Issue 10. August 2007

  Frances Katzen, VP

Pertinent Articles:


In First Crisis on the Job, Bernanke's About-Face Is Weighed
For the last month, the stock market has gyrated as every other day seemed to bring more bad news about the housing and credit markets. Traders awaited a signal from the Federal Reserve and its chairman, Ben S. Bernanke, now in his sophomore year at the helm of the central bank..........MORE
[New York Times]



Wall Street Quake:  The Unforgivingness of Forgetfulness
Understanding how subprime mortgages led to the current market meltdown is a bit like figuring out a card trick. Lenders and financial wizards took the joker — the risk that certain borrowers might default — and hid it in the deck. They shuffled all those risky subprime mortgages into much bigger investment pools, then cut the deck twice, fanned the cards and presto, it disappeared. Magic.........MORE
[New York Times]



Prices up; sales now up, too
The bloom isn't off the rose or, at least, the Apple. Recently released numbers show sales in the Manhattan residential market continuing at a strong pace. As a bonus, while there isn't a housing boom these days, prices have been heading up modestly since the beginning of the year after dropping a bit at the end of 2006..........MORE
[The Real Deal]



Accenting the international: Foreigners buy condos in bulk
American buyers unpacking boxes in condos that are finally up after years of construction are likely to hear a variety of overseas accents in the elevators.........MORE
[The Real Deal]



Mortgage Ills Start to Strain Homebuying in Manhattan
The turmoil in the international mortgage market is starting to make it harder for New Yorkers to get the large loans that are typical in a city where the average apartment in Manhattan costs $1.3 million. In the past two weeks, banks have been increasing rates on so-called jumbo mortgages, sometimes at the very last minute, according to mortgage brokers and lawyers. ........MORE
[New York Times]




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Quarterly Reports:
Frances Katzen
485 Madison Avenue 16th Floor
New York, NY 10022

(212) 350-8575

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Turmoil in the Mortgage
Market, What to Do


      I imagine you probably noticed that there has been significant volatility in the financial markets over the past several weeks.  This was initially caused by a substantial revaluation of risk of sub-prime mortgages but began to spill over into many other debt markets resulting in a severe credit contraction.  So how does this "crunch" affect your ability to finance the purchase of your home?

      I am getting many calls from prospective buyers and sellers asking me about the situation.  I tell them what I am experiencing, and then have them talk with my mortgage brokers to gain further clarity.  Although I am not a mortgage broker, I decided to bring their insights to this newsletter.

      First off, most of the problems with the housing and mortgage market do not fully apply to Manhattan, which has historically had stricter lending guidelines and continues to have a significantly stronger housing market. 

      Secondly, while the anxiety across the US is in full force now, the turbulence will calm down and normalcy will return, it always does. 

      Third, I am seeing and hearing from mortgage brokers that smaller banks (which tend to hold onto the mortgages they issue and are thus much less impacted by debt market turbulence) are a good source of mortgages, though their lending guidelines can be stricter.  Nevertheless, many larger banks are also still eager to finance solid, credit-worthy buyers. 

      Lastly, loans at amounts less than $417,000 (called "conforming loans"), have been almost unaffected as they are government subsidized with rates holding at about 6.5%.  In many cases, a buyer can utilize a conforming first mortgage coupled with a large home-equity loan to get the financing they need.  These are the type of creative structures that will enable savvy buyers to prosper.

      What should prospective buyers do in this market?  As I said, the first thing is be clear about your financial and personal objectives.  Review your finances, clean-up any negatives in your credit rating, maximize your liquidity and then get pre-approved.  This eliminates the issue of whether you can get a mortgage when you make an offer to the seller.  Buyers also need to be realistic and not overextend themselves. 

      As we all know, mortgage lenders have been very aggressive in the past decade, the results of which have contributed to the current problems, and some mortgages may be more difficult to obtain.  I strongly advise that buyers seek out a professional, experienced mortgage broker who works with various lending institutions, both large and small.  They know which institutions are lending and under what terms and rates and are creative in finding a mortgage to suit the buyer.

      I have summarized these key suggestions into a simple set of rules:

Fran’s Mortgage Rules

            Make certain your credit is cleaned-up 
            Obtain liquidity
            Resist making rash decisions
            Target the home you want
            Get pre-approved                                           
            Avoid overextending yourself
            Get an experienced mortgage broker
            Explore all options














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