Sunday, July 01, 2007

The $3.6 Million Mortgage / NYT

Wow! The "wealthy" want more leverage to increase their returns in the stock market or even better in the real estate market..... Sounds not so "wealthy" to me..... And is New York really so different...Looking at the Case/Shiller charts from Bespoke Investments it looks like New York is not immune....And this at times when bonus payouts reaching record highs.....

Wunderbar! Nun steigen selbst die "Wohlhabenden" in das gewagte Spiel der kreditfinanzierten Investments ein. Wiem man davon ausgehen kann mehr im Aktien oder noch extremer im Immobilienmarkt zu erzielen ist mir schleierhaft. klingt für mich nicht nach einer Strategie für "Wohlhabende". Und beim Betrachten der Charts zeiht auch das immer wieder vorgebrachte Argument das NY immun ist nicht wirklich. Und das zu Zeiten in denen die Bonuszahlungen von Wall Street alle Rekorde brechen......

SETH WEINSTEIN is not a guy who likes to run a tab.

But Mr. Weinstein, who for nearly the last 30 years has developed office buildings and condominiums in the New York area, and who seems to be allergic to the idea of accumulating debt, was approved for a $3.6 million mortgage last month for the $4 million condominium he is buying at the Century at 25 Central Park West.
The loan is a two-year floating-rate mortgage that will carry payments of roughly $24,000 a month at what he estimates will be an interest rate of 8 percent through the term of the loan. He plans to refinance in two years after making some renovations on the apartment.

Mr. Weinstein chose the condominium over a similar co-op apartment, where the limit on his mortgage would have been $2 million. He said he wanted to use as little of his own money as possible to buy the apartment, preferring to invest it in Connecticut real estate, where he expects the returns to be 25 percent.

>Why only 25 percent....? It must be different in Connecticut.......

>Warum nur 25%....? Wie das ausgerechnet mit Immobilien in Connecticut gehen soll......

“It’s not the case that I’m cavalier about debt,” Mr. Weinstein said. “I can make a much better return on that in my business.”

More lenders are targeting overqualified borrowers like Mr. Weinstein as the next frontier for growth in the troubled mortgage industry. As the national housing market continues to suffer and lenders grow more cautious about approving mortgages for home buyers with anything less than sterling credit, they are opening their coffers to Manhattan’s wealthiest buyers, who might not need any financial help.

High-end buyers, even those who are flush with money from Wall Street bonuses or the real estate boom, are flooding banks with requests for huge mortgages so that they can keep up with the escalating prices for multi-million-dollar apartments.

“I’ve seen more $10 million mortgages in the past 6 months than in the past 10 years,” said Melissa Cohn, the president of Manhattan Mortgage Inc. “We have the new breed of buyers who are buying real estate for investments and consider leverage to be part of that ongoing investment.”

Most of these new borrowers take the mammoth monthly payments in stride because mortgages are now one of the cheapest forms of debt.

Keith Kantrowitz, the president of Power Express Mortgage Bankers in Lake Success, N.Y., said that the average mortgage requested by his borrowers in Manhattan has nearly tripled in the last two years to about $4 million, up from $1.45 million. Mr. Kantrowitz is currently arranging interest-only mortgages for four borrowers in Manhattan, each for $30 million or more, for two apartments and two town houses they want to buy or refinance......

Lenders are eagerly financing these multi-million-dollar mortgages because they are trying to make up for declines in nearly all other segments of the mortgage market, said Robert D. Manning, director of the center for consumer financial services at the Rochester Institute of Technology and the author of “Credit Card Nation” (Basic Books 2000). The broader mortgage market has been suffering because lenders have financed so many aggressive mortgages for subprime borrowers and have tightened their requirements for all borrowers who do not have blue-ribbon credit scores or big incomes.....

"The banks are hurting because the middle-class market has been hurt so much that they’re desperately looking for new markets,” Mr. Manning said. “This is a much more profitable product for the bank.”

At the same time, New Yorkers have also been buying more condominiums, which allow for smaller down payments (and larger mortgages) than co-ops do. For example, 49 percent of the sales in Manhattan in the first three months of 2007 were condominiums, compared with 38 percent during the corresponding period five years ago, according to data from the Miller Samuel appraisal company. Co-ops generally require buyers to put down at least 20 percent of the purchase price; condominiums require as little as 5 percent.

When it comes to condos, “there is no third party telling people what they can and can’t finance,” Mr. Appel said.

Mortgage brokers and psychologists agree that multi-million-dollar mortgages mark a major shift away from the historical stigma that carrying a lot of debt used to hold, especially among the very rich. .....

“In a traditional mind-set, there was a moralistic status to having paid off your home,” Professor Morris said. “It was part of the American dream to have paid off your house.”

But David Strause, a mortgage banker in the Manhattan branch of Countrywide Home Loans, a division of the mortgage company, said that the wealthy buyers he had seen in the last four months had no qualms about taking out large mortgages. He said that such borrowers were typically male, aged 30 to 45, working in finance or real estate and making around $1 million a year. He has found that buyers in their early 30s borrow most aggressively.

His clients include an investment banker who bought a $1.94 million apartment on the West Side with a $1.75 million mortgage, an entrepreneur who bought a $4 million apartment near Madison Square Park with a $3.4 million mortgage, and a 32-year-old hedge-fund executive who bought a $1.5 million apartment in the same neighborhood with a $1.35 million mortgage.

Mr. Strause said these buyers were generally not concerned that there is a ceiling of $1.1 million on the amount of mortgage interest that is deductible on federal income taxes each year.

He said these borrowers plan to plow the money they might put into a house or apartment into the stock market, where they hope to earn 20 percent returns.

“They buy the biggest property they can afford, they leverage to the max, and they assume that their careers are on track,” he said. “A lot of these people tend to think that they are smarter than the banks and they have a better use for the money than put it into real estate.”

"You should relax less"

But giving the superrich increased access to borrowed money has raised eyebrows across the rest of the lending market. Mr. Manning of the Rochester Institute of Technology points out that it has become far easier in the wake of the subprime crisis for a wealthy Wall Street executive to get a loan than for anyone else in the home-buying market.

“There’s no problem with rich people getting loans as long as other people aren’t disadvantaged in the process,” he said. “Are we entering a new Gilded Age where there’s just a new set of rules for the rich?”

Larry Goldstone, the president of Thornburg Mortgage, a real estate investment trust and jumbo mortgage specialist in Santa Fe, N.M., said that the average mortgage his company made in Manhattan in the first three months of 2007 was $1.19 million, compared with $1 million in 2005. The borrowers are often baby boomers, he said. In fact, Thornburg’s average borrower is 47 years old. .....

He said that leverage gives first-time buyers the ability to “improve their lifestyle” by breaking into home ownership with small down payments, and empty nesters have the “psychological security” of holding on to their cash.....

Mr. Guenot’s approach mirrors what many buyers are doing in Williamsburg. Roughly three-quarters of the buyers in Mr. Guenot’s 45-unit building took out 90 percent mortgages, according to Christine Blackburn, a Prudential Douglas Elliman broker who handled the building’s sales.....

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Anonymous edgar said...

A $50k apartment here is probably better than a place that costs $1 million or more in Manhattan. It's expensive though, so that makes it good. (rolls eyes)

I was living in a shabby two bedroom apartment back in 1981 when a friend came back from visiting NYC. He said: "this place is a palace compared to the way they live in NYC".

6:18 AM  
Blogger jmf said...

comes the winner.....

6:59 AM  
Anonymous semper fubar said...

Back to the Gilded Age indeed. Only the people who don't need money will be able to borrow money.

11:57 AM  

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