LENDERS & BROKERS ON MORTGAGES

"Making mortgage loans is like being a saucier," says the 47-year-old Semet in his Park Avenue office. "You're always addressing the one that's bubbling."

One for All

Which brings us to the First Commandment of Gardner Semet: "One authorized person should speak for the co-op. Then that person has to decide which horse the co-op wants to get on and ride."

"I agree 100 percent," says Sheldon Gartenstein, senior vice president at NCB, a nonprofit corporation that handles about one-third of the city's co-op mortgages. "First, designate one person as the voice of the co-op. Then review your financial needs and know why you're seeking new financing."

This board representative should be a conduit of information as opposed to a unilateral decision-maker, they and others say. Before approaching banks, board members need to ask questions and get answers:

• Do shareholders want low maintenance payments, or are they willing to endure higher maintenance so they can pay off all or some of the loan's principal?
• Do they want a short- or a long-term mortgage?
• Which capital improvements get top priority?
• How big a loan should the co-op seek?
• Will the co-op shop for a lender by itself, or use a mortgage broker?

Wisdom is divided on this last question. With the pool of potential lenders relatively small, some believe it's a waste of money to pay a broker instead of using the co-op's professionals. Patrick Niland, president of the mortgage brokerage First Funding of New York, and a Habitat contributing writer, begs to disagree.

"In volatile markets like this — with a global recession and disruptions in the flow of capital — it's particularly useful having a professional who can help your co-op find the right lender," Niland says. "The way I've built my business is by saving co-ops money, not necessarily by getting the lowest interest rate, but by getting the best package of terms to meet the objectives of that particular building. A lot of co-ops suffer from what I call 'interest-rate myopia,'" he observes. "But the interest rate is less important than the amortization schedule" — the rate at which the co-op pays off the loan principal.

Other important factors in any mortgage package, according to Niland, are prepayment terms, how to handle insurance proceeds, creating an escrow fund for taxes and insurance and when to lock the interest rate. And, of course, the length of the mortgage.
"You have to have a pretty good reason for going beyond a 10- or 15-year loan," he says, noting that inflation works to the advantage of borrowers, and that major repairs, both planned and unforeseen, are virtually inevitable. "Going beyond 15 years is nuts."

Shop Around

Once you've answered these questions, you're is ready shop for a lender. The good news is that, even with the credit crisis, there is money to be had, and at rock-bottom interest rates. Bankers consider co-ops a traditionally a low risk — what one veteran loan officer calls "the most creditworthy audience in the world."

"It's not so bad right now for co-ops who look like they can pay their debts," says Semet. "There's plenty of money available for financing co-op mortgages. The problem is getting co-ops to decide what they want."

If the co-op board has done its homework and the board's conduit approaches Semet with a clear idea of its needs and wants, the loan process moves forward. It can take Semet just five minutes to lay out his four basic loan products: An M&T mortgage will either be held by the bank; sold to Fannie Mae or Freddie Mac, which are now under federal conservatorship; or insured by the Federal Housing Administration (FHA). Each product offers various options: 10-year, 15-year or 30-year terms; interest-only; partially amortizing; or self-liquidating.

Now, your co-op starts giving the bank documentation, including financial statements for the past two years and the current year; a maintenance roll; a list of arrears; next year's budget; recent sales; and the number of unsold apartments.

Semet also asks for a list of rent payments and maintenance charges on the sponsor's unsold shares. The first red flag, Semet says, is "a sponsor with rent-stabilized apartments who's paying high maintenance. You want to make sure there's no danger of sponsor default."

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