coop mortgage

The underlying mortgage can absolutely be refinanced. However, it doesnt always mean they can get a lower rate. Also, there may or may not be pre-payment penalities involved. You should also find out if there is a balloon payment due in 2016. This isnt uncommon at all but its good to know what the current terms of the mortgage are. If you email me the name of the coop I can see what information our database has. sunny.hoong@bankofamerica.com

19 units..520k existing balloon mortgage..60k cash in the bank..no major repairs needed..average maintenance 800 a month..

ok financials ?

WOW a prepayment penalty? What a fking novel idea! Let's see if I as a personal lender lends you money and go outta my way to do this, I'd want some assurance that as soon as IR moved 50bps against me you wouldn't use my own mortgage to leverage a better deal with lender w68. Maybe a rational businessman would put in a prepayment penalty to make this worthwhile to the original lender or to stop the mortgagee to trade homes like a stock.... now WHO THE F'K would benefit from having a prepayment penalty?

Yes, I AS THE BACKSTOP TAXPAYER to FANNIE/FREDDIE, BOFA WOULD LOVE LOVE A prepayment penalty... BUT WTF DO I KNOW, you got Mr. SHONG here peddling mortgages to lemmingz.... carry on.

ez ez...i bumped this thread for my question...lol

I think I nailed the solution to our quasi public/private home mortgage issue.

Originators of loans would need to keep 10% of loan on their books, all Fannie mortgages would require 20% prepayment penalty. Said penalty would fund a 'rainy day' fund for the inevitable next bubble popping.

Thereby ensuring only ppl who plan to have a mortgage burning party would get govt support. Boy I miss those mortgage burning parties.

My coop has a pre-payment penalty, if we were to refi. (Not a big deal, because it's due in a few years, though.)

W67, not sure where youre coming from. Sjt was asking about an underlying coop mortgage. Many coops do have underlying mortgages and I simply stated that he/she should look out for any pre-payment penalties. But I don't think prepayment penalties are given by banks for end loan mortgages anymore. BofA doesn't have any mortgage programs with prepayment penalties. But what do I know? I only deal with lemmings.

I believe it's currently illegal to have a prepayment penalty on an end loan.

ali r.
DG Neary Realty

hey hey hey...can we pls focus on what I was asking!!! lol

any reason why a coop would keep its mortgage always around 500K...always a 10yr balloon? isnt the goal to get the mortgage paid off?

i believe that prepayment penalties are legal for all forms of underlying coop mtges

Marco - Many, if not most coops, don't really look to retire debt. Many just do interest only and re-finance at the end of the term. If there is any paydown on the principal it is often minimal. I think the mindset is coop boards dont want to raise maintenance for the purpose of debt retirement and the interest on the loan is tax deductible.

Underlying coop loans are commercial loans and are not governed by residential loan regs. Pre-payment costs/penalties almost always exist.

"Underlying coop loans are commercial loans and are not governed by residential loan regs. Pre-payment costs/penalties almost always exist."

This is correct.

What I've done after learning many lessons from a bank's commercial loans ridiculous formula for determining the undeterminable prepayment is negotiating the prepayment terms to the following;
year 1 5%
year 2 4%
year 3 3%
year 4 2%
year 5 1%

This is/was on a 15 year mortgage.

You'll sometimes see an underlying mortgage with a 10-year (e.g.) term, but with a 30-year amortization schedule, with the principal being paid down after several re-financings. Or they'll borrow back what they paid off, for some project or other, and be back to the original principal.

A lot of co-op mortgages are so trivial relative to the building's current value that they don't matter much. My share of mine is something like $25K.

A good point of the yield-maintenance provision is that the co-op can't re-fi mid-term, so everybody's spared the bother of monitoring current rates, etc.

10yr mortgage with 30yr amo schedule is exactly what mine is. LTV for the building is probaly 15 to 20%. This interest is only 1/3 deductible right ? or is commercial different ?

The deductibility will vary from shareholder to shareholder, I guess. The co-op just tells the amount per share and leaves it up to you.

My co-op has just gone through refinancing its underlying loan, due to close later this month. Current interest rates for small co-ops are around 6.5 - 7%, so it's unlikely your building will do much better. And, yes, almost all underlying mortgages do have prepayment penalties.

Especially for a small building, it is a struggle to get lenders to agree to longer terms. The majority of banks were only willing to offer us 5 or 7 years, amortized over 30. Add in closing costs, and you can see that the debt just revolves (and sometimes grows) with each new mortgage, as what you're paying out in principal gets eaten up in refinancing fees.

With some arm-twisting among shareholders, my co-op is now in a 15-year self-liquidating loan. We're too small to keep dealing with heavy refinancing costs every 5-10 years, and our pro rata debt level (up to $65k for the larger one bedrooms) is high enough that we'd run serious interest rate risk if interest rates were to go back up to the 11% they were at the time of conversion.

excellent info. thx all!!

There could be significant pre-payment penalties. Our co-op mortgage has defeasance requirements. Other mortgages may have yield maintenance requirements, which at 7.32% and a 2016 maturity, would be significant.

SO, do many coops just keep refinancing and never pay principal? Its interesting with a coop that we pay 2 mortgages....our own units mortgage and our own apt mortgage......sounds a bit redundant and absurd....SEEMS like a money maker for a bank! If the coop did pay down principal would they assess the cost per apartment and then ask for payment....ie there are 60 apartments in a building with a 3,000,000 mortgage....equally shared...would each apt owe $50k? Would this make it more attractive on the market...ie mortgage paid off?

meant to say our own buildings mortgage and our own apartments mortgage

Yes, some keep refinancing rather than take the hit in extra maintenance to pay the mortgage off.

If the co-op can't refinance when the mortgage comes due, and didn't have the cash on hand to pay it off, then it'd have to assess each shareholder their share.

Mortgage-free should theoretically make the shares more valuable.

For example, when the Goldsteins converted your building in 1986, they could've gone co-op or condo.

They went co-op, so the co-op bought the building for $7,000,000 and assumed a mortgage of $1,680,000. Each shareholder therefore paid their share of the $7,000,000 and effectively assumed the carrying cost of their share of the $1,680,000. So an apartment that sold for $100,000 had a basis of $124,000.

Had they gone condo instead, they would've sold the units for $8,680,000, paid off the $1,680,000 (since condos can't assume mortgages) and netted the same $7,000,000. The apartment that sold for $100,000 as a co-op would've sold for $124,000 as a condo, but the owner would have lower CCs.

The buyers might've paid even more than the 24% extra for the condos, of course, but the co-op plan must've been better for the Goldsteins because of the tax situation at the time.

I wish pro rata debt had to be disclosed in real estate listings, but that's probably a pipe dream.

Co-op mortgages do seem to be money-makers for the banks. For us, the interest rate on a fixed, self-liquidating loan is about 2.5% higher than if we were to get a comparable residential mortgage. But when there's basically one game in town....