Cohousing-L Mailing List: Re: Home Equity/Mortgage Loan Denial-Need Resolution

[Raines Cohen (rc3-coho-L]

Bill -

Sorry to hear about your lending challenge. But you are not alone -- and
you may be suffering the result of a national policy issue that may take
some time to work out, affecting all cohousing neighborhoods, preventing
many from taking advantage of the best mortgage programs.

It's worth finding out what the internal process at your lender is, and
whether they are originating the loans on their own initiative with
invested member funds, or relying on outside investment/government programs
that provide backing, as all too many banks and credit unions are doing in
these risk-averse days.

As Sharon says, talk to your neighbors in community about their experience,
but be aware that what worked for someone just a few months ago, let alone
years ago or at the project's initial completion may no longer be relevant.

I've been investigating this issue deeply over the past year, while working
with a neighbor to get our project HUD approved so she can qualify for a
federally-backed reverse mortgage, and tap her home equity to be able to
stay here, even though her cost of living exceeds her social-security
income.

Some loans (reverse mortgages are the most prominent case of this) require
"project approval" by the US department of Housing and Urban Development,
so that banks can treat the resulting mortgages as a commodity, with
federal loan guarantees removing much of their risk.

This used to be, until 2008, a simple pro-forma process that some lenders
could even do independently, but because the system was abused by
developers and lenders, as part of the overall post-crash bank reform the
pendulum has swung back in the opposite direction.

It now has been reinterpreted in ways that can prevent cohousing
communities from getting financed using this mechanism, and the number of
foreclosures soared, so that lenders and HUD had real liability and real
costs (paid by you and me as taxpayers) that brought fresh attention to
this little cog in the real-estate lending engine.

I see from the HUD database web page that your project (a lovely spot with
great transit access; I've followed it during development and got to visit
a couple years ago) was approved by HUD in December, 2009, but that
approval expired two years later, so a fresh application would be required,
but might not succeed, for reasons I'll get to in a moment. 3.3% of your
homes are currently financed with FHA-backed mortgages, well below the 50%
current limits.

Other limits that could affect you, unrelated to cohousing, includ: no more
than 15% of units can have dues over 60 days delinquent, at least half must
be owner-occupied, at least 10% of your budget must go to reserves, there's
no pending litigation, and you have comprehensive insurance on the property.

The short form is that HUD headquarters has issued guidance to the regional
centers that evaluate project approval requests: projects that use the word
"cohousing" in the name or show certain other characteristics are NOT
treated as standard condominiums for their purposes, regardless of how much
we have crafted our legal documents and structures to follow their
guidelines over the past few decades. They classify community meals
programs, regardless of their independent operation, neighbor-to-neighbor
grassroots service, and optionality (which may not be a word, but should
be; voluntarity?) as a food-service business with mandatory fees for
members (like a board-and-care "community"), an automatic red-flag for any
condo project, as they don't want to be caught owning a condo that they
can't sell on the open market or which has anything besides traditional
condo expenditures included in its fees/budget. Ditto for
rights-of-first-refusal and any member selection process in your CC&R's or
bylaws, regardless of HUD/bank foreclosure exemptions and positive intent
in how these are used or not.

We've spoken with a former HUD attorney who knows the current director of
this part of the department about how to bring about change in this policy
interpretation, we are such a small percent of the mortgage market and the
department is understaffed and looking for opportunities to constrain risk
by NOT backing projects rather than to expand the market.

It would be quite a challenge, likely requiring many homeowners from many
different projects in different Congressional districts and HUD regions
around the country to invest together and fund a campaign coordinated
through the Cohousing Association and Partners for Affordable Cohousing to
document how cohousing communities comply with the guidelines, meet the
goals of the programs, and are generally a good thing for society.

This may well be worth the effort, in order to resume the level of
ease-of-resale and preservation of cohousing home values that we
experienced in the first few decades of the movement in the US.

It may take Congressional inquiries or even intervention, but that's not
something we wanted to promote until we know we have our ducks in a row and
have a clear body of evidence that doesn't lead to bureaucratic risk-averse
tendencies to say "no" just getting further engrained, or communities which
have gotten approval to have it revoked.

I'd love to get specific details off-list from others who have recently
gone through the process, including case numbers and rejection
letters/application details, so we can start to formulate a campaign -- one
that will benefit all cohousers across the country, both new communities in
formation and established cohousers offering resales and seeking
refinancing. I know I can't do it alone.

Raines Cohen, Cohousing Coach and Cohousing California regional organizer
Aging-in-Community author (in Audacious Aging) and Certified Senior Advisor
/ LEED Green Associate
at Berkeley (CA) Cohousing