The Real Deal recently asked me my thoughts on the state of the New York City real estate market. Because Commodore Property Group has both a real estate and mortgage brokerage, I think that we sometimes have a unique view of the market place. My opening antidote really speaks to the un-level playing filed that mortgage brokers compete on vs banks.
Most consumers don't know this, but banks do not need to reveal their yield spread on their paperwork, while brokers do. Yield spread is the amount of money a broker or banker makes on a deal by offering an interest rate that is above the lowest available. It is the spread between the cost of borrowing money by the bank and the rate that the consumer gets on a loan. It is no different than any other type of mark up in any other business...except that brokers tell their clients what is, and banks do not.
In the article below, I describe a scenario where disclosing yield spread cost me a client. The ironic thing is that the client ended up getting the same deal from the bank, but she felt like my loan was costing her more, because she saw yield spread disclosed on her good faith estimate.
More independent loan providers leave for banks as their business dwindles January 01, 2010 07:00AM By Catherine Curan
Richard Bouchner, who co-founded real estate and mortgage brokerage Commodore Property Group in 2003, thought last month that business was returning after a tough year for mortgage brokers.
He'd gotten a referral for a borrower he described as a well-qualified, financially savvy New Yorker buying her first apartment. He'd arranged a 30-year fixed mortgage of around $480,000, at 5.125 percent with no points.
Then his client read the fine print, saw that he'd make $4,800 on the deal, and opted to get her loan from the bank instead.
"She said, 'Rich, I don't feel comfortable with this yield-spread premium,'" Bouchner recalled, referring to the money a mortgage broker makes for locking in an interest rate above par on a loan for a borrower. Banks don't have to provide similar disclosure on their profit on a loan.
Bouchner's experience reflects a massive shift in New York City, and nationwide, away from mortgage brokers, who have access to a variety of mortgages from lenders, and toward banks, which make mortgage loans directly to buyers.
Mortgage brokers saw their share of the business decline steadily in the first three quarters of 2009. In the third quarter, mortgage brokers accounted for just 12 percent of total mortgage originations -- their lowest share of residential mortgages in the 20 years that Inside Mortgage Finance Publications, a Maryland-based publisher, has tracked the industry.
Meanwhile, large banks' share has ballooned to 51 percent, the highest Inside Mortgage Finance has ever seen, according to publisher Guy Cecala. Correspondent lenders, including smaller banks, credit unions and larger mortgage broker firms, make up the rest.
"Generally that's the trend on a national basis, and on a more macro basis, mortgage brokers have become an endangered species," said Cecala. "There's a major onslaught [against them], and a serious question right now whether the mortgage broker industry will ever recover."
In New York, a Darwinian struggle is underway.
Independent mortgage brokers are decamping for the relative safety of big banks. Other mortgage broker firms are keeping staff lean to weather the downturn. Brokers still in the game face a long and growing list of hurdles: more regulation, disclosure rules and regulatory scrutiny, plus fewer loan products and less access to lenders.
These issues are capped off by the industry's poor reputation for originating mortgages during the boom, particularly subprime loans, which have since blown up, and for practices such as the controversial yield-spread premium Bouchner's client refused to pay.
"The tide has turned overwhelmingly," said Jeffrey Appel, who left mortgage brokerage Preferred Empire to join Bank of America in October. "As a [mortgage] broker, you are sort of out there on your own and subject to changing market forces that impact lenders' ability to offer wholesale loans."
Working at a bank, however, brings challenges of its own. Since he's only been with Bank of America for a few months, Appel declined to comment on industry chatter that some brokers who join big banks are closing fewer loans because each bank has a more limited spectrum of products than a well-connected broker can access.
As recently as three years ago, noted Cecala, there were over 100 loan products on the market, and many subprime borrowers turned to mortgage brokers to sort through the confusing cornucopia of options. Now that so many loans have gone into default or foreclosure, lenders are offering fewer products and banks have cut back on business with mortgage brokers in favor of originating loans internally.
Appel did admit to having to navigate his new employer's "strengths and limitations," adding that his five-person team has not lost a loan yet because of extreme care in prequalifying purchasers and establishing collateral.
Whether at banks or on their own, mortgage brokers are scrambling to cope with a raft of new rules. Last year, Fannie Mae and Freddie Mac created the Home Valuation Code of Conduct, essentially prohibiting mortgage brokers from ordering appraisals, while updates to the federal Truth in Lending Act require mortgage brokers and banks to disclose their fees well before a loan closes. What's more, the Federal Reserve was accepting comments last month on a proposal to ban yield-spread premiums for brokers.
Julie Teitel, senior vice president at Guardhill Financial Corp., said she's had to relearn the business.
