The leading factor responsible for the Great Recession—fraudulent mortgage lending—remains a thorn in the side of the nation’s fledgling economy. It started with the false promise of home ownership to many susceptible, under-financed people many of whom were wrongly awarded mortgages by lenders promising a shot at the American Dream. Interest rates increased along with employment rates, monthly bills mounted across the nation leading to default, and then the bottom fell out.
This reality, coupled with angst voiced by Tea Party and Occupy Wall Street supporters against an otherwise unchecked Wall Street, left many Americans disenfranchised. In what amounts to an eleventh hour move, President Barack Obama recently appointed Richard Cordray as director of the U.S. Consumer Financial Protection Bureau, which was created as result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau is a one-stop shop safeguard for borrowers, while Dodd-Frank is in place to better police lenders and implement financial regulatory reforms.
While a step in the right direction, the financial meltdown has adversely affected all borrowing including co-ops and condominiums which in many respects has changed the playing field. Refinancing an underlying mortgage is no longer an easy task although co-ops are seemingly in the best position possible.
“In every other real estate category, there has been a real significant impact on the availability and—more so—the ease of closing commercial loans on real estate. However, co-ops have become the darlings of the industry, because co-ops are almost always very low loan-to-value propositions, a co-op only borrows what they need, and they have their own internal government keen on keeping their mortgage low,” says Steve Geller, senior associate and director of the Co-op Select Group at mortgage lender Meridian Capital Group, LLC. Geller adds that the firm has financed more than $1.5 billion in underlying co-op loans in 2011.
Geller explains that typical underlying co-op loans are less than 35 percent of the value of the property, so if there is a default, the bank only has to sell the building for 35 cents on the dollar to recover their loan. In Manhattan, for example, the loan-to-value is usually below 10 percent with many less than two percent. “I worked on a co-op loan where the underlying loan was 35 percent of the value of one residential unit in the building,” says Geller.