The fight between local developer Steve H. Bryan and Reservoir homeowners continued yesterday as they squared off at the office of the Pearl River Valley Water Supply District Board. The Clarion-Ledger reported:
"Originally billed as a condominium project in February, the Mandalay development now plans to rent apartments and eventually convert them into owned properties, developer Steve Bryan told committee members today" and that "Bryan announced in September that the units — which will range from 900 square feet to 1,400 square feet — will have monthly rents starting at $1,000. Bryan said the units will be among the most luxurious in the metropolitan area." Article
Mr. Bryan, who has lost several complexes and projects to foreclosure this year, even went so far as to say "Our proposal, as you all are aware we were starting with a lease purchase program from the beginning. That has never changed. It must meet Fannie Mae guidelines," said Steve Bryan." WLBT story with video
Really? Lets see what those guidelines are. According to Fannie Mae guidelines, the appraisal has to show what rents are for other apartment complexes in the area. A market value rent is determined based upon these complexes. The renter can only use the difference between his rent and the market value rent on a lease-purchase transaction. Thus if someone rented a unit at Mandalay for $1000 a month, and the market value rent for that apartment was $900 a month, he could only use $100 a month towards his down payment.
Fannie Mae states in its guidelines "A project is ineligible if Projects where a single entity (the same individual, investor group, partnership, or corporation) owns more than 10% of the total units in the project (p. 535)" and that "at least 90% of the total units in the project have been conveyed to the unit purchasers (p. 549)".
This is a deal-killer for projects such as Mandalay because before Fannie Mae will finance any lease-purchases in the project, Mr. Bryan will first have to sell 90% of his units. Does anyone think there will be several hundred renters that won't need a mortgage to buy a Mandolay condo?
However, Fannie Mae is not the only consideration as the anytime a borrower has to put down less than 20% on a home, he is required to obtain mortgage insurance. The Mortgage Insurance companies have their own guidelines for projects such as Mandalay.
RMIC (Old Republic, yes, that Old Republic of Evans fame) states in its underwriting manual:
"Resales of converted condominium units from apartments, warehouses, etc. are eligible for RMIC insurance only if all the units have previously been sold to individuals other than the developer, and the project has been turned over to the HOA. Additionally, the appraiser must demonstrate market acceptance by using comparables that are resales from the subject project." Page 29 of RMIC's underwriting guidelines.
MI (mortgage insurance) underwriting guidelines are usually more strict than Fannie Mae guidelines. RMIC states "Only the portion of the lease amount in excess of the Fair Market Rental can be used for down payment" and that "Borrowers must make an initial down payment of 5% from their own liquid assets before the rental credit can be applied as equity." (page 21).
MGIC, the largest mortgage insurance company, is just as tough on lease-purchase deals. MGIC states on page 66 of its underwriting guidelines "In a “lease with option to buy” situation, only the portion of the lease/rent payment in excess of market rent is acceptable as a borrower’s down payment."
Lease-purchase transactions are also treated as a refinance by most lenders and Fannie Mae. The maximum loan-to-value for a refinance is lower than it is for a purchase, thus Mr. Bryan's renters will still have to come up with 5% down if they want to purchase one of his units even if they can use part of their rent towards the down payment. MGIC underwriting guidelines.
Mr. Bryan's public statements about Mandalay meeting Fannie Mae guidelines simply don't square with the underwriting guidelines of Fannie Mae and the mortgage insurance companies. . In order to meet Fannie guidelines, Mr. Bryan will have to first convert the entire project to condos, then sell 90% of it to homebuyers who won't use a mortgage from Fannie Mae to purchase the home. If he can get past that hurdle, then his renters can only use a portion of their rent, if any, towards a down payment and that is after they have saved enough money to meet the 5% down payment requirement by the mortgage insurance companies. In other words, if Mandalay is built as an apartment complex, it is probably going to stay an apartment complex.
It should also be noted Bankplus issued a loan to Mandalay Development for $1.75 million on February 19, 2008. The note became due six months later but the bank has obviously extended the note even though no modification has been recorded at the courthouse. The Secretary of State's website reveals Mr. Bryan is listed as a registered agent for the company but no one is listed as owner or member. The deed of trust refers to him as a member of Mandalay Development LLC. The articles at the SOS probably have not been updated, which is not uncommon.
Mr. Bryan has already suffered several severe financial reverses this year as he lost several complexes in foreclosure proceedings in various states and was fined by HUD as well.