"You have to work almost triple the amount of time to bring in the same amount of dollars," she said.
In the second half of 2009, business picked up for Apple Mortgage Corp., Guardhill and Commodore. But the big question is whether an uptick for the mortgage broker industry from the doldrums of 2008 -- right after Lehman Brothers' bankruptcy -- can translate into sustained, profitable business based on successful loans.
Bouchner said his firm used to have 15 loan officers working on commission, but now he only has five. He hopes to benefit from decreased competition as others bail out of the sector.
Apple Mortgage owner Eric Appelbaum is bullish. Claiming he is among a select group of local mortgage brokers with solid, profitable relationships with Citibank and Wells Fargo, plus a range of smaller lenders, Appelbaum said he is attracting clients who fail to close loans at banks.
"Why do other brokers feel like they have to jump ship and go to a bank? Just put a gun to my head, I would never do that," said Appelbaum. "You're stuck with that bank and that bank's pricing on all types of loans, that bank's process and corporate culture."
My apologies. I have not blogged about New york City real estate in a almost a month. Some of my lack of entries can be blamed on the season, but thankfully most of it is a result of being busy with my clients. I had a closing on a coop in Inwood earlier this month and have another closing on a condo in Brooklyn on Wed. I also have a two clients looking at townhouses in Harlem and I am negotiating the purchase of a condo on 123rd Street. Add to that coop mortgage deals going in Tribeca, Chelsea and the West Village and I had to take my New York real estate continuing education courses this month...and I managed to get all of my holiday shopping done!! Who said that December is a slow month in real estate???
So enough excuses...back to what I like doing...writing about New York real estate, and Harlem real estate in particular. Anybody who has strolled on Frederick Douglass Avenue (8th Avenue to purist) recently can't help but notice the buzz of building activity. From the 125th south to 110th Street, there are perhaps six or so new buildings going up. On 124th and 8th Avenue there is the A Loft hotel, ready for spring of 2010, (a cooler version of W Hotel, owned by the same co that towns the W). On 123rd and 8th there is 2280 FDB, a high end new condo that should also go live this spring. Further south on Frederick Douglass there are more condo projects, a new super market as well as new restaurants, bars and a beer garden. To the east on Lenox there is a new yoga studio, coffee shop, restuarant and more small businesses set to open.
When my wife and I moved to Harlem in 2007, the begining of the boom was under way, but the financial melt down gave us reason to doubt its continued strength. It looks like 2010 is going to bring good things to Harlem as well Harlem property owners. Check out this article from the NYTimes real estate section for more details on the boom in Harlem real estate. Mini boom in South Harlem.
| 3rd Quarter New York City Market Report PRICES STABILIZE, SALES INCREASE FOR HOMES IN NYC
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 The 3rd Quarter was a good one for New York real estate. Please take a look below for CPG's take on 3rd quarter activity.
Citywide home prices up 4% from last quarter, sales volume increased 35% Reversing the trend that began last year, average home prices in New York City edged upward in the third quarter of 2009 compared to the previous quarter. The uptick is a sign that the market could be leveling off. Prices were down 14 percent to $670,000 from this time last year. Average home sales prices (which includes cooperatives, condominiums and one-to-three-family dwellings) increased by six percent in Brooklyn to $534,000 and by three percent in the Bronx to $367,000 compared to the second quarter of 2009. Average prices in Queens increased by one percent to $406,000 and Staten Island home prices declined by one percent to $382,000 compared to last quarter. For the second quarter in a row, Manhattan home prices declined, dropping five percent to $1,233,000 compared to the second quarter of 2009. Sales volume increased 35 percent to 9,734 compared to last quarter. Manhattan sales volume increased 59 percent to 2,840 while sales volume in Brooklyn increased 27 percent to 2,102. The residential real estate market came back to life in the third quarter and reversed the downward trend of the last several quarters. However, the trend needs to continue for at least two more quarters before we can say with confidence that a recovery is underway. Clearly, the market is not back to the high velocity of transactions and sales prices of the pre-financial crisis period. But given the sales volumes noted in this report it was a busy summer for real estate transactions, which is a positive sign In the year-to-year comparisons, the report found that the average Manhattan home sales price saw the steepest declines with a 17-percent drop compared to the same time last year. Brooklyn average home sales prices declined the least of the five boroughs, dropping five percent, while Queens average home sales prices fell six percent. Staten Island home prices were also down six percent compared to the same time last year. Other highlights:
Condominiums
