Banks Denying Approval on Most Miami Condo Mortgages

How does a gleaming new high rise condo building become toxic waste? The South Florida Business Journal’s “BankUnited blacklists 191 condo projects” and the Daily Business Review’s“Condo Meltdown” tell us that BankUnited (BKUNA) has virtually eliminated condo lending and Washington Mutual (WM) is severely restricting lending. Apparently the BankUnited’s "confidential” Non-Permissible Condominium Project List and the “confidential” Washington Mutual Eligibility List must have fallen off the truck.

BankUnited included virtually every condo building in Miami: old, recently constructed, and not yet completed. Their list is more interesting because a reason is given for each rejected building. The two most popular reasons are declining market value and high investor concentration. These were followed by the number of foreclosures in a building, delinquent association dues, litigation, and the bank’s current exposure to a particular building. BankUnited cut back on condo lending a few years ago and is shrinking its balance sheet.

Fannie Mae (FNM) and Freddie Mac (FRE) also have their own building eligibility lists and guidelines. A condo building must be a least 70% owner-occupied to be considered.

The most troublesome buildings are on every lenders list, whether the list is formal or not. Buyers can still get mortgages from private investors (at double the prevailing interest rate) when they provide a 30% to 50% down payment. Foreign buyers - the life blood of Miami - could need as much as a 70% down payment.

Banks will remain skittish and are requiring very large down payments until prices drop low enough to make them feel secure. While FICO scores influence the mortgage interest, collateral is now the most important approval factor. Warning to developers: this will make it extremely difficult for most buyers to come to close on Miami’s newest buildings.

Disclosure: Author has long positions BKUNA, FRE and WM.

Comments

[overn:]

sellers and R.E. agents still think the mkt will return any month now but there is little proof execpt in the thin market pockets that add up to 100% of the 30% transacted

2008 Feb 18 12:33 PM

[helplessobs...:]

Wilber Ross analysed the Miami condo market and found it overbuilt. Available condos for sale 20K, ready for sale in 2yrs 20K, yearly demand 5K. Conclusion it will take 8 - 10 years to clear current and imminent supply.

2008 Feb 19 11:39 AM

[FD-Condo-Ho...:]

Excellent article.
However I do have a question: don't you think that the banks who lend loans to developers to help them build will find a solution to finance the potential buyers. Yes the prices will have to go down, but at one point the bank will have to find a solution to get out of these condominiums. So they will have to finance.
I do not give that much credit to the banks (pun intended). They were lending money to everybody with no signs of discernement, being one of the major culprits in this crisis. And now they are acting again in a crazy manner.
But they will have to come down to reality and finance those who can pay them back.
Best regards.
Franck Dossa @ Condo Hotel South Beach

2008 Mar 24 04:05 PM

[dxa:]

I am beyond frustrated 6 months into searching for townhouse/condo property with good (great I was told) credit and I am being required to put 20% down and offered an interest rate of 6.25 and it still may not get approved depending on the assessment of the association etc. so who the heck is buying bc they are surely making it near to impossible to own anything...

May 28 03:00 PM

[newcondos:]

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Oct 26 08:50 AM