As published in Scotsman Guide's Residential Edition, September 2012.
Many mortgage originators who have worked with closing loans for condos and co-ops are keenly aware of one drawback to this market: As industry guidelines have become increasingly strict, it’s often more difficult to qualify a building for certain loans than it is to qualify borrowers themselves.
That’s because many condo and co-op buildings don’t meet certain financing guidelines from Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). Financing problems in working with these buildings may arise from any number of circumstances, including: one person owning more than 10 percent of the units; more than 20 percent of the building being commercial space; or more than 15 percent of the building’s units being in arrears on condominium association fee payments. This last restriction may be especially common among buildings in today’s turbulent economic climate.
The challenge of working with this market notwithstanding, condos and co-ops can offer an array of new opportunities for dedicated originators. If you’re able to find a lender that will lend in these buildings, it’s possible to create a cascade of new business for yourself.
Originators interested in finding these types of lenders should start by calling local savings and loan institutions, credit unions or portfolio lenders. In general, these would be banks that would finance in non-warrantable buildings.
In addition, mortgage professionals could help buildings get Project Eligibility Review Service (PERS) approval. In this case, you would get a sponsor to submit documents along with a fee, which could be as much as a few thousand dollars. This process could take as long as three weeks, but in the end, it would allow buildings that don’t meet certain standard guidelines to be approved through Fannie Mae, permitting more flexibility in terms of presale requirements and other approval criteria.
When originators come across buildings that would be good candidates for PERS approval, they should get an expediter involved. This person’s purpose would be to walk the sponsor through the costs and paperwork involved. Generally, this type of approval is useful in new buildings because the sponsor is motivated to get PERS approval, as it adds value to the units being sold.
After closing a deal in one of these buildings, originators should immediately contact the managing agent to let that person know that they’ve been successful in placing a loan in the building. Originators also should send a mailing to all of the building’s unit owners and let them know that financing is indeed possible in their building. In some instances, this may open up the market for unit owners who were interested in selling but were stuck, as any parties interested in their units couldn’t find financing for themselves.
In this way, working with these buildings may prove to be an effective marketing strategy, as closing one lead may result in closing several others. Entire teams of real estate agents may be interested in your services, as you may be the only originator capable of finding financing for certain buildings. Further, you’ll be able to rest easy, knowing that you’ve provided a service for borrowers and sellers alike that otherwise wasn’t available to them — a win-win situation for everyone involved.
Julie Teitel is senior vice president of GuardHill Financial Corp.
New York’s best and brightest real estate brokers, attorneys, accountants and financial advisers place their trust and confidence in Teitel, knowing their clients are in good hands and that she will develop a mortgage solution to meet their financial objectives. As a top producer in the industry, Teitel has been honored in Mortgage Originator’s nationwide top 100 originators. Reach her at firstname.lastname@example.org.