still, mortgage experts had hoped the new program would help insulate the New York housing market from a slowdown. With home prices in New York remaining high — the median price for condos is $1.35 million, compared with the national median home price of just $195,900, according to the National Association of Realtors — they say this incentive was especially important.

Now, the new mortgage program is “essentially useless,” the senior vice president of Preferred Empire Mortgage Co., Jeffrey Appel, said. “If you’re not getting that much of a break on your rates and if there’s no cash-out option, then you have to wonder, what’s the point?”
Posted on Thursday, March 27, 2008 at 09:45AM by Rich in Mortgage Post a Comment



The Principal of the Matter

There is an article in today's NYTimes business section that addresses a phenomena that seems to be somewhat specific to real estate: Sellers who won't cut their price. If airlines have empty seats, they lower their prices. If a company announces lower earnings, shareholders lower their prices. If a home won't sell...what do most sellers do...they refuse to lower the price. Too many emotions and not enough reasoning. if you ask me.....

http://www.nytimes.com/2008/03/26/business/26leonhardt.html?ex=1364270400&en=0b14a88f5032e300&ei=5124&partner=permalink&exprod=permalink
Economic Scene
Be It Ever So Illogical: Homeowners Who Won’t Cut the Price
By DAVID LEONHARDT
Published: March 26, 2008
For both economic and psychological reasons, there is no asset more conducive to hopeful overvaluation than real estate.

Posted on Wednesday, March 26, 2008 at 01:36PM by Rich in Real Estate Post a Comment



What's up with Fannie and Freddie?

Wearing my mortgage broker's hat, I find the new "Super-Conforming" loan programs very frustrating and view them as another typical political PR stunt. According to Barney Frank and Sec Hank Paulson, the increased loan limits were created to allow more homeowners to qualify for Fannie and Freddie backed loans, thus providing liquidity to the mortgage market until the jumbo loans become more available. Sounds good on the Sunday news shows, right? Well as usual, the reality is a bit different than the rhetoric. So far. we have not been able to qualify one client for these new programs. (and these are folks w/ good income and strong credit) The guidelines are too restrictive. FICO scores requirements are too high, and loan to values are too low. Also, the lenders are including such huge price hits, that borrowers who do qualify will either get a rate in the 7 or 8s, or they will need to pay 3 or 4 points to obtain a market rate. It will be interesting to see how many of these loans actually get done. Oh yeah, by the way, if you live in New York in a coop, forget about getting into one of these products all together. Why? The rules don't allow coops in these programs at all.
Posted on Wednesday, March 26, 2008 at 09:32AM by Rich in Mortgage Post a Comment

Another Federal Funds Rate Cut

What Does This Mean to the Mortgage Market and to the U.S. Consumer?

On March 18, the federal (Fed) funds rate was cut again – this time to 2.25 percent. The Fed funds rate has now been lowered a full three points from its hold at 5.25 percent from July 2006 to Sept. 2007. The Prime rate followed the Fed funds rate from 8.25 percent back in Sept 2007 to 5.25 percent following this week’s cut.
Why does the Federal Reserve continue to make cuts? Quite simply, it’s an effort to increase demand for goods and services, which strengthens the economy.

Impact on U.S. Mortgage Market
The U.S. mortgage market is unlikely to see a significant impact from the Fed rate cuts. Mortgage rates are driven by long-term Treasury yields along with factors affecting investor confidence in mortgages.
This drop will also have a minimal impact on long-term mortgage rates since the 30-year conventional fixed rate mortgage rate is more closely tied to the 10-year Treasury yield. Supply and demand for 10-year Treasury bonds drive price and therefore yield movements. Economic and financial market conditions, among other factors, drive buy (demand) and sell (supply) decisions for long-term Treasury bonds and it takes time for changes in the Fed funds rate to alter those conditions.

What drives rate changes?
Inflationary pressures in today’s market (have you been to the gas station or grocery store lately?) tend to drive 10-year Treasury yields higher, which then boost mortgage rates. Recent decline in home prices and the resulting fear of holding mortgage-related assets has further increased mortgage rates as the increase in risk perception shows up in the form of higher mortgage rates.
Second mortgages may be cheaper, but certainly not easier to come by in today’s market. A lower prime rate would normally translate to a reduced rate on second-lien (“home equity”) loans but heightened risk of this product has driven home equity rates higher for many new borrowers and has dampened the overall availability of these loans. Consumers with an outstanding second-lien mortgage will likely experience a slight drop in their loan rate that would lower their monthly payment.

