Sunday, December 9, 2007

There's no such thing as a subprime NYC co-op loan

New York Post
By TERRY KEENAN
December 9, 2007
http://www.nypost.com/seven/12092007/business/theres_no_such_thing_as_a_subprime_nyc_c_521929.htm

To the rest of the country, New Yorkers may seem like an odd lot. We jaywalk with impunity, we order-out more than we cook in and we tend to wear black 24/7.

And if we decide to settle down, particularly in Manhattan, we often find ourselves buying into a co-op - that uniquely New York arrangement - whereby your would-be neighbors set the size of your mortgage and assess your suitability to weather a financial tsunami.

To those with upstate relatives or a cousin on the coast, moving into a New York co-op has long been fodder for conversations that always begin with: "Can you imagine they would put up with that? Referring to what appears to others as a draconian down payment and FULL financial disclosure.

Want to re-finance or re-model? The co-op board will have to sign off on that as well.

To be sure, few that have been through the co-op vetting process look back on it with fond memories. Today, however, New York City co-op owners are having the last laugh. Co-op prices remain firm, and a Google search of "co-op and foreclosures" only turns up one article - from 1991.

There's a lesson in all this for the nation's homeowners and lenders. Burned by the New York real estate collapse in the mid-70s, co-op boards around Manhattan (making up 70 percent of all apartments) have toughened their standards in recent years. At the same time, the banks making the mortgage loans were lowering theirs.

With rules that require hefty down payments of sometimes 50 percent or more, and extensive financial disclosure requirements, the Manhattan co-op is basically the complete opposite of the no-doc subprime slime that has brought the national real estate market to its knees.

Imagine if in 2006 every mortgage borrower needed eight letters of reference from employers and associates to secure a loan?

Sure, during the bubble years from 2002-2006 co-op prices didn't go up as much as the rest of the market, but tight lending and re-financing standards have insulated prices which are still showing few signs of weakness.

This is not to say the co-op model is perfect, far from it, or that co-op prices won't weaken if Wall Street layoffs ensue. But there is a lesson in this seemingly arcane process. What the co-op model does tell us is that buying a home shouldn't be as easy as buying a pair of new shoes.

When lending standards are set high enough, and the process of buying a home is kept close to home - the chances of losing your home are less likely.

TERRY KEENAN is anchor of Cashin' In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. E-mail terry.keenan@foxnews.com.

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