Hand in Hand Co-ops & Reverse Mortgages

Some co-op boards and their attorneys are reluctant to allow their tenant-shareholders to obtain reverse mortgages. They tend to apply a forward mortgage criteria and a forward mortgage mindset to such a request - but this type of thinking I believe simply isn't appropriate.

Before I debunk the usual proffered arguments, I first want to focus upon the fact that as the years go by, more and more seniors will seek reverse mortgages. For an individual who has already decided that they wish to remain in their home or co-op unit, a reverse mortgage may become a necessity. It may be the only way that a senior at least 62 years of age will be permitted to convert a portion of their equity into cash without selling - and without making monthly mortgage payments.

An Aging Population

Consider some of the tough realities. In 1900, one in 25 people were at least 65 years of age. Today one in eight have reached this milestone. In July of 1983, a startling thing occurred: For the first time in the history of the country, the number of people 65 and over was greater than the number of teenagers. By the year 2050 there will be twice as many people in this category than teenagers.

And consider this: Both the birth rate and death rate are down. Twenty percent of the baby boomers had no children, and 25 percent had one child. For the past 30-plus years, the birth rate couldn't surpass the death rate.

Adding to that, according to the last census, there are 35 million people in this country who have reached their 65th birthday. This number will double by the year 2030. Today this country has more people 65 or over than the entire population of Canada. Currently, no state has a senior population that exceeds 20 percent of its overall population - but in 20 years, it is estimated that 30 states will have a senior population that exceeds this amount.

And not only is our population aging, people are living older longer. In the "good old days" one grew old, got sick, then died. Today, one grows old, gets sick and continues to live. Eighty-five percent of our seniors have one chronic condition, and 30 percent have three or more chronic conditions. The explosion in the senior marketplace today is in the 85-and-over age bracket. It is estimated that by 2050 this age group will be 20 million strong.

Funding a Longer Life

As this country's population continues to grow older, many questions are raised regarding senior finances. Seniors are outliving their liquid funds, and Social Security only takes one so far. Pensions are not measuring up, and nearly 100,000 seniors are forced to file for bankruptcy every year.

Seniors own about 23 percent of the housing units in this country. Of the 16 million homes owned by our seniors, 12 million are owned mortgage free. Dwindling returns on investments are forcing seniors to tap into their principal. This can quickly spiral out of control. Soon the only asset they have left is their home - and this is the problem that co-op boards should be concerned about. The question then becomes: When a tenant shareholder is faced with a fixed income at a time of rapidly rising costs, how can they afford to continue to pay their monthly maintenance fees?

Clearly, these owners do not wish - or simply cannot afford - to start making those monthly mortgage payments again. This is the conundrum. Until recently, freeing up that equity usually required the sale of the home - or required that they qualify for a conventional loan. Today there is a third way. A reverse mortgage could very well be the medicine that cures those financial maladies.

Throw it in Reverse

Reverse mortgages are issued based on the equity in a senior's home, and no payments are made until the borrower dies or the home is sold, at which point the balance of the loan is paid off with the proceeds of the sale of the estate. A reverse mortgage is a non-recourse loan, which means that there is no personal liability on the loan, and no monthly mortgage payments will be made.

This means that for certain borrowers, a reverse mortgage is better than any other type of loan. The concern of most co-ops is that a tenant shareholder will not be able to make their monthly maintenance payments when they're laboring under a heavy mortgage payment. While this is a legitimate concern where forward mortgage loans are involved, it simply doesn't apply to a reverse mortgage loan - because there are no monthly payments to be made. Because of the structure of the reverse mortgage and its basis in home equity, there is no need to look at a client's financials, because they will never make those monthly mortgage payments.

Currently, a special proprietary reverse mortgage program is limited to co-ops in New York - there is no reverse mortgage program for co-ops in any other state. New York's senior citizens have an opportunity to make their lives better. They have an opportunity through the use of a reverse mortgage to realize their hopes and dreams and gain the peace of mind that comes only when financial worries are out of the picture. Every co-op board should consider this as a viable financial tool.

Dennis Haber is executive vice president of Senior Funding Group in Hicksville, New York. For a sidebar story on reverse mortgage requirements, click here.

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  • I live in a very strict co-op. I doubt that I wil be able to get a reverse mortage even though my is fully paid for. I certainly do not want to move nor would I be able to pay interest on a loan as I have no income other that social security. My apartment is worth about $900,000. Is it a useless asset?
  • When will reverse mortgages be available to coop owners in New Jersey?