A Jumbo Problem

Photo: Peter Garfield/Courtesy of Kinz, Tillou + Feigen, New York

Suzy Sanford knew that some home buyers were in trouble. But they mostly lived anywhere but here. And if they did live here, they were overextended subprime borrowers who really couldn’t afford what they owned. Sanford, an executive at a not-for-profit, wasn’t like them. Her credit was spotless. She had a 20 percent down payment, and she owned a house in Queens she bought during the late-eighties bargain market. Still, she wanted to move to Manhattan, and after six months of looking, she found the Harlem townhouse of her dreams for $2.2 million.

She may lose it, though. Despite her stellar financials, she can’t find a bank to give her the mortgage plus the loan she needs to renovate. Her broker, Corcoran’s Jeff Gardere, says she would’ve gotten the green light a month or two ago, before the mortgage industry started imploding. But now lending standards are tighter, banks more reticent, especially with jumbo loans—anything more than $417,000—and buyers like Sanford are feeling the pain. “I’m not desperate, but if I have the income, the credit, the 20 percent, it shouldn’t be so hard,” she says.

As in so many other things, this stuff is more difficult in New York. Our housing market is feeling this pinch especially hard, simply because so many of our mortgages fall into the jumbo class. (After all, you can barely get a one-bedroom here for $417,000.) Although there’s little worry over mass defaults and foreclosures—especially in Manhattan, where co-ops constitute 75 percent of the housing stock, their rigorous standards all but ensuring that only those who can afford it get in—the mortgage industry’s woes are leaving their mark. “I’m seeing a psychological effect,” says Citi Habitats broker and UrbanDigs.com publisher Noah Rosenblatt, who says sellers are getting “a little nervous” while buyers opt to “wait on the sidelines to see what happens.” Many are scrambling to find extra cash to put more money down, thereby avoiding the jumbo-mortgage market altogether, or are reexamining their finances to see if they can afford to buy in the first place.

“You have people who qualified 45 days ago [now] facing higher payments,” says Jeffrey Guarino, managing director of Gotham Capital Mortgage, a boutique mortgage brokerage. A month ago, a buyer signing up for a $600,000 mortgage faced monthly payments of about $3,900 (at 6.875 percent, fixed for 30 years). Now rates are at 8 percent, and that same loan will cost $4,400 each month. (No matter what the daytime talk shows tell you, cutting down your Starbucks consumption won’t make up the difference.) Guarino says applications are down 30 percent from last August.

Jumbo applicants aren’t the only ones hurting; those owners who bought years ago with adjustable-rate mortgages will want to refinance soon. They, too, will face tighter scrutiny than last time around. If banks think they’re too risky, their new loans may not get approved, in which case they’ll have to start paying more per month. (The Fed’s recent move to cut the discount rate hasn’t brightened the landscape one bit.) Will buyers start asking for mortgage contingencies—contract language allowing them to walk away without penalty if they can’t get financing—once more? (Contingencies were routinely waived in the recent competitive market.) Will sellers be leery of mortgage-dependent buyers?

All this agita has brokers having to talk many of their clients off the ledge. “I’ve had people say, ‘Maybe I shouldn’t look right now,’” says Gardere, who became a broker after practicing as a psychologist. “I tell [them], ‘Yes, things are going to be much tougher, but hey, that’s the way it is. We will rise to the occasion.’”

A Jumbo Problem