FAQ Check: Should Co-ops Hire a Mortgage Broker When Refinancing?
Sept. 15, 2011 — Refinancing a co-op building's underlying mortgage is a standard way to take advantage of dipping interest rates, of lowering monthly payments by extending the length of the loan, and other advantages to help keep your co-op solvent. It may well be the most important decision your board will make, affecting not only the monthly maintenance but also the market value of every shareholder's apartment.
Can your board itself negotiate the best deal with a mortgage lender, or do you always need a mortgage broker? It's a question to which co-op shareholders should give utmost attention. Here's some background so co-op shareholders will know whether the board is doing the right thing.
Q. What is a mortgage broker?
A. A mortgage broker is an individual or a company that matches borrowers and lenders, but doesn't make loans or service a mortgage loan. Brokers might also negotiate with lenders to try and arrange the most favorable terms for the borrower. Your co-op may pay the broker's fee, or the lender pay or there may be some combination payment.
Q. Is a mortgage broker necessary?
A. That depends, first, on whether any board member or shareholder is willing and able to dedicate the time, mostly during normal business hours, for the 60 to 120 days it will take to complete a refinancing.
The second question is whether that person knows enough about the financial and mortgage markets to ask lenders the right questions and fully understand the answers.
The third question is whether that person knows which lenders are active in the co-op underlying mortgage business, which would be most interested in your particular transaction, and whom to call within each of those institutions. If your answer to any of these questions is "no," then you might want to consider hiring someone who meets all of these requirements.
Q. Could the building's managing agent, attorney, or accountant do this?
A. It's absolutely a good idea to involve each of these professional advisers from the beginning to assure that your co-op is borrowing the right amount, at the right time, in the right format. Each brings a different important perspective to the refinancing process. However, none of them may have the right combination of knowledge, skill, and experience to actually arrange the best loan for your building.
Q. What should the building look for in a mortgage broker?
A. As with any profession, there are good mortgage brokers and not-so-good ones. You would expect any mortgage broker to know all of the lenders, the types of loans that each one offers, all of the provisions that should be in any mortgage commitment to protect the borrower and how to get the deal done quickly, efficiently and without undue cost.
Get recommendations from trusted sources. Even then, you'll want to thoroughly vet each candidate. Steer clear of any broker who professes an ability to get special deals or rates from secret, foreign, offshore or investor sources.
The co-op underlying mortgage market is relatively small (20 to 30 lenders total) and most are commercial banks, savings banks, or seller/servicers for Fannie Mae, Freddie Mac or the U.S. Department of Housing and Urban Development. Not every lender is interested in every transaction. An experienced mortgage broker will know all of the lenders and, more importantly, which few would be most interested in making your new loan.
Q. Should the co-op board take bids from different brokers, the same as when hiring a contractor?
A. You do not want bids from mortgage brokers. They don't have any money and can't give you a loan. You want bids from lending institutions, which are in the business of making loans. Once you've chosen your broker, give him or her a written authorization to contact the lending community on your behalf.
Q. Should we hire multiple brokers to see who gets us the best deal?
A. Experts say hire just one. You can talk to several mortgage brokers to find the one you want to work with. However, until you make your selection, make it clear to each that he or she is not authorized to represent your building and should not contact any lender to discuss your pending transaction.
When you do choose one, make his or her authorization exclusive in order to maximize the broker's leverage in negotiating with lenders to get you the best possible loan.
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