A law enacted at the end of last year allowing reverse mortgage loans on co-operative living spaces for New York state residents may necessitate some broader education about the product category for certain boards with oversight authority over co-ops. To that end, Habitat Magazine ran down a list of eight things that co-op boards should know about reverse mortgages in a piece published online.
“Co-op shareholders 62 and older are now able to take advantage of a financing option that has long been available to owners of one- to four-family homes and condominiums: the reverse mortgage,” the piece says. “By allowing older shareholders to borrow against the equity of their apartments, reverse mortgages are a way for them to age in place despite a fixed income and an ever-rising cost of living.”
The first thing to know is that co-op boards maintain veto power, meaning that any reverse mortgage transaction is subject to the review and approval of the co-op board. The second thing to know detail the way that loan proceeds are disbursed, with the article listing a lump-sum payment; a line of credit; equal monthly payments for a fixed number of months; or monthly payments until the full loan is paid out. It also details that the interest rate may be variable or fixed.
The third thing to know is about how a reverse mortgage loan is paid back either upon the death of the borrower or their leaving the unit, which is functionally identical to the way the process works for reverse mortgages on more widely-known property types like residential houses.
The fourth thing to know centers on board protections, the column says.
“A recognition agreement, which must be signed by the loan holder and the board, is a valuable protection,” it reads. “If a shareholder falls behind in maintenance payments, the lender is obligated under the recognition agreement to make the payments. If there’s a foreclosure and the apartment is sold, the bank will receive the net proceeds after all sums owed to the co-op are satisfied.”
The fifth thing regards financing limits, which ties back into the board’s veto power over a reverse mortgage. They can exercise that in order to enforce financing limits, the column says. The sixth thing centers on ensuring that boards are consistent with their financing requirements.
The seventh thing to know regards reverse mortgage consumer protections, which interestingly mentions that counselors who will specifically cater to an individual seeking a reverse mortgage on a co-op may be required to gain an additional qualification.
“A committee is currently working to determine what sort of additional training existing HUD counselors will need to counsel reverse-mortgage borrowers in co-ops,” the column says.
Finally, the last thing to know about reverse mortgages on co-ops is that they can be beneficial for both the borrower and the co-op administrator simultaneously.
“Reverse mortgages can prevent forced sales, where financially strapped shareholders have to dump their apartments at a reduced price, which can drag down overall apartment values,” the column reads.
The bill as enacted in New York state only allows proprietary reverse mortgages. Home Equity Conversion Mortgages (HECMs) remain inaccessible on co-ops nationwide. Read the piece at Habitat magazine’s website.