“Something has to happen for this product to be marketable. I just find the whole thing ironic that FHA is providing financing for luxury housing.”

-Jonathan Miller, Miller Samuel Inc.


That’s my pal JM discussing condos in today’s WTF?! article. Via Bloomberg, we learn:

“The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.”

The irony Jonathan refers to is due to the history of the FHA (which Bloomberg misstated). They were created in the midst of the Great Depression (1934) primarily to assist homeownership at a time when banks were collapsing, and credit had disappeared for low-to moderate-income Americans.

Are we merely throwing money at anything housing related to get the economy moving? Providing a “lifeline to new Manhattan luxury condominiums after sales stalled” makes very little sense to me.

The Manhattan real estate market has held up better than the vast majority of the country, despite the collapse in Wall Street employment.

Why? Coop Boards.

Yes, its true: New York buildings’ busy body neighbors, who are ordinarily thought of as odious organizers of an onerous application process, prevented a full blown RE meltdown in the Big Apple. While the banking industry was creating No Doc Liar Loans, Co-op boards were looking at 10 years worth of financials and tax returns. When most banks were pushing 0% mortgages, Co-ops insisted on at least 30% down. And while the vast majority of the eventual defaulting buyers bought much more house than they could afford, the intrusive boards did the banks jobs for them: They ensured buyers bought only so much property as they could hold and withstand during an economic downturn.

But condos have no such board. Hence, the scramble to find buyers as the defaults rise, condo prices fall, and foreclosures occur. So one of the few regions of the country that did not engage in aggregate risky behavior (thanks to Co-ops) has found a sliver of homes — there were 8,700 new apartments in Manhattan empty as of June — that they can stimulate with yet more risky lending.

Bloomberg adds “At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing…”


Manhattan Luxury Condos Try FHA Backing in Sales ‘Game Changer’
Oshrat Carmiel
Bloomberg, August 13 2010

Category: Credit, Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Luxury Condos Get FHA Backing”

  1. Mike in Nola says:

    Likely a brother in law or old boy network deal. A call from a friend to Timmy will do the trick.

  2. wally says:

    So, basically, those co-op boards made sure buyers got hooked in an underwater situation.

    Is that a good thing or a bad thing?

  3. Chief Tomahawk says:

    The more things change, the more they stay the same:

    “History of Presidential Towers (http://waterton.residentworks.com/media_library/1916/4bf44d064cbf0915.pdf)

    1985 Presidential Towers opens and is the largest apartment complex in Chicago.

    1995 Pritzker family takes control of the property with a $14-million investment in a restructuring that requires 7% of the apartments to be set aside for low- to moderate-income renters.

    2001 Pritzkers refinance Presidential Towers with a $133-million loan, ending federal financial involvement in the property.”

    The 7% set aside for low-income tenants occurred because the project was in financial trouble and necessary to receive federal assistance with the debt. It was alledged at the time a campaign contribution had been made to get a Congressional member’s assistance in order to get the Fed’s on the hook for the development’s financial problems. The rich don’t stay rich by losing money…

  4. The assertion that co-op boards kept the NY market from the ravages of the boom/bust cycle in real estate bears more investigation. There might have been other factors at play, such as the massive amounts of money thrown at the financial system that directly and indirectly benefited the epicenter of American finance, i.e., NY. But if it was the coops, the factors cited might not have been the cause–it seems to me it could have been that those factors led to a suppressed supply of homes available to the market such that after the bust, there wasn’t an incredible overhang relative to demand, but in both cases that’s just my speculations.

    I know the NAR likes to say that all real estate markets are, like all politics, local. And there’s some truth in that. Some aspiring economics Ph.D at one of NY’s many schools could make a name for themselves by teasing out the factors that made the NY market behave differently than so much of the rest of the country.

  5. Sechel says:

    This is potentially a big negative for condo owners. A 97% LTV loan leaves no equity or room for error. If the borrower later defaults, and LTV is the single biggest predictor of default the Condo Association will have a worthless lien, and will have no recourse other than to persue a plenary action. Only the government would engage in a non-economic loan like a 97% LTV mortgage.

