Why A Mortgage May Be Hard To Get: The No Lend List

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Russ Martin of Perl Mortgage sent out a newsletter late Friday with an example of one lender's No Lend List - basically a list of condominium developments that they will not lend to. Although he was not at liberty to provide the bank's name he did indicate that it was "too big to fail". Here is the surprisingly long list:

Neither Russ nor I know the specifics of how these buildings got blackballed but in general these are the things that concern lenders:

  • Too many renters - more than 30% (corrected from 20% on 12/15/10) of the units
  • Lots of short sales and foreclosures
  • Lots of delinquent assessments
  • Budget issues - e.g. a large looming special assessment
  • Lots of units for sale
  • Liens against the building
  • Lawsuits
  • Part of the building is a hotel
  • Not that many units have sold yet
  • The developer is in trouble

It's interesting to note some of the names on the list, from which I can speculate as to why they are on the list - or not. Aqua is easy...the curse of the hotel. Haberdasher Square had a lot of work done recently so I assume they had a special assessment a while back. And The Regatta seems to have had a lot of rental activity. However, I was surprised to see Randolph Place on the list because we put a buyer in there not too long ago and there were no issues. Rentals were at about 20%, there aren't that many units for sale, and if I recall the budget was in good shape.

Russ' point in sending this out was that times are tough, banks are being very conservative, and we need to keep an eye on these lists. Furthermore, any development may be blackballed by one or more lenders but you can often find other lenders that will lend in that development. That's why you don't want to rely on a single lender when you go to buy a home. More on that another day.

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  • Great post, Gary. I've posted on what to me was the biggest surprise on the list, 1550 State:

    http://yochicago.com/surprising-condos-on-a-do-not-lend-list/18529/

    Also note that there are some deeply troubled conversions that are puzzlingly absent from the list.

  • Good point, Joe. I don't see Millenium Centre at 33 W Ontario on the list and I assume they are still in trouble. Haven't checked in on that one in a while but it's not like they would be able to climb out of their mess very fast.

  • This list is absolutely ridiculous. Just because one lender isn't comfortable with a building doesn't mean anything. There are multiple lenders who will still lend on these buildings. The facts of this article are also wrong. The 1st point is 30% for rental is the cut off. In addition LTV, occupancy of the person applying for the loan these are all MAJOR factors in getting loans done in condo buidlings.

  • The article does acknowledge that other lenders will lend on these buildings - that was one of the points of the article. In addition, while individual borrower circumstances matter in getting a loan done, for these buildings and this lender the individual circumstances don't matter. This lender will not lend on these buildings regardless of the individual circumstances.

  • I can't agree with Joe Caltabiano more. Fannie and Freddie have published guidelines, but they have exceptions granted to those "rules" all the time. Last week I closed a loan, cash-out on an investment condo where the building not only had 34% rental, but also pending litigation! The rules are not "hard and fast", they are borrower specific and saying anything to the contrary is doing the public a huge disservice.

    While the above lender will not lend to those buildings, those buildings are often on those "banned lists" for erroneous information or stale info. If you can prove to that lender that the building is "lendable" in the current market, the lender will remove the property from the list.

    This is another example of why working with a "big bank" is so severely limiting when purchasing/financing a home. Working with mortgage bankers who have access to multiple sources is vital in today's mortgage market.

  • Can you explain why renters are a bad thing? And hotel?

  • In reply to hannahy:

    Renters are considered a "negative" mainly due to those units in which a renter lives, that owner may 100% depend on the rental income to pay his/her mortgage. If the renter moves out, that homeowner may not to be able to pay the mortgage (future foreclosure/short sale to ruin comps in the building) or assessment (delinquencies in a building steadly erode the reserves built up by the association if not resolved).

    For the hotel - I assume you're speaking about a "condotel" project. Those projects are almost impossible to finance for a plethora of reasons, one being the same as the renter example above. If the hotel goes under, those units that owners relied upon the hotel's use of their unit, will have less income to pay the mortgage......

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