First of two parts
I had a plethora of responses to my Chronicle of April 28 on the lack of competition for home loans to owners of co-ops in Laguna Woods.
Column Recap: The Laguna Woods senior housing community includes fee simple condos and over 6,300 co-op and co-op units. Unlike fee simple condominiums, co-op buyers buy a share of the co-op, but do not directly own the real estate in which they live.
Several local mortgage settlement service providers have told me that the National Cooperative Bank, or NCB, has been the only cooperative lender approved by Laguna Woods in the past 10 years.
Data from Black Knight Inc. indicates that the NCB has funded 99.4% (940 of 946) of all mortgage loans from Laguna Woods institutional co-ops over the past decade.
I compared the NCB mortgage rates with a local cooperative lender (not approved by Laguna Woods) and found the NCB to be 1.5% higher for about the same cost.
Laguna Woods officials objected, saying the column contained “disinformation and misconceptions” and disputing my premise about a lack of competition among cooperative lenders.
Laguna Woods’ objections were circulated in a May 2 note to real estate professionals and in a letter to the editor published in the Laguna Woods Globe. I also received a May 1 letter from Juanita Skillman, owner of a Laguna Woods co-op and chairman of the board of directors of the non-profit housing co-op that owns and manages the village co-ops, United Laguna Woods Mutual.
Skillman said none of the co-op’s shareholders had mortgages, although some had taken “personal loans” to finance their homes.
“The majority of United share purchases are made in cash. Any type of financing would be a personal loan, ”said Skillman’s letter.
Laguna Woods does nothing to limit the number of lenders, the letter adds, but demands that all lenders accept a “caveat” that debts owed to the co-op are paid first in the event of a shareholder default.
“United Laguna Woods Mutual has not banned other lenders and there is no monopoly,” the letter said. “Any institutional lender can apply to United, and the mutual decides to accept a lender based on their ability to fund the personal loan and agreements to respond to the mutual’s warning. “
Another lender agreed to the terms of the co-op, then pulled out, Skillman wrote. No other lender has “followed for approval”.
After reviewing the Laguna Woods complaints, I spent approximately 40 hours researching this issue, meeting with Laguna Woods officials, interviewing over a dozen people, and reviewing hundreds of pages of documents. .
What I found:
- There are actually Laguna Woods cooperative mortgages – or to be precise, “trust deeds,” the term used for the California version of a mortgage.
- While the Laguna Woods Co-op may authorize others to provide home equity loans to shareholders, there is conflicting information about its terms and restrictions. Anyway, the shareholders of Laguna Woods today have only one lender: NCB.
- At least one other lender has been turned down by the Laguna Woods cooperative – not because it would not accept the Laguna Woods ‘warning’, but because it is not a financial institution. deposit accompanied by FDIC or National Credit Union insurance.
- Many Laguna Woods shareholders contacted me in the weeks following the publication of the original column to complain about the lack of financing options available to them. But – with two exceptions – all refused to let me share their stories because they feared retaliation. (More details next week.)
I was mistaken in the first column that NCB was the only cooperative lender for the past 10 years.
PNC Mortgage LLC (PNC Bank) funded four cooperative mortgages between 2010 and 2013, according to Black Knight.
The Federal Credit Union VA Desert Pacific granted a cooperative mortgage as a one-time favor to a member of the credit union in May 2016.
And in December 2018, Credit Union of Southern California provided a home equity line of credit to a shareholder in the co-op.
With the help of a securities firm, I located two publicly recorded “recognition contracts” detailing the terms that the co-op and the lenders signed.
But we couldn’t find one for Credit Union of Southern California. And, oddly enough, at least one of the PNC’s mortgages was registered before its recognition agreement was registered.
Apparently, therefore, the loans were made without the “caveat” demanded by the cooperative.
Pamela Bashline, the community services manager at Laguna Woods, said the PNC stopped funding cooperative loans when her lawyer decided her recognition deal was unacceptable and withdrew.
On June 19 I met Jeffrey Parker, CEO of Laguna Woods Village, Eileen Paulin, marketing and communications, and Bashline.
During the meeting, Laguna Woods officials explained that other lenders (other than NCB) were unwilling to sign their recognition agreement.
The group also supported the idea that these are personal loans according to Skillman’s letter.
However, I disputed this claim and provided a copy of Skillman’s own home loan – a trust deed – to show the similarity between co-op finance and regular home loans.
I also explained to Parker, Paulin, and Bashline that a deposit bank or credit union is a no-starter when it comes to mortgages. Nowhere in America should a mortgage lending institution take deposits. When I asked Parker how this reasoning for denial could happen, he replied, “I think it’s based on past practices they’ve had at United.
We may not be able to understand the reasons for NCB’s exclusivity at Laguna Woods.
It could be nobody, but the NCB will swallow the conditions of Laguna Woods, as Laguna Woods officials say. Restricting lending to deposit-taking institutions may prevent some willing lenders from participating.
Whatever the reason, NCB has accounted for nearly all of the Laguna Woods Institutional Co-op’s “acts of trust” – whether you call them mortgages, personal loans, or stuff.
And that hurts senior borrowers from cooperatives.
This week’s mortgage rates: 30-year mortgage rates hover near their lowest level in 2.5 years
May 1 Letter from Juanita Skillman
Contributing columnist Jeff Lazerson is a Laguna Niguel mortgage broker who writes on home loans for the Southern California News Group. He can be reached at 949-334-2424 or [email protected] Its website is www.mortgagegrader.com.