How does this all affect the consumer?
The average consumer will feel the impact of the Fed rate move in the decline of savings account rates and possibly a drop in the rate on their outstanding credit card balance.
A lower rate on savings accounts simply means that consumers are earning less interest on these accounts.
Consumers with outstanding credit card balances may see a drop in their interest rate and that may lower their minimum monthly payment. Borrowing costs for consumer (non-mortgage) and business investment loans typically come down when the Fed funds rate drops, but tighter lending standards today may limit the growth of these loans. Presenting consumers with a lower cost option to borrow funds may increase lending and spending activity, which can fuel economic growth and eventually perhaps even create more jobs

Fed rate cuts and mortgage rates

So the Federal Reserve cut rates again. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during recent 5 Fed rate cuts. In fact mortgage rates are now higher than they were before the Fed began cutting rates by in January. This is difficult to explain to many consumers who have watched a 2.5% reduction by the Fed with no benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.

Another common mistake is in thinking that 30-year Treasury bonds or 10-year Treasury notes are directly pegged to mortgage rates.

Those are government securities that are backed by the full faith and credit of the U.S. government and have no direct effect on mortgage rates.

So what are mortgage rates based on? As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.

We know that inflation will always be a negative for any long-term bond because it eats away at the future returns. Since the bond will pay a set amount over a long period of time, that amount will be less valuable if inflation is high. Over the past several years, one catalyst that seems to be working in the opposite direction of MBS prices is the Nasdaq and broader stock market.
As bond prices rise, interest rates fall. As bond prices fall, interest rates rise. The charts accompanying this article show the Nasdaq Composite Index and the Fannie Mae 6.5% mortgage bond tend to follow paths that are almost mirror images of each other. The consistency of this behavior is astounding.

As the Nasdaq moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. Moreover, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates.

The bottom line is that it appears mortgage rates will get better if the Nasdaq sells off and will get worse if the Nasdaq rallies. So it is not necessarily what the Fed does that affects mortgage rates, it's how the Nasdaq and broader stock market interprets the Fed's action that will ultimately influence the direction of mortgage rates. This is because money managers and mutual fund companies typically keep funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

On the chart of the Nasdaq Composite Index above, notice how the price movement higher on the Nasdaq seems to correlate to mortgage bond price deterioration (shown below) and vice versa. Once again, lower bond prices translate to higher mortgage rates and higher mortgage bond prices mean lower mortgage rates.

The chart below shows how the Fannie Mae 6.5% mortgage bond has performed during the same time period. The green circles indicate Fed rate cuts and the area circled in red shows when the Fed hiked rates.

A closer look at the 5 rate cuts by the Fed this year (see chart below) shows that mortgage bond prices deteriorated after each Fed rate cut. This means that mortgage rates rose after the Fed had cut rates while many consumers were expecting their mortgage rates to decline. Worse yet are the consumers who missed the opportunity to obtain a lower rate because they mistakenly waited for the anticipated Fed action to cut short-term rates, thinking that longer-term mortgage rates would decline as a result.

Predicting the future is tough, so nothing is written in stone. Keep an eye on the Nasdaq, and keep in mind that the best rates may be behind us. But, mortgage rates are still low and could have some quick dips so make the most of them while they last.

CMG quoted in the NYSun. 2.15.08

Mortgages Get More Costly As Fed Cuts Interest Rates
By JULIE SATOWStaff Reporter of the SunFebruary 15, 2008

Since the Federal Reserve chairman initiated a series of aggressive interest rate cuts last month, it has actually gotten more expensive for buyers to take out mortgages.

The reason is that investors are increasingly fearing inflation and are driving up the yield on the 10-year Treasury, off of which most residential mortgage rates are priced. In fact, the yield on the 10-year note topped 3.8% yesterday, a one-month high; before Chairman Ben Bernanke's surprise 0.75 -percentage-point rate cut in January, the yield was 3.4%.

Bond buyers aren't likely to be reassured anytime soon, with Mr. Bernanke testifying yesterday before the Senate Banking Committee that additional rate cuts are possible. He has already cut the target for the key federal funds rate by 2.25 percentage points since September, chopping off 1.25 percentage points, to 3%, in January alone. The Federal Open Market Committee, which is responsible for cutting rates, is next scheduled to meet March 18.

"The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Mr. Bernanke said. He also called the economy "sluggish," saying it was unlikely to recover until later this year, and suggested there would be more mortgage-related losses at banks.

