Co-op Boards to the Rescue?

Praise David Leonhardt of The New York Times bringing up that great Saturday Night Live skit where he dresses up like a white guy and heads to the bank for a loan. The loan officer makes sure no black people are around, and then pretty much just starts handing over stacks of cash without collateral.

Leonhardt makes the case that–minus the race element–that’s how a lot of lenders have been behaving in the mortgage industry. Of course, that kind of lending can be devestating for the economy when the loans come due and lots of people can’t afford to make payments. Leonhardt says New York is protected, somewhat, by co-op boards.

Anyone who has ever been interviewed by a board knows what a humiliating process it can be. Its members can demand bank statements from you, ask about intimate details of your life and then reject you without saying why. Or the board can admit you and make life miserable once you have moved in. In the 1990’s, one co-op resident on the Upper West Side was moved to have a party after the board president died.

But say this for most co-op boards: they take their fiduciary duties seriously. They generally require at least a 25 percent down payment, and while the rest of the real estate business has been getting more permissive, co-op boards have been using the sellers’ market of the last few years to crack down. Some Park Avenue co-ops require buyers to have a net worth equal to four times an apartment’s price, up from the old standard of three, said Jonathan Miller, an appraiser.

So thanks in large part to co-ops, the shadiest parts of the housing boom are less common in New York. Less than 8 percent of mortgages issued in the metropolitan area this year have been option ARM’s. The share is closer to 30 percent in most other cities as expensive as New York.

I see what he’s getting at, but there’s a lot of gray area there, and I’m pretty convinced co-op boards could be a lot better at making the local economy hum.

There is no question that co-op boards across the city have tightened up the requirements to become shareholders in their buildings. As I have stated before, I believe this is to the co-op’s detriment. As inventory has increased, the pool of buyers thinned, and prices have skyrocketed, fewer people are coming to the table meeting even the old requirements of co-op boards. We are seeing people in all price ranges who are opting for condos because the financial requirements placed on them by co-ops have become ludicrous.

Co-op Boards beware… while you’re focusing on “protecting” the financial integrity of the co-op, you are likely contributing to the thinning pool of buyers seeking co-op ownership. That is going to hit your bottom line. Of course there are cases out there of buyers who are overextending themselves in the housing market, but it is my belief that most are very well informed and educated about what they can afford and pose much less of a risk than many co-op boards believe.

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