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MBA offers financing crisis solutions.

The Mortgage Bankers Association of New York, Inc. (MBA) has announced a proposal for a Cooperative Mortgage Program that could help solve the financial crisis that has engulfed New York's co-op and condominium housing market.

The program would restore liquidity to the market by providing financing to cooperative corporations and purchasers of individual cooperative and condominium apartment units in buildings which presently do not qualify for conventional financing from banks or other financial institutions.

The program is designed to maximize the use of existing private sector mortgage financing mechanisms. The key to the program's success is the provision of loan guarantees by New York State, for which the state would receive a fee. The guarantees would have strict underwriting guidelines.

The plan was announced by Mark Iannone, past president and member of the Board of Governors, Mortgage Bankers Association of New York, at a luncheon sponsored by MBA together with Associated Builders and Owners of Greater New York, Inc. (ABO) and Community Bankers of New York State (CBANYS).

The program's co-authors were Mark Iannone, past president and member of the Board of Governors, MBA of Now York; Ralph Cusano, MBA Finance Committee chairperson; Richard Nardi, MBA secretary; and Stuart Root, special advisor to MBA.

Contributing authors were Robert Selsam, ABO co-chairman; Thomas Osterman, ABO co-chairman; and Alphonse Iannone, API Consultants, Tarrytown.

At the luncheon meeting on November 1, Daniel F. Sheehy, Jr., senior vice president of the State of New York Mortgage Agency and head of its Mortgage Insurance Fund, said that SONY-MA endorsed the "concept" of the program. State financial guarantees, however, would require legislative approval.

Patricia Niemas, MBA president, said, "The program would improve the economy of the State of New York by strengthening the ownership structure of owner-occupied affordable housing in the state, thereby preserving and increasing its supply."

The program was created in response to the inability of cooperative housing corporations and tenant purchasers to attain financing if their building fails to meet prevailing owner occupant ratios required by the lending community.

Iannone added, "The lack of available credit is a contributing factor to the current weakness in the co-op market."

According to MBA, in most cases lenders including banks, thrift institutions, and other funding sources, require a minimum level of owner occupancy to underwrite a first underlying mortgage (the financing that encumbers the building) and to finance an individual share loan (the loan on a specific unit).

The program would provide liquidity to this market by issuing securities that would be backed by the subject share loans and underlying mortgages.

These securities would be guaranteed by the credit of the State of New York or of a state agency. The proposal assumes that the agency providing the guarantee would be the State of New York Mortgage Agency (SONYMA).

Iannone said, "Many solvent cooperative corporations are unable to secure underlying financing or end loan financing based on the lending community's credit guidelines.

"This has placed many buildings in default on their underlying mortgage, resulting in the inability for units to be conveyed to purchasers," lannone added. "An entire segment of New York's affordable housing stock is presently dead in the water."

The following is an outline of the role each party would play and the benefits of the program:

The Cooperative Housing Market

* Would receive long term financing enabling projects to avoid problems that might arise from their current loan maturing. This would constitute a default and would render the individual units unmarketable.

* By strengthening the financial condition of the building, the marketability of the units would increase, further improving the financial status of the building and the co-op industry which is still one of the only forms of affordable housing in the metropolitan area.

* Would receive financing most likely reducing the interest expense of many co-ops. Lower interest rates would provide more cash flow for building operations and capital improvements.

The Banks

* Presently the banks and thrifts are experiencing unprecedented problems with their real estate portfolios. As a result many New York lending institutions have withdrawn from the financing of any real estate including cooperatives and condominiums.

* CMP would assist banks by providing an additional repayment source for mortgages that have matured.

* Banks, thrifts and mortgage bankers would be the underwriters of the loans.

* The increase in liquidity for the market would result in an increase in value thereby increasing the security of the bank's collateral.

The State or New York

* Would help bolster an effort to provide affordable housing and ensure that existing owners' interests are protected.

* The State would earn a guarantee fee providing revenue to the State coffers making CMP revenue neutral or profitable.
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Title Annotation:Residential Properties; Mortgage Bankers Association of New York Inc.
Publication:Real Estate Weekly
Date:Nov 17, 1993
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