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Fannie Mae lightens the co-op load.

After considerable persuasion by Queens Borough President Claire Shulman and Rep. Charles Schumer, the Federal agency that is America's largest source of home mortgage funds has begun a pilot project relaxing criteria for city buildings and is committing $500 million to new loans.

Co-ops experts around the city hailed the decision but were disappointed it does not affect Westchester and Long Island, places just as hard hit as the five boroughs.

Under guidelines announced last week by Fannie Mae president Larry Small, both co-op share loans as well as underlying blanket mortgages will have previous restrictions relaxed. Requirements for investor units, pro rata share and negative cash flow rules were eased, among other items.

Fannie Mae is a congressionally chartered corporation that is supposed to provide liquidity in the mortgage market by buying loans from originating mortgage lenders.

Since it acts as the secondary market, most city and suburban bankers justify their own requirements for loans based on the Fannie Mae criteria. According to co-op experts, the new rules will ease the credit crunch and make more units and buildings attractive to new ownership while, reducing the anxiety factor for current unit owners.

Charlie Rappaport, president of the Federation of New York Housing Cooperatives said, "The lenders and Fannie Mae are finally coming around to start to atone for the lending sins of the past and were prodded into this by Schumer and Shulman."

Mary Ann Rothman, executive director of the Council of New York Coops, noted the guidelines resulted from more than a year's work. "Fannie Mae made a tremendous effort to understand the nature of the problem," she said. "They made an exhaustive review and this is an on-target relaxing of the requirements."

Fannie Mae's policies have long been blamed for holding back the tri-state area's cooperative marketplace. In the past, Rappaport recalled, the lenders allowed co-ops to be over-burdened with debt service by granting huge underlying loans to sponsors, often with balloon payments. Once the market fell, the cooperators left holding the mortgage were unable to refinance.

Over the past year, political efforts started to jell and a public hearing was held in Queens last spring to discuss the problem. Queens alone has 80,000 cooperative units, many of which were converted as the market peaked, leaving unit owners floundering as the value of their co-ops dropped well below what they had paid.

Fannie Mae representatives attended the hearing and were startled by the magnitude as well as the absurdity of some of the problems. They went back to Washington and reviewed the agency's policies, resulting in last week's pilot program announcement.

Larry Small, president of Fannie Mae, explained the policy developed once they saw they were missing opportunities to make money. In response to questions regarding marginal cases, he said the lender should discuss them with the agency. If the co-op does not own the underlying land, Small said they would take a look on a case by case basis.

Mark A. Iannone, head of the commercial mortgage department of the Greater New York Savings Bank and a past president of the Mortgage Bankers Association of New York, said Fannie Mae certainly responded to the call. "It remains to be seen whether it is truly executed in a timely manner," he cautioned.

While Iannone called the new rules a positive statement for the whole industry, he noted the agency deals on a nationwide basis. "They don't understand the idiosyncrasies of New York," he explained.

The Mortgage Bankers are pushing for New York State agencies such as SONYMA, which issues insurance for mortgages, to make further changes. "We want SONYMA to provide guarantees on mortgage backed securities," he said. "Fannie Mae can do a lot of things in conjunction with SONYMA."

In the meantime, the Fannie Mae guidelines will have far reaching effects, since the vast majority of lenders try to match their loans to what the secondary market will buy. "It will give a shot in the arm to sales because more of the conventional lenders will be able to resell these loans," Rothman explained.

Richard Gelman, president of the National Bank of New York City which issues many underlying loans, agreed if the unit owners are in a position to finance where they weren't before, the rules would help with the marketability of the units and the value of co-ops overall.

This pilot program was inspired by the community reinvestment program, and is an active commitment to back loans for the purchase of units, Rothman explained.

"Would I like to see it lower than 51 percent? You betcha," said Rothman of the new pre-sale level for share loans. "Would I like everyone to be able to walk into a bank and get a loan? Of course."

All borrowers may now finance up to 90 percent of the value of the property, while under the Community Home Buyer's Program, credit-worthy borrowers with incomes below the area median of $47,700 will have more flexible qualifying standards. Between 38 and 40 percent of gross monthly income will be allowed to go toward housing expenses. The agency will also waive the requirement that borrowers have two months of mortgage payments on hand at closing.

