Intrigued by a recent New York Times story about reverse mortgages becoming available again to co-op owners, we wondered whether boards are likely to approve them.
The answer: No, especially if the person applying lacks decent cash flow.
Of course, that’s the group most likely to seek reverse mortgages, which enable people 62 and older withdraw up to $625,000 (currently) of the equity in their apartment.
Reverse mortgages, more expensive than refinancing or taking out a home equity loan, are often a last resort for elderly people with no other source of income.
Yet what co-op boards fail to appreciate is that “there is no risk to the co-op beyond what would exist in a ‘conventional’ loan situation,’” says real estate lawyer Aaron Shmulewitz.
Stuart Saft, another highly regarded real estate lawyer, agrees.
“I have advised boards for several years that reverse mortgages should not be a problem, and that they are a convenience to their shareholders, but reverse mortgages have not been accepted by many,” says Saft.
Indeed, not even mortgage brokers sound optimistic.
Richard Martin, the executive vice president and a mortgage broker with Stanley Capital in Manhattan, says he has more than a hundred customers on a waiting list to apply for a reverse mortgage once they become available.
“A stampede is an overstatement but I think it’s a pretty significant group of borrowers waiting for this to come,” says Martin.
Many will be disappointed.
“We’ve talked to managing agents and co-op boards and their attitude is they are not going to approve them,” says Martin, who observes that boards in Queens co-ops are typically more liberal than than their Manhattan counterparts.
A conservative stance seems short-sighted: Owners who run out of money may be forced to sell at fire sale prices, driving everyone else’s values down.
“I think it’s going to be a tough transition for co-op boards, but when it comes to co-ops it goes building by building,” says Melissa Cohn, a mortgage broker and president of The Manhattan Mortgage Company. “Maybe some will be more lenient. With everything that’s happened in the past couple of years in the economy you would think they’d wake up.”
Even when the market was better, co-ops didn’t exactly embrace reverse mortgages.
“We had one get approved before the credit crunch,” says Martin, “but they roughed her up—it was pretty brutal. She had nothing left to live on because of medical bills. The board told her it was fine in advance, but when push came to shove they wavered. Then her attorney met with them and they decided to do it.”
He notes that reverse mortgages are expected to pass condo boards (which are more liberal anyhow), though because condo population tends to be younger, there isn’t much demand.
He says that anyone applying for a reverse mortgage should check with the board beforehand to avoid wasting time and money.
“Tell them exactly what you’re doing,” he says.