Year to Year · The average sales price of a condominium in New York City in the third quarter of this year fell 15 percent to $1,075,000. · Manhattan experienced a 15 percent drop in the average sales price to $1,513,000. Quarter to Quarter · Average prices for condominiums in New York City increased by one percent and in Brooklyn the average price increased three percent compared to last quarter. · The number of citywide condominium sales increased 31 percent to 2,119; Manhattan sales increased 46 percent to 1,240; and Brooklyn sales increased 14 percent to 434. Cooperatives
Year to Year · The average sales price of a cooperative unit in New York City fell by 11 percent to $591,000. · The average sales price in Manhattan fell 17 percent to $915,000. · In Brooklyn, the average sales price for cooperatives was up two percent to $379,000. Quarter to Quarter · Quarter to quarter, the average price of a cooperative unit increased eight percent citywide and by 26 percent in Brooklyn. · Citywide, the number of cooperative unit sales increased 52 percent to 3,145; Manhattan sales volume increased 71 percent to 1,560; and Brooklyn sales volume increased 37 percent to 499. 1-3 Family Dwellings
Year to Year · The average sales price of a New York City one-to-three-family dwelling in the third quarter of 2009 fell by 14 percent to $534,000. · The average sales price of a one-to-three-family dwelling in Brooklyn declined 12 percent to $594,000; In Queens, average prices declined 10 percent to $489,000. Quarter to Quarter · The average sales price of a one-to-three family dwelling citywide increased five percent. · Average sales prices for one-to-three family dwellings increased In Brooklyn by four percent, in Queens by four percent, and in the Bronx by one percent. · Sales volume for one-to-three family dwellings also increased by 28 percent in Brooklyn, 23 percent in Queens, and 28 percent in the Bronx. Manhattan Neighborhoods
· The average condominium unit sales price in TriBeCa in the third quarter of 2009 was $2,858,000, a 26 percent increase compared to the third quarter of 2008. · The average sales price of a condominium on the Upper East Side decreased seven percent to $1,933,000 this quarter compared to last year. Quarter to quarter, the average sales price increased five percent. Sales volume in the neighborhood increased quarterly as well from 183 to 225 units. · The average sales price of a cooperative unit on the Upper East Side was $1,230,000, which is a drop of 26 percent compared to last year. Sales volume increased from 237 in the second quarter 2009 to 417 in the third quarter of 2009. · The average price of a cooperative unit on the Upper West Side fell 15 percent to $946,000 this quarter compared to the third quarter of last year. Sales increased from 202 in the second quarter of 2009 to 404 in the third quarter of 2009. Brooklyn Neighborhoods
· The average sales price of a condominium unit in Park Slope in the third quarter of 2009 was $716,000, an increase of 14 percent over the third quarter of last year. Sales in the neighborhood increased slightly quarter to quarter. · The average sales price of a one-to-three family dwelling fell in most Brooklyn neighborhoods in the third quarter compared to the third quarter of last year. Sales increased strongly quarter to quarter in the more traditional neighborhoods for one-to-three family dwellings. Sales quarter to quarter increased in Gravesend/Mapleton from 43 to 86, in Marine Park/Madison sales increased from 54 to 75, and in Bedford Stuyvesant sales increased from 52 to 74 |
As always, please feel free to contact me at 646.825.5734 to discuss anything real estate or New York Giants related.
Best,
Rich
Richard C. Bouchner
Managing Director
Commodore Property Group
www.cpg-nyc.com
Wine Tasting and Tour in Harlem
Who knew...George Washington slept in Harlem? In the fall of 1776, Washington used the Morris-Jumel Mansion as his headquarters. After Washington's departure, the Mansion played host to a succession of British and Hessian military leaders, served briefly as an inn for weary travelers, and finally returned to its role as country house. And that's just the beginning of the fascinating history of this stately mansion built on a hilltop in 1765.
Well, it is a bit too late to meet George, but you can tour the house and taste some wine Friday October 23rd, 2009 at 7:00 PM:
Experience local wines in the setting of the historic Octagon drawing room. A tour of the Mansion is also included in the program. Tickets are $20 per person and $15 for members. Advanced registration is required. Call 212 923 8008. Located at:
65 Jumel Terrace
New York, NY 10032
Hope to see you there!
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Harlem is really starting to get new businesses and services that are making it much more livable. New restaurants, coffee shops and now a Yoga studio. Finally it has become clear as to what has been going on at 119th and Lenox Ave...a new Yoga studio called Harlem Yoga Studio. It is located at 181 Lenox. Welcome to the neighborhood...you are a welcomed addition!! www.harlemyogastudio.com.
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Commodore Property Group is a boutique real estate co located in New York City. We assist in the sales and marketing of coops, condos, townhomes, and investment properties in Manhattan and Brooklyn.
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