JPMorgan Chase & Co. is getting bearish on Manhattan apartments.
The lender will tighten the terms of mortgages it finances for most co-operatives and condominiums in the borough, according to a Nov. 4 notice sent to loan professionals. Chase will limit jumbo loans to 70% of the sale price starting next week, down from 80%.
Slackening buyer demand has sent Manhattan sales plummeting during the Covid-19 pandemic. The change suggests JPMorgan sees more price declines to come in the borough. It could also depress deals further by forcing buyers to come up with bigger downpayments when they are already stretching to purchase in one of the costliest U.S. housing markets
“If it were to become a widespread, across-the board policy for all banks, it would definitely slow the market,” said Stephen Kliegerman, president of Brown Harris Stevens Development Marketing, who confirmed Chase’s new lending rules.
A JPMorgan spokesperson confirmed the new loan terms and said the bank is making the change due to “current economic conditions.”
Banks have already started tightening some terms but none have made a change as sweeping as JPMorgan’s. Many lenders have limited their focus to financing of newly built condos in Manhattan, which have proliferated faster than the number of buyers interested in acquiring them.
Since Covid-19 shuttered New York City, some lenders to those luxury projects have demanded purchasers show enough cash in the bank to cover 18 months of mortgage payments in the event of a job loss, Kliegerman said. Others have limited the use of back-door price concessions, such as payment of closing fees, that developers sometimes offer as enticements to close a deal.
“Every single lender is ratcheting up their risk requirements,” said Orest Tomaselli, chief executive officer of National Condo Advisors, which helps developers of new apartments comply with lender rules. “Right now, if you look out 24 months, can you say what the value of a new construction condo unit would be in Manhattan? I would think that a lot of these units would see a greater than 30% reduction in price.”
The new standards apply to loans of more than $765,600, that are not guaranteed by Fannie Mae and Freddie Mac — which account for 95% of the Manhattan market, Tomaselli said.
JPMorgan’s decision to require 30% downpayments will likely prompt additional lenders to follow, he said.
“It absolutely is impactful for every single lender in the marketplace,” Tomasellli said. “They will all eventually get somewhere near the same place.”
JPMorgan’s new loan-to-value restrictions will apply to all Manhattan apartments, including re-sales and co-ops, many of which are relatively affordable, older units that price sensitive buyers turn to first.
The bank was the fourth-largest purchase lender in Manhattan last year, originating $884.1 million in such mortgages, data from Inside Mortgage Finance show.
Signed contracts for Manhattan co-op apartments fell 4% in October from a year earlier, according to appraiser Miller Samuel Inc. and Douglas Elliman Real Estate. Pending condo deals plunged 28%.
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