New Lending Options for Co-ops Alternative Programs Open Their Doors

In the first cold day of the season, a group of res- idents and politicians stood in front of the

Griffin, a 199-unit co-op in Brooklyn, trying to stay warm. You're not cold are you? exclaimed Jeannette Gadson, deputy borough president of Brooklyn. I feel good! So much has been accomplished, everyone should be proud of themselves, she added.The crowd cheered when their prayers for warmth were granted as their old mortgage went up in fiery flames before their eyes.

Saved from Default

The 63-year-old Griffin was originally built as an apartment hotel and converted to a cooperative in 1987. At the time a little more than half of the units were sold and very few were purchased since, mostly due to the building's heavy debt and uncertain future. In 1992, the co-op's $4.25 million mortgage was taken over by the Federal Deposit Insurance Corporation (FDIC) after it defaulted on its payments. Just on the brink of disaster their board contacted local politicians who informed them about a new loan program that could solve their problems. Through a $2.6 million loan provided by the Community Preservation Corporation (CPC), a not-for-profit mortgage lender that specializes in financing low- and moderate-income housing, they were able to negotiate a buy-out of the old mortgage and received a new mortgage to help with repairs to the building. The new mortgage was signed by the board president on October 21, 1995, two weeks before the mortgage burning.

With several new loan programs becoming available, buildings like the Griffin can now qualify for loans they were not previously eligible for due to financial problems or small size. The CPC program that saved the Griffin was established in 1994 when Governor Mario Cuomo signed legislation that was strongly supported by Queens Borough President Claire Shulman. It combines public and private funding, a total of $100 million, to help guarantee the loans and to give buildings a new start.

CPC's mortgage funding is insured by the State of New York Mortgage Agency (SONYMA) Mortgage Insurance Fund and helps refinance underlying mortgage loans on co-op buildings for which the owners have been unable to obtain refinancing of existing mortgages. Because these buildings will be restored to sound financial footing, CPC's member institutions, such as Astoria Federal Saving and Loan Association, the Bank of New York and Emigrant Savings Bank, will also provide individual cooperative share loans and mortgage insurance where necessary, to help spur unit sales.

One year ago, this program was started to help troubled co-ops. Since then $90 million has been used, said Michael Lappin, president of CPC, at the mortgage burning for the Griffin. We are delighted by the response to this program and are exploring the potential for additional funding capacity beyond the $100 million committed by our member institutions. This program restores the dream of home ownership to new purchasers, renews the optimism of current owners, preserves buildings, and strengthens neighborhoods. To qualify for this program cooperatives must have at least 40 percent of the units sold and, except for extenuating circumstances, at least 75 percent of the sold units must be owner-occupied.

I am sure I speak for all the shareholders when I say that I'm overjoyed that the building finally has ffb a mortgage and the apartments are once again marketable, says Tanya Hill, board president of the Griffin. It is a great feeling to know that so many people were willing to help us, especially CPC. It's nice to see good things happening in co-ops. Deputy Borough President Gadson, adds, The Griffin is a vital part of the Fort Greene landscape. By enhancing stability in housing, the community is enhanced. Our focus must be to create prominent housing.

Another Mortgage Burning

The Acropolis, a 618-unit co-op in Queens, was also saved by CPC funding. In 1989, the co-op's sponsor defaulted on the $24,650,000 underlying mortgage, resulting in foreclosure proceedings. After some tense negotiations, the bank agreed to reduce the underlying mortgage, leading to lower monthly payments, but units in the building could not be sold due to the downturn in the market. Queens Borough President Claire Shulman steered the Acropolis towards CPC which provided the building a 30-year self-liquidating loan of $9,550,000 at 9.4 percent to refinance the building and the co-op provided an additional $100,000 from its reserves. Armed with new funding, more negotiations resulted in a mortgage work-out with the bank. With maintenance fees reduced, the value of the apartments has increased making them marketable again and in some cases has saved some residents from having to tap into their life savings to make monthly payments. Last July, the Acropolis had their own mortgage burning ceremony to celebrate their new lease on life.

I am delighted by the results of this successful effort to increase the financial stability of the Acropolis Gardens. This public/private effort is indicative of what can be done when government and the private sector work together to find solutions to complex problems, said Queens Borough President Claire Shulman, in a recent interview. The success of this program bodes well for the success of all our combined efforts to provide greater financial security for co-ops throughout our borough.

A Program for Small Co-ops

Another program recently created is designed specifically to help small co-ops gain financial security. The Baby Blanket Program from the National Cooperative Bank (NCB) is intended for co-ops with a minimum of four units and an owner occupancy of 60 percent or more of which 40 percent can include sublets by the resident shareholders or sponsor held units. The maximum loan amount is $250,000. The program provides ten-year fixed self-liquidating loans or 15-year adjustable self-liquidating loans. Because the program is designed to meet the needs of smaller co-ops, fees range from $5,000 to $7,500. Our fees are inexpensive and the application fee of $2,000 is refunded if the application is refused. We don't spend the money until the loan is approved, says Mindy Goldstein, assistant vice president of NCB. We don't want to take advantage of small co-ops.

An added benefit of the program is that when the co-op secures the underlying mortgage it is automatically approved for end-loan financing from the bank, as long as shareholders meet qualifying requirements. Since the program started, NCB has closed more than $1.1 million in loans for eight co-ops in the metropolitan area. All of these buildings represent the success of the Baby Blanket Program. It is an underserved market and we hear this all the time and we decided to serve them as best we could, says Goldstein.

One building that successfully met the requirements of the Baby Blanket Program is a five-unit co-op on Pacific Street in Brooklyn that had been rejected for a loan by several banks. Their current lender told them to seek refinancing elsewhere, suggesting that they try NCB's Baby Blanket Program. With its current mortgage due to expire in December 1995, the building received approval from the program to refinance its $100,000 underlying mortgage.

The issue for our building was the limited closing fees and the bank's willingness to finance the loan, states Tamara Ehlin, treasurer of the co-op's board. The fees t b7d hat were associated with the loan total $5,500, about one-third of what we believe we would have to pay elsewhere. Also, we are realizing a cost savings. By refinancing at a lower interest rate, the building will save $3,500 per year.

NCB has a really good grasp about being involved with small co-ops, says Ehlin. Our sources were very limited. We didn't have many choices and the Baby Blanket Program gave us the option we needed. Goldstein adds, NCB prides itself on being able to offer attractive niche mortgage financing, with prompt service and competitive rates. There are a lot of buildings out there that need this financing. A lot of people call saying, M-I can't believe there is a bank doing this.' This is the number one comment, says Goldstein.

Ms. Cooper is Editorial/Promotions Assistant for The New York Cooperator.

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