What Co-op Boards Should Know About Reverse Mortgages
A law enacted late last year allowing reverse mortgages on co-op living spaces for New York State residents may require broader product category education for some councils with regulatory authority. supervision over cooperatives. To that end, Habitat magazine has compiled a list of eight things co-op boards should know about reverse mortgages in an article posted online.
“Co-op shareholders age 62 and older can now take advantage of a financing option that has long been available to owners of single-family, four-family homes and condominiums: the reverse mortgage,” the article states. “By allowing older shareholders to borrow against the equity in their apartment, reverse mortgages are a way for them to age in place despite fixed incomes and ever-increasing costs of living.”
The first thing to know is that co-op boards retain veto power, which means that any reverse mortgage transaction is subject to the review and approval of the co-op’s board. The second thing to know details how loan proceeds are disbursed, with the item listing a lump sum payment; a line of credit; equal monthly payments for a fixed number of months; or monthly payments until full repayment of the loan. It also specifies that the interest rate can be variable or fixed.
The third thing to know is how a reverse mortgage is repaid either on the death of the borrower or when they leave the unit, which is functionally identical to how the process works for reverse mortgages on property types better known as Residential Homes.
The fourth thing to know is about on-board protections, the column says.
“A recognition agreement, which must be signed by the loan holder and the board of directors, is a valuable protection,” it reads. “If a shareholder is behind on child support payments, the lender is obligated under the recognition agreement to make the payments. If there is a foreclosure and the apartment is sold, the bank will receive the net proceeds once all monies due to the cooperative have been paid.
The fifth thing relates to funding limits, which relate to the council’s veto power over a reverse mortgage. They can exercise this in order to enforce funding limits, the column says. The sixth thing is to make sure councils are in line with their funding needs.
The seventh thing to know is the reverse mortgage consumer protections, which interestingly mention that advisors who will specifically deal with someone seeking a reverse mortgage on a co-op may be required to obtain additional qualification.
“A committee is currently working to determine what kind of additional training existing HUD counselors will need to counsel reverse mortgage borrowers in co-ops,” the column says.
Finally, the last thing to know about reverse mortgages on co-ops is that they can be beneficial for both the borrower and the co-op administrator.
“Reverse mortgages can prevent forced sales, where financially distressed shareholders must sell their apartments at a discount, which can lower the overall value of the apartments,” the column says.
The bill as passed in New York State only allows exclusive reverse mortgages. Home Equity Conversion Mortgages (HECMs) remain inaccessible in co-ops across the country. Read the article in Habitat magazine website.