  6. call me ahab says:

    just to be crystal and not to give the wrong impression- for someone to get an FHA insured mortgage the mortgage can be no more than $729,750-

    so if you are looking at a $1,500,000 sale price- a 50+ down payment would be required –

    so your post is somewhat misleading unless someone takes the time to actually read the article- the biggest problem is that FHA is allowing itself to be heavily exposed by allowing FHA insured mortgages to up to 50% of all mortgages in a building-

    and it’s funny that Fannie backed off so FHA steps in- as if it makes a difference

  7. call me ahab says:

    last post should read- “just to be crystal clear”-

    for Xmas this year BR I want an edit button

  8. wally says:

    Off topic, for BR:
    “A Swedish driver just registered the world’s highest speeding ticket while driving a $500,000 Mercedes-Benz Gullwing on Swiss roads at 190 miles per hour. The 37-year-old faces a shocking $1.1 million fine.”

  9. KidDynamite says:

    WTF indeed: “That enables buyers to make a down payment of as little as 3.5 percent “???

    are we assuming that although this is the FHA clause, that Co-op boards will still require real downpayments and legit finances? I hope so – otherwise this program is now a way for people to use government backstops to speculate on even HIGHER end real estate… Absurd.

  10. KidDynamite says:

    can someone please explain to me how this quote from the bberg article:

    “”In New York City, the priciest urban U.S. housing market, the FHA insures loans of as much as $729,750, and permits buyers to borrow up to 96.5 percent of the price.””

    jives with this quote from the same article:

    ““The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.””

    it’s kinda related to Ahab’s comment above, although it sounds like Ahab is saying the second quote here is flat out incorrect – that you cannot put 3.5% down in this building where apartments range from $820k to $3mm.


  11. Mike in Nola says:

    Ahab: you meant you want an edit button for Hanukkah. I want one, too, along with a dreidel :)

  12. wileycoyote says:

    Yeah, the way it looks- a 3.5 percent down payment plus a $729,750 loan will not get you to $820,000. Though a 15% down payment with that same FHA loan will probably feel better than having to come up with 20-30% down payment for a tradional loan from a bank. This new program will help sell more studios and 1 bedrooms, but good luck finding a 2 bedroom condo for under a million in Manhattan.

    As far as Ahab’s comment, I think what the article is saying is that in the past, FHA would only guarantee loans in a new building that was 50% sold. They’ve now changed that to guaranteeing loans in new buildings that are only 30% sold.

  13. obsvr-1 says:

    Whether or not there is accuracy in 3-5% down on a 1-3M condo and the FHA limits, the fact that a headline:

    Luxury Condos Get FHA Backing (WTF indeed)

    is even printed points to how desperate the inmates at the washington insane asylum have become

    or — as not being a NYC denizen I may not know that a 1-3M condo is low income housing ??

  14. destor23 says:

    Definie luxury, though. Grammercy is a tony neighborhood but a luxury building has to have ammenities — 24 hour doorman and maybe concierge, gym and rec center, parking, a pool, shared and private outdoor space…

  15. Mike in Nola says:

    destor: luxury is more than I would pay.

  16. call me ahab says:


    two different issues- an agency will also limit itself to how much it will extend itself in a particular building and project. From the article

    The agency also offers insurance to half of all mortgages in a single building after previously setting a limit at 30 percent

    i.e.- up to half of the owners could have FHA financing

  17. jeff in indy says:

    not being a new yorker, just curious what are the boundaries of rangel’s and nadler’s districts?

  18. Sechel says:

    I think this is all Chuck Schumer

  19. gleeker says:

    Isn’t anyone even remotely concerned about the fact FHA traditionally did loans in the 200K max range in lower profile areas and now they are writing loans in Gramercy? As I understand it; because Fran and Fred and almost all Banks are toast in the mortgage arena everything is now getting pumped through FHA and 16 percent of the loans FHA has underwritten in the past 12 mos are already in default. Perhaps these are the details of concern rather than the amounts, percentages, and or locations of loans.

  20. Sechel says:

    The government needs to reduce not increase its role in the mortgage market. No private lender can hope to compete with 96.5% loan to value loans offered at 4.5%. All this does is put the tax payer at risk and keeps home prices high and unaffordable for more Americans.