coops and ballon payments

Not at unusual. Not a problem in and of itself. Must view in terms of overall financials and reserve fund. Likely new loan will be at better rate than old one. Ideally a coop pays down some debt so as to leave room to acquire new debt if need arises without driving up maintenance fees unduly, though.

" not at all unusual" i meant

I asked my lawyer the same question about the co-op debt and he said the practice is take out 10 year interest only loans and is unusual to find banks to give out amortizing loans to co-ops. Not sure how true this is since it doesn't really make sense especially if the co-op has sound financials.

No, it's not unusual at all, but the agency(fannie Mae, Freddie mac) are being more strict with their guidlunes so getting an insured loan may be more difficult.

Some co-ops do pay down principal. Some carry no debt at all. I don't know why most pay only interest, and pay mortgage taxes and closing costs every ten years, but they do.

Underlying mortgages aren't and never have been insured. They're commercial loans.

Your run-of-the-mill co-op has no trouble refinancing. The LTV is low, so they're a good risk. Lenders do like to say good financials and high owner-occupancy.

If a co-op can't refinance, it can always assess to pay off the mortgage. My share of my building's is a whopping $19,500.

My old coop did the balloon thing. I never was in love with the idea but it was the cheapest option and the maintenance was already on the high side so its what they opted for. that's the simple version anyway.

My current coop is in better financial shape. It has been able to pay down the debt somewhat during the current mortgage's run. When we refi in the near future, we will be able to take a smaller loan. The idea was to hedge against the possibility of higher interest rates so if we did end up having a loan with higher interest it wouldn't impact maintenance since the loan amount would be smaller than the last time. Its a sound strategy and one I prefer. We may luck out and have a smaller loan AND lower interest rate on the new mortgage. We'll see. It also opens options of borrowing from a line of credit or taking a larger loan to bolster cash reserves--neither of which we want to do but its nice to have the option.

What isn't a good plan is one that results in debt growing and growing. It erodes value upon resale and makes living in such a coop increasingly expensive due to higher monthlies and/or more special assessments.

As others have said, it's not that unusual. That said, figure on the co-op probably carrying that same debt or more into eternity. Eventually it will get more expensive to maintain and your maintenance charges will rise more than buildings with lower levels of debt.

There are self-liquidating loan options, but NCB may be the only game in town. The problem is that a co-op can usually only go out 15 years (20 max for larger buildings), meaning that self-liquidating mortgages tend to be very expensive for co-ops. You have to find a way to build a sizable principal payment into your monthly maintenance expenses, which shareholders usually want to keep as low as possible. The interest rate is also typically not as good -- can be 100+ basis points greater than balloon loans.

Eventually, co-ops with too much debt will have to pay the piper. If the building is refinancing in 2013, though, you're likely to be "safe" until 2023. That said, if interest rates rise, buyers are probably going to pay more and more attention to how much debt co-ops are carrying, and debt-laden buildings could become hard to sell a few years before their mortgage matures.

anyone have any suggections besides NCB for underlying coop refi? we still have a few years left but thinking about paying the penalty to switch to a 30 - 35 year fixed.

Check ACRIS for the last 30 days of type mortgage or agreement, and scan for "Tenants" or co-op-ish names. E.g., 110 CPS just re-fi'd with Signature and 20 W 22 St with Dime.

Also, the print version of The Real Deal lists them, but those're self-reported by the broker or lender, so don't know whether all the NCBs really reflect activity.

They can simply refi... and extend the maturity on the new note with a lower rate.

A small bank in Pennsylvania is sending me faxes indicating they will do refinances for co-ops fixed for 30 years.

Ellen Silverman
E.S. Funding Co.
www.esfunding.instantlender.com

Ellen, isn't that for shares of a coop, rather than the underlying mortgage that's being discussed here? Or is it really underlying?

We do a lot of underlying co-op loans here in Manhattan. Currently doing one in midtown where it made sense for them to pay the pre-pay in order to get something at a longer term and much lower rate. Would be happy to discuss with you.

Mitchell

mcohen@firstrepublic.com

And for the purpose of the discussion, unlike residential mortgages, most commercial loans, in this case the underlying mortgage, balloon at the end of 10 years. Assuming their is equity and decent financials the coop board will refianance in 2013 and it should have no effect on your puchase.