If the project suffers the fate of other Bryan developments this year, will the site become another Harborwalk: an asset to the Reservoir area torn down by developers who bit off more than they could chew?
Earlier post on Mandalay Development controversy
Tuesday, November 17, 2009
Reservoir Ruckus: Round II
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16 comments:
Sounds like Mr. Bryan is on the hook again and will probably default on the Bankplus loan. Don't people these days get something concrete approved before getting a loan?
I haven't seen the CL today but the story on their web site last night was pathetically short on the details you've provided over the last week.
I live in the area. This is too prime property for low rent apartments. This development will kill any further high end development from coming in.
It was a dang shame that water district allowed the beautiful pine thicket to be bulldoozed for the BankPlus building on the corner of Old Fannin and Spillway. Just what we needed another fake colonial bank building that is too big (why do banks think they need such a large building.
BTW, I am a renter in the area and I don't want any low rent building in the area!
11:41, I agree totally about that BankPlus building. It's just obnoxious, it's so large.
It spoils what used to be a really nice view. That's progress for ya! If you can, ruin or destroy everything that people loved about an area in the first place.
Agree that "lease-purchase" does not square with Bryan's statements. Most of the FNMA purchases/orginations of late have been without the benefit of PMI insurance, as the private mortgage insurance comanies are in such dire financial condition. So how does FNMA keep orginating/buying mortgages to keep the administration happy.....FHA loans, where you can avoid the downpayment of only 3% by using downpayment assistance programs. These were supposedly outlawed in the stimulus bill, but then again, what do you call the $8,000 homebuyer's tax credit? FHA's capital reserves are projected at 0.53%, far below the Congressional mandate of 2%. The next government bailout will be FHA, and the media will realize it soon enough.
With the exception of Bankplus, who appears to have the loan on the real estate parcel, who is going to lend on this project....even for a HUD insured loan?
It certainly seems like Bryan is desparate. Arranging municipal approval allows him to get closer to the one thing he needs....a construction loan and the liquidity he appears to desperately need.
Problem also is even if no money down, you still have to get past the condo rules, which is going to be very hard.
No doubt KF, being in the mortgage business, I can attest condo loans are quickly becoming harder to originate.
If this Pearl River Water Supply District property was appropriated by eminent domain for a reservoir, why is it being developed as a mega city? Aren't many public lakes throughout the country limiting excessive development?
"Lease Purchase" to them still means only paying "rent." They have nothing to loose when they move out overnight, and void a contract. That is why they are lease-purchasing to begin with. They have horrible credit and will never be able to "purchase" said property anyway.
Instead of trying to get this problematic apartment project approved and financed, why doesn't he just try to sell the property? How much longer could that take than all of the other problems he's going to have to wade through? It is an exceptional location, surely it would be tempting to investors who could come in and do something right with it.
He's already chin deep in financial ruin. Even if he let the bank have it, how would he be losing that much more than he already has? This situation is shaping up to a not so happy ending for anybody, except maybe the lender.
The drawback to that parcel could be the traffic, entering and exiting. A good engineering team could work that out fine though.
Good luck to everyone involved, most especially to the tax paying property owners who chose to live in that area for the very reasons that are beginning to be gobbled up by development.
According to the landroll records, he is not the owner. I assume since he is the developer, someone has hired him to do something with this property, and then was supposed to sell it.
His name is not on the Mandalay company as an owner either.
Actually I have a copy of the deed. Actually its an Assignment of Lease and it is transferred from the Bennetts to Mandolay Development.
Now the SOS does not list an owner for MD, but the deed of trust does list Bryan Investments as a member of MD. Steve Bryan signed the deed of trust as a member of Bryan Investments.
What was funny about the hearing this week was Bryan's lawyer, Steve Smith, brought a court reporter and told everyone there they were talking down every word said and would know who said it.
can we say intimidation?
I'm sure everyone was scared to death at the mere presence of the court reporter.
Further evidence of the chronic assholia that afflicts 95% of the legal profession.
I found it quite amusing and I'm sure no one else really cared either.
Re: the court reported. Anyone see the new episode of "Leverage" last night, where the fake "lawyer" took notes of everyone speaking throughout every encounter, before revealing at the end that 1) she wasn't an attorney (after representing a client in probate court) and 2) was actually a con artist auditioning for this team of con artists? It's a great new show.
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