Sunday, November 16, 2008

Local Banks Should Give TIC Owners a Better Deal

In earlier posts I've speculated that TICs in San Francisco will become less attractive to buyers in this less competitive real estate market. In a recent article, The Wall Street Journal reports: "In September, TICs made up just 7% of San Francisco properties sold, down from 15% a year earlier."

The article blames, in large part, the high interest rates (7.75%), short terms (3-5 years) and significant down payments (20%) required by local lenders that offer fractional TIC loans. A loan officer from Sterling Bank is quoted as saying that these loans are "more risky" because there is no secondary market. This is spite of the fact that there has never been a default by any TIC owner paying one of these residential San Francisco mortgages - or even, supposedly, a late payment.

OK, let me get a grip on this logic. We are having a national economic meltdown because people signed up for mortgages they could not pay, on properties that were insanely over valued. But in this case you have a solid class of highly qualified homebuyers bringing good business to local banks - and the lending institutions ding them. They charge premium interest rates and set it up so they can renegotiate rates and collect points and closing costs every five years.

I don't know much about banking, other than the simple fact that banks take in interest on the money they lend and pay interest to people who have given them money to hold. So in theory, if a bank is offering a 2% savings rate and charging 7.75% for a mortgage then the institution is collecting 5.75% in profit. Most people would be happy these days to be getting a steady 5.75% return on an investment.

The onerous terms offered by our local banks hurt TIC sales, re-sales, and pick the pockets of the hardworking TIC owners who must pay these high cost, bad deal mortgages every month. Instead of encouraging TIC ownership and building a book of lending business, the banks (along with our City supervisors) are making TICs increasingly untenable.

I hope when these mortgages come up for renewal at the end of their five year terms that the banks will waive closing costs, eliminate points and lower rates for individuals who have retained a high credit score, hold the same good job and have a perfect payment record. I don't mind the banks being cautious; I realize they must have lending standards - but I do have a problem with usury.

If, in five years the TIC owners who hold fractional TIC loans haven't proven our worth to our local banks, let's just forget it. Count it as, at best, a failed experiment and, at worst, a rip-off - and let everyone just buy condos.


Blogger runnz said...

I think your anger should be directed at a supervisors who villify the hard working owners of TIC's.

The fractional TIC mortgages offered by Sterling and others are not sold on the taxpayer subsidized secondary market (i.e. freddie mac/fannie mae) and are held by the lending institutions themselves. They do an authentic credit check on prospective customers and by historic measures their loans are relative bargains.

Oh and big surprise. The loans offered to TIC owners have a zero % default rate.

This is how the mortgage industry should have been working the last 15 years.

11:52 AM  

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