Hire Me! (But Only If You Need Me)

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Our building is planning to refinance its underlying mortgage in the fall. The board treasurer says that she will call all of the banks to get us the best deal. While she has been a very good treasurer over the last several years, she has no real financial or banking experience. That’s why a few of us on the board wonder whether she might be getting in over her head. Should we hire a mortgage broker?

It would be very easy for me to say, “Absolutely!” However, that might not be the best answer for your situation. In many ways, you’re asking a question similar to the one that many boards ponder with respect to management of their co-ops. Some buildings opt for self-management to save money. Some choose that route to maintain a greater level of control or provide a more personal type of service. Other boards don’t want the extra work, but they also don’t want to spend a lot of money. So, they hire the least expensive property manager they can find… and then usually get what they pay for. Relatively few boards want a very high level of service and are willing to pay for it. Each board makes its decision based on its building’s finances, shareholder preferences, and other factors. The decision to hire a mortgage broker involves many of the same issues.

So, how do you decide? The first question to answer is whether any board member or shareholder is willing (and able) to dedicate a lot of time, mostly during normal business hours, for the 60 to 120 days it will take to complete a refinancing. The second question is whether that person knows enough about the financial and mortgage markets to ask lenders the right questions and fully understand the answers. The third question is whether that person knows which lenders are active in the co-op underlying mortgage business, which would be most interested in your particular transaction, and whom to call within each of those institutions. If your answer to any of these questions is “no,” then you might want to consider hiring someone who meets all of these requirements.

Some boards ask their managing agent, attorney, or accountant to arrange their new loans. Is this a good idea? It absolutely is a good idea to involve each of these professional advisers in the refinancing process from the beginning to assure that you borrow the right amount, at the right time, in the right format. Each brings a different yet important perspective to the refinancing process, and you would be foolish not to avail yourself of that valuable input. However, none of them may have the right combination of knowledge, skill, and experience to actually arrange the best loan for your building.

So, do you hire a mortgage broker? Since a very high percentage of new underlying mortgage loans are obtained through such brokers, I could argue that a very high percentage of co-op boards feel that the services of a mortgage professional are worthwhile. However, that statistic doesn’t necessarily mean that your building should follow the trend. If you do decide to hire one, a few words of advice might be helpful.

As with any profession, there are good mortgage brokers and not-so-good ones. You would expect any mortgage broker to know all of the lenders, the types of loans that each one offers, all of the provisions that should be in any mortgage commitment to protect the borrower, and how to get the deal done quickly, efficiently, and without undue cost.

Unfortunately, that expectation is not always met. Therefore, you might want to get a few recommendations from trusted sources. Even then, you’ll want to thoroughly vet each candidate. Steer clear of any broker who professes an ability to get special deals or rates from secret, foreign, offshore, or investor sources. The co-op underlying mortgage market is relatively small (20 to 30 lenders total) and most are commercial banks, savings banks, or seller/servicers for Fannie Mae, Freddie Mac, or the U.S. Department of Housing and Urban Development. Not every lender is interested in every transaction. An experienced mortgage broker will know all of the lenders and, more importantly, which few would be most interested in making your new loan.

By far, the most important piece of advice that I would like to give to any board that is contemplating hiring a mortgage broker is this: hire just one. You can talk to several mortgage brokers to find the one you want to work with. However, until you make your selection, make it abundantly clear to each one that they are not authorized to represent your building and that they should not contact any lender to discuss your pending transaction.

Some board members, accustomed to getting bids from several contractors before making a decision, assume that they should follow the same process when looking for a mortgage broker. You do not want bids from mortgage brokers. They don’t have any money and can’t give you a loan. You want bids from lenders, because they (to paraphrase Willie Sutton) have the money and are in the business of making loans. Once you’ve chosen your broker, give him or her a written authorization to contact the lending community on your behalf. I also recommend making this authorization “exclusive” to maximize the broker’s leverage in negotiating with lenders to get you the best possible loan.

I apologize if this seems a long-winded answer to your very simple question. However, the choice of any professional to represent your co-op is a very serious issue with wide-ranging implications. Since the refinancing of your building’s underlying mortgage loan may well be the most important decision that you and your fellow board members will make during your tenures, affecting not only your monthly maintenance but also the market value of every shareholder’s apartment, you should give utmost attention to the decision of whether to hire a mortgage broker.