How Mortgage Stocks Affect Manhattan Real Estate

I have a phone interview today with Real Estate Weekly and we will be discussing a very interesting topic.  As we all know, mortgage stocks are struggling right now.  It is tougher for mortgage banks to bundle loans and sell them as securities now because of the whole sub-prime disaster.  Then or course we are all seeing the media put out something new everyday about foreclosures.  So many people who were in sub-prime loan products, interest only loans, adjustable rate mortgages, etc. are in foreclosure now because they can no longer afford their home.

An interesting market to look at in contrast to the rest of the country is New York - specifically the Manhattan area.  National foreclosure rates are up about 35% while NY rates actually went down by about 2.78%.  New York is a completely different market however with different restrictions and guidelines as to how and when a bank can foreclose.  People with mortgage loans in NY still actually own their homes.  If a bank want to foreclose it takes longer and costs more than in any other state.  The banks are not real estate companies and it is costly to hold these real estate assets once the foreclosure process is complete.  It makes more sense for everyone involved to work out the loan.

Manhattan is a market that is providing new opportunities for mortgage stocks.  The housing market is still very healthy, absorption rates are great, owners still have the ability to sell their homes and condos quickly if they are in trouble, and wealthy people are taking massive mortgages on new homes and New York condos.  Condo sales accounted for 49% of home sales in Manhattan during the first three months of the year.  many of the mortgage loans are between $2 million and $10 million!

Mortgage banks are willing to make these large loans and wealthy people are much more apt to take out a mortgage these days rather than look to paying off the loan.  People want more liquidity and mortgages are still one of the cheapest forms of debt.  These multi-million dollar loans are attractive to the mortgage banks because it helps them make up for the fall out in the low to mid-level loan range.  Banks are basically now lending more money but to fewer people.  The mortgage banks can then bundle these higher dollar loans into a new type of security and sell to institutional investors in the open market with less risk.  These securities are looked at more favorably because the loans are held by high net worth individuals with good assets and fantastic financial track records.  It seems that New York condos and homes are keeping things alive!