By  MAX GROSS

Losing a mortgage hours before a closing would have seemed extremely bizarre a few months ago. But lately, it’s become more commonplace. Since the mortgage market went into crisis mode about two weeks ago, we’ve heard many stories of frantic searches for last minute financing.  We’ve heard about buyers being given ultimatums – “you have 24 hours to close or we bump up your rates” – buyers pulling themselves out of the game and waiting to see what the market does and buyers who would have easily qualified for mortgages a few months ago now turned away cold.

All of this started in July when the subprime market (which provides financing for people with credit issues who can’t qualify for “prime” rates) basically imploded.

The subprime market “is not really there anymore,” says Keith Kantrowitz, president of Power Express Mortgage Bankers.  “It got bombed. It doesn’t exist.”

Thousands of homeowners with shaky finances (many of whom borrowed with no money down) have defaulted on their mortgages. The ripple effects have been seen all over. Interest rates have spiked across the board, and the rate for jumbo mortgages (mortgages that are more than $417,000, which doesn’t exactly buy a jumbo home in Manhattan) rose more than a point in one week. Wall Street has been looking on with increasing nervousness.

“I’ve had very few people say that it’s all going to blow over,” says Jonas Lee, managing partner for Redbrick Partners, a private-equity firm that invests in single-family housing. “A fundamental shift has happened. And that’s not good.”

The days when almost anyone who could sign his name could get a mortgage are over. An overall credit crunch has now made it significantly more difficult for anybody trying to borrow money for anything, even qualified homebuyers with good credit histories.

Two weeks ago, one mortgage broker sent out an email headlined “Dramatic Changes in the Lending Environment.: The e-mail outlined the new guidelines for accepting mortgages. Basically, borderline qualified buyers need not apply and income checks will be much tighter.

And while we haven’t quite seen the full effect on the real-estate the opening salvo has been extremely painful.

The day before a closing last week, Steven Kalachman, a broker with Halstead Property, checked his voice mail and found that one of his client’s mortgages for an apartment in the Financial District had been rescinded.

“This was despite the fact that he had a commitment letter,” says Kalachman.

Kalachman’s client had already written a check for 10 percent down payment (more than $100,000), which he was at risk of losing if he didn’t come up with a loan alternative.  Kalachman’s client told his lender that he was considering legal action.

“The risk of litigation just bounced off of them,” says Kalachman.  The lender might have well as said, “Get in line.”

“In the last six weeks or so, it’s been touch and go, even if you have firm commitments from lenders,” says Judy Markowitz, a broker with RE/MAX Millennium.

To a large extent, this credit crunch has been building for a long time.

“Primarily what caused this was lack of standards” on the part of lenders, says Lee. “If you had a family coming in for a mortgage, and you’re a lender underwriting a subprime note – the lender says, ‘Tell me what your income is.’ If you say, ‘$20,000,’ they’d say, ‘No, tell me another number. You need to make $40,000.’ ”

Why would lenders be so willing to write bad loans?

“You’re going to make your $2,000 [fee] and sell [the debt] to Wall Street,” says Lee. “What’s going to happen to you? Is somebody in a suit and tie from Wall Street going to beat you up? Lenders had zero incentive to make sure” borrowers told the truth.

It all reached a fever pitch two weeks ago when two Bear Stearns subprime funds went into bankruptcy.

So should we panic? Yes and no.

All this chaos will likely slow down the market some, and things will get even slower if Wall Street bonuses are, heaven forbid, down this year. But, of course, the New York market has been much more resilient than the rest of the country. And yes, New York City is still mostly co-ops, which adhere to much more rigorous standards of credit and income.

However, something clearly has shifted, and only with the surplus of new luxury condos that have long been offering creative financing (5 percent down, anyone?).

Prudential Douglas Ellman vice chairman Dolly Lenz has seen the ripple effect in the luxury market.

“I’m noticing people taking a long, pregnant pause before buying,” Lenz says. Several of her clients (some of whom are in finance) who thought they had locked in a rate found that their commitments were renegotiated if they missed any deadlines whatsoever.

“People are not reading the fine print and the consumer needs to be more careful,” Lenz says.

While it will no doubt be more difficult to secure financing in the coming months, it isn’t impossible. After jockeying the phones, Kalachman’s client was able to secure financing. And some believe that the panic is overwrought.

“Anyone taking out a conforming mortgage is fine, "says David Steinberg, president of Summit Funding. “It’s the guys at the periphery” – either taking subprimes or jumbo mortgages – “that are really slammed.”

“Six-point-two-five percent is a low rate,” exclaims Sari Kingsley of Sari Kingsley Real Estate. “Buyers are just spoiled.”

Indeed, rates remain historically low, although the city’s high prices largely cancel this out. Spoiled or not, the rate increases will make a dent in your wallet.

“If you take a mortgage for a couple of million dollars, that's a few thousand dollars per month that you didn’t budget for,” says Lenz.

This looks like one of those times when it would be smart to lock in a rate and make sure you can close on time.

“Everything was looking hunk-dory,” says Daniel Weissman, who closed on his Whitestone, Queens house last week with his wife, Cynthia.  Weissman, who owns an electrical-contracting business, New York City Electric, had been approved back in June for a no-income verification mortgage at 6.75 percent on their $667,000 three-bedroom that they found with Markowitz.

Then, in early June, he started getting worrying phone calls from his mortgage broker saying that he didn’t think the loan would go through anymore.

Luckily, Weissman was taking a kickboxing class with a broker at New York Mortgage Co. who agreed to finance the loan. But at the end of July, he started getting calls from this broker, too.

“He said, ‘Listen: You need to close on this,’” says Weissman.

Weissman’s mortgage was set to expire August 6 – but his lawyer was out of the country until August 7.

The Weissman’s pleaded with their broker to extend the rate for an extra day, and the broker agreed.  The Weissmans were extremely lucky.

“I’m not sure we could have afforded it at a much higher rate,” says Weissman.

Most of this could play itself out over the next few weeks.

“Hopefully, the Fed will lower interest rates,” says Romano Tito, managing director of the Carleton Group, a commercial real estate outfit.  “If that happens, we should be OK.”

“If there’s a theme to this,” says Lee. “it’s that nobody really knows.

From the New York Post

Thursday, August 16, 2007:

“Crunch Time: Buyers find themselves scrambling to close”