Underlying Mortgages Know the Players and Options

The financing of your co-op's underlying mortgage is one of the most significant factors in the fiscal

integrity of your building. The size of the mortgage and corresponding monthly payments have a significant impact on the value of each individual unit. The recent growth in the co-op lending market, with many new players entering the field, and the advent of a more fluid secondary market for co-op mortgages, has given co-ops the opportunity to tailor their loans to fit the exact needs of the building.

When your current underlying mortgage needs to be refinanced whether it is because a balloon payment is coming due, the building needs funds for capital improvements or interest rates have dropped significantlythe board should take the time to study all of its options. It is important for the board of directors to work with a professional mortgage broker who can educate, inform and advise the board on what refinancing arrangement would best satisfy the building's needs in terms of its financial condition, long-term budget, etc. Beware the broker who attempts to sell you a single product and convince you that it suits your needs.

Sources of underlying cooperative mortgages include two types of lenders: the primary market and the secondary market. The primary mortgage market is comprised of savings banks and commercial banks. They raise their funds through the deposits of their customers. The secondary market consists of insurance companies, pension funds and government funds such as the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac). The secondary market's source of funds is through insurance premiums, Wall Street and the securitization of Mortgage Backed Securities. Because the secondary market has a lower cost of funds, it is able to offer lower interest rates to the borrower.

Determining Interest Rates

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