Council of New York Cooperatives & Condominiums
Article Archive
Financial Issues

Published: Autumn 2002


Reverse mortgages have long been available to owners of private homes and condominiums. With a reverse mortgage, a senior homeowner arranges to receive additional income by pledging a portion of the equity in the home. When the senior leaves that house, the lender recovers its loan plus the interest that has accrued. The costs of obtaining a reverse mortgage are generally higher than those on a conventional mortgage, but the borrowing senior will never have to make interest payments on the loan, and the unused portions of the reverse mortgage grows over time. The interest is rolled into the mortgage itself and is payable only when the senior sells the home or leaves it permanently. Thus, the reverse mortgage obligation becomes the debt of anyone inheriting the home, for the estate would have to pay off this debt like any traditional mortgage or home equity loan.

Pleased that seniors in its condominium members had this resource, CNYC has long worked to bring reverse mortgage opportunities to homeowners in cooperatives. Wording in the federal legislation authorizing HUD insured reverse mortgages had specifically excluded cooperatives, although no indication of the reason for this was unearthed. The National Association of Housing Cooperatives (NAHC) was very active in drafting and promoting Federal legislation that was passed in 2000; it lifted this prohibition and encouraged HUD to consider including cooperatives in the pool of allowable and HUD insurable reverse mortgages. NAHC is pursuing this matter with HUD and reports that the Federal Housing Administration will soon be authorizing government-guaranteed loans called Home Equity Conversion Mortgages, which will be particularly helpful to lower and moderate income cooperative homeowners. But seniors in New York cooperatives can already benefit from reverse mortgages, subject, of course, to approval by the Board.

Enter Financial Freedom, a subsidiary of Lehman Brothers Bank, FSB, which is bringing to the New York market reverse mortgage opportunities for seniors aged 62 and older on the cooperative or condominium that is their primary residence. Financial Freedom invites seniors who own their cooperative free and clear (or who are prepared to use part of the proceeds of their reverse mortgage to pay off their existing mortgage), to borrow in a lump sum or take down a line of credit to use as they wish. Closing costs are usually deducted up front from the loan proceeds.

Actuarial calculations govern the level of loan-to-value that Financial Freedom will authorize in any given situation, with the age of the borrower being a vital factor. But there is no credit or income requirement, no mortgage payments and the principal, plus interest, is payable only when the borrower vacates the cooperative. The prudent cap on loan-to-value and the clear terms of the agreement showing that Financial Freedom will not in any circumstances seek to take possession of the unit should allay any misgivings of the Board or its advisors regarding the advisability of agreeing to a reverse mortgage. Today’s low interest rates make this a particularly interesting option.

The Financial Freedom Cash Account reverse mortgage enables seniors to convert a portion of their co-op equity into tax-free income or a line of credit without having to sell the home, give up title or take on new monthly mortgage payments. There is no limit on the Financial Freedom Cash Account reverse mortgages, although the loan amount is based on the value of the home, its location and the borrower's age. A young senior of 65, for example, would be able to borrow about 10% of the value of her apartment, while Financial Freedom might authorize borrowing of up to 50% of the value of the unit of a 97-year-old. To explore the loan level available to you (or your parents) visit the Financial Freedom website at, or call 888-738-3773.

Reverse mortgages will be discussed in detail at a CNYC seminar on the evening of Wednesday, January 15, 2003, with careful attention to the role of the Board.


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