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Laguna Woods residents complain about the lack of co-op lenders

By Jeff Lazerson

7/18/19

Second of two parts

Linda Nearing is equity rich and cash poor.

Nearing bought a Laguna Woods co-op with her late husband in 2002, with financing by National Cooperative Bank, or NCB.

Today, she owes less than $29,000 on a property worth about $200,000. If she could pull some of that equity out of her home, money wouldn’t be so tight.

But NCB told Nearing she can’t qualify to refinance her home loan or take out a home equity line of credit.

“My only choice now is to sell and move,” Nearing, 75, told me recently. “After almost 17 years in this community, I don’t wish to move.”

Nearing was one of several dozen Laguna Woods co-op owners who contacted me after my April 28 column reporting that owners in the retirement community’s cooperative housing have just one lender to choose from: NCB.

And that lack of competition is limiting options for some borrowers and sometimes results in higher interest rates.

NCB’s near-total exclusivity in Laguna Woods amounted to a monopoly, some said.

The column ignited a furor among Laguna Woods officials and leaders of United Laguna Woods Mutual, the non-profit housing cooperative that owns and manages village co-ops. One published a letter in the Laguna Woods Globe arguing my column contained “misinformation” about home loans for co-ops.

“United Laguna Woods Mutual has not banned other lenders, and there is no monopoly,” wrote Juanita Skillman, United’s board president. “Any institutional lender may apply to United.”

Californians may not be familiar with “co-ops,” although such housing is common in places like New York City.

Unlike traditional home or condo ownership, co-op residents don’t own the unit they live in, but own a share in a housing cooperative that collectively owns their property. According to Skillman, Laguna Woods has 6,323 co-ops. And NCB accounted for 99% of all co-op loans over the past decade, data shows.

Last week, I explored Laguna Woods’ contention that NCB provides “personal loans” to co-op borrowers, not mortgages. The reason they make that distinction is unclear.

Research showed, however, the NCB loans were “deeds of trust,” the term used for California’s version of a mortgage and the same lending document used for virtually all California houses and condos.

Whatever name you use, some residents complain their lack of options is hurting them.

KM, another co-op owner — who allowed me to use his initials, but not his name — told me Wells Fargo Bank offered him a mortgage at 4.25% when he bought his co-op 10 years ago. NCB’s rate was 6.75%.

He went with NCB because Wells Fargo was not a Laguna Woods-approved co-op lender.

Others also contacted me, but were so fearful of reprisal, they refused to go on the record.

During a meeting with several Laguna Woods and United officials, I asked if they received complaints about high mortgage rates.

“No, not really,” said Pamela Bashline, the Laguna Woods community services manager.

Yet, the April edition of Laguna Woods’ community publication, “Village Breeze,” printed that very complaint from a co-op owner in its “Answers For Residents” column.

“A resident expressed her concern about high interest charged on a small loan,” wrote Sue Margolis, a United board member. “We currently only have one company that will provide loans to co-ops, and they charge a higher interest rate because United insists on first right. First-right privileges mean United is paid first in the event of default; all other lenders are paid thereafter.”

Margolis added that two additional residents want the cooperative to allow other companies to issue loans.

“The Finance and Governing Document Review committees are looking into this possibility, as we will need a procedure to vet new lenders,” Margolis wrote.

Competition matters.

Years ago, long before I became a columnist, I remember Federal Reserve Bank of New York researchers explaining to me how much in love they were with mortgage marketplace competition. When lenders compete, consumers have their best opportunity to receive lower mortgage rates and more affordable payments, they maintained.

A few weeks ago, I went to NCB’s website pricing engine and compared its California co-op pricing to another lender that offers California co-op mortgages. NCB’s rates were about a half-percentage point higher.

Yet, when I checked NCB’s pricing in New York, where there are huge numbers of co-ops, pricing was the same as this California lender that also provides New York co-op mortgages.

Why the difference? Pricing is determined by local markets and building eligibility, NCB spokeswoman Mary Alex Blanton said in an email to me. Individual consumer credit and personal financial history also factors into pricing, she wrote.

Margolis said the United board is studying ways to increase the number of co-op lenders. If they succeed, it will be none too soon for Linda Nearing, KM and the many other Laguna Woods co-op owners who complained to me.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.