Banks refuse mortgages on most Miami Condos

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.

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