Friday, August 13, 2010

Government Props Up the High End Condo Market with Your Money

A 3.5 percent down payment is all you need to buy a condo in one NYC building, known as the Tempo, where apartments range from $820,000 to $3 million. Thanks to the FHA.

"The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is now providing a lifeline to new Manhattan luxury condominiums after sales stalled," reports Bloomberg. In case you haven't figured it out, this is really a bailout for the developer and the bank financing the developer.

Without this bailout, the prices of the condos would drop to the point where they would be affordable for buyers. That is , they would become a great deal for buyers, but not so good for the developer and the banks, so the government steps in and bails out the developer by providing low down payment easy money to the buyer---the easy money, btw, is your tax money.

At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing since the agency loosened its financing rules in December, according to a database of applications maintained by the U.S. Department of Housing and Urban Development, reports Bloomberg.

The FHA is filling a void left after mortgage-finance agency Fannie Mae tightened its condo lending standards last year, says Bloomberg. Bottom line: They just change the F'ing name on the door from Fannie to FHA, but it's still the government propping up and distorting markets with tax payer money..

“It’s not an accident that the FHA is offering this -- not private lenders,” said Christopher Mayer, senior vice dean at Columbia Business School’s Paul Milstein Center for Real Estate in New York, according to Bloomberg.. “An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.”


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