The markets responded poorly to Mr. Bernanke's testimony, with the Dow Jones industrial average falling 175.26 points, or 1.4%, to 12,376.98 at yesterday's close. The 10-year Treasury fell for the third straight day, with the yield curve steepening as the 10-year yield reached its highest level compared with the two-year Treasury yield since July 2004.

"The bond market has the ability to see into the future, and the smart money sees inflation out there," a principal at mortgage firm Commodore Mortgage Group, Richard Bouchner, said. He said that when rates were lower, he called all of his clients suggesting they refinance their mortgages. "Most stayed on the sideline because they expected more rate cuts, but now they've missed their opportunity," he said.

Mr. Bernanke's rate cuts haven't just failed to lower mortgage rates — the Fed chairman is also spurring a new credit crunch, analysts say. The leverage loan market is nearly closed, with yields so low that they offer little incentive for lenders, while worries over defaults persist.
"With Mr. Bernanke's reiteration of his current rate-cutting path, the credit market noose continues to tighten," an equity strategist at Miller Tabak + Co., Peter Boockvar, wrote in a research note. He called the tightening of credit in the market "an unintended consequence" of the Fed's rate cuts.

In addition to a lack of leveraged loans, there is a shutdown of so-called auction rate securities. This is a more than $300 billion market where long-term municipal bonds, student loans, and corporate bonds are repackaged to create short-term paper and auctioned off to investors. Investors, however, have stopped bidding for them, and so banks have stopped providing auction support. Investors and banks are balking because the breakdown in bond insurance for these securities, as monoline insurers such as MBIA and Ambac struggle to cover their losses, as well as the low yields, provide little incentive for investors to take on the growing default risk.
An analyst at Banc of America Securities, Jeffrey Rosenberg, wrote in a research note on Wednesday that 80% of these auction rate securities auctions are failing.

"With a total size of $330 billion and roughly half of that held by individuals, a significant, albeit likely short lived liquidity crunch is again emanating out of the credit markets," he wrote.
Not everyone believes Mr. Bernanke's rate cuts are bad for the economy. "The rate cuts are definitely helping," a professor of economics at New York University, Mark Gertler, said. Mr. Gertler attributed rising yields on the 10-year Treasury note to investors predicting the economy will improve and that the Fed will eventually raise rates again. "It's going to be a sluggish period for a couple of quarters, but I have reason to believe we will be in a recovery by the end of the year."

Still, a growing number of investment banks and economists are predicting we are in a recession, and some feel that Mr. Bernanke's rate cuts are not addressing the problems.
"Unfortunately, bankers are no longer in the business of taking deposits and loaning money, but rather in securitizing loans," a professor at the University of Maryland School of Business, Peter Morici, a former chief economist at the International Trade Commission, said. "Mr. Bernanke has simply not addressed this more fundamental structural problem that frustrates his monetary policy. Lowering the fed funds rate does absolutely nothing to help clear up that issue."

E-mail to CNBC re: 100% Financing and Stated Income

Good morning:
My name is Rich Bouchner and I am a principal at Commodore Mortgage Group in Jersey City. We are licensed in 8 states, and have been in business since 2003. I enjoy your work on CNBC and just wanted to offer my two cents on what seems to be available in the mortgage market place.

As you know, many lenders that had previously played in the Alt A space (loans that are above conforming limits, stated income, ect) have either pulled out of the space (Chase, Wells Fargo) or have gone out of business all together (too many to mention!). However, 100% financing and stated income deals do exist, though they are harder to originate.

Fannie Mae is still offering no money down deals for purchases. Credit needs to be in the high 600s, and borrowers are required to buy mortgage insurance. As of last week, 30yr rates for such programs were in the mid 6s.

Stated income programs are still out there as well, but except for one lender that I know of, all of the programs for those that are not self-employed, have vanished. Citi has a stated program available for 2 family investment properties up to a 80% loan to value, as long as the borrower is not taking any cash out of the property.

Hope this helps clarify what is available these days. The market is definitely challenging. Many deals that would have gotten done 6 months ago are no longer possible, but many people who should be getting loans are still getting them. Those w/ poor credit, or few assets, will most likely need to stay on the sidelines until they become stronger candidates.
Thanks,
Rich

Richard C. Bouchner
Principal
Commodore Mortgage Group Ltd.
"The Right Loan at the Best Rate"
One Exchange Place, 9th Floor
Jersey City, NJ 07302
direct: 201.830.1801
direct: 646.825.5734
cell: 917.627.3459
toll free: 888.604.7400 ext 1801
fax: 201.434.7601
www.CommodoreMortgage.com