The underlying mortgage, however, must have two years remaining - in the past it was three years - and can be a fixed, adjustable or balloon mortgage. Additionally, financing can be obtained in fiscally sound buildings with flip taxes on resale, a past prohibition.

A new rule, however, says that lenders may take the effect of the tax abatement expiration into consideration. Paul Korngold, a partner with Tuchman, Katz, Schwartz, Gellis & Korngold, said they should only consider this if the new taxes would exceed 50 percent of the current taxes. "Most buildings only qualify for abatements and they are not going to raise your assessment because you put in a new boiler," he explained.

Investor Units Increased

Attorney Richard Siegler, a partner with Stroock, Stroock & Lavan, said lenders have long been concerned that one person owns too large a block of units. Under the new rules, sublets by former owners will not be counted as investor units for blanket loans.

Siegler said the ability to rent assures the mortgagee so that if the co-op defaulted, they would be able to rent the units. "If I saw there was rental demand it Would increase my comfort with making the loan," he added.

Additionally, for blanket loans, there is no longer a requirement that no more than 10 percent of the units could be held by investors. The number of owner-occupied units can be as low as 60 percent as long as the loan to value ratio is 65 percent or less. "It's much more liberal if your going from ten to forty," noted Siegler, with regard to the investor units.

When it appears to be a good situation, said Gelman, whose bank has always made each loan as a business decision, the lender shouldn't be precluded from financing when the percentage of investor ownership has no relation to the bottom line.

Hampton Court, a 315 unit co-op in Queens where the press conference took place, can now breath a sigh of relief, said Rothman. "It was a perfectly functioning co-op," she explained, but because it didn't meet the Fannie Mae criteria with regard to sponsor presence, they could not obtain financing. "It is now valid in the Fannie Mae eyes.

"I am hopeful that on the basis of the experience with this, there will be further liberalization," added Rappaport. "There are still buildings that are having problems and little by little are working them out with banks and lenders."

Iannone was also disappointed Fannie Mae did not broaden the reach of its program past city borders. "That's a form of redlining," he said. "These problems are as significant in Nassau County and Westchester County as they are in New York City."

Highlights of New

Fannie Mae Requirements

Blanket Loans:

* Sublets by former owners no longer considered as investor units except to calculate negative cash flow. Considered sold for calculation of percent of sell out.

* Owner-occupied units can be as low as 60 percent as long as loan to value ratio is 65 percent or less.

* Negative cash flow accepted if equal to or less than 8 percent of total maintenance fees currently paid by the owner/occupant.

Share Loan Program:

* Principal residence in New York City

* Finance 90 percent of value

* 30-year, 20-year, 15-year and 10-year fixed-rate mortgage

* Buildings with resale restrictions (flip taxes) ok

* Underlying blanket loan can be fixed-rate, adjustable or balloon with at least two years remaining

* Effect of tax abatement expiration can be taken into consideration

* Fannie Mae will consider purchase of loans in financially sound buildings with pre-sale level as low as 51 percent.

F.M. Ring Renovates 212 Fifth Ave.

Work has begun by F.M. Ring Associates, Inc. on the next phase of its multi-million dollar restoration and modernization of 212 Fifth Avenue, its flagship 21-story Manhattan office building at the southwest comer of 26th Street across from Madison Square Park.

According to Frank Ring, president of F.M. Ring Associates, Inc., construction of the building's elegant lobby should be completed by the end of the year. It will feature new imported marble walls and floors, distinctive lighting and ceiling treatments, and a concierge.

Also expected to be on line by year-end are the building's new elevator cabs, which are currently being fabricated.

"After that, it's just a question of completing floor by floor installations as new leases are signed," said Mr. Ring, whose 200,000 square-foot tower has already undergone a steam cleaning as part of the first phase of its renovation.

"Once our improvements are completed, 212 Fifth Avenue should be one of, if not the best office value in the entire city," he added. Actively involved for over half a century in the ownership, management leasing and acquisition of commercial real estate throughout New York City, F.M. Ring Associates' properties, in addition to 212 Fifth Avenue, include 251 Park Avenue South and 20 West 47th Street in Manhattan.
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Title Annotation:Federal National Mortgage Association president Larry Small reduces restrictions for loans on New York, New York apartment cooperatives
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Nov 3, 1993
Previous Article:Cushman Realty opens NY national accounts group.
Next Article:Grand Palais renamed "The Mondrian" in contest.

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