In apparently the first such move for an entire cooperative building here, American Security Bank has signed an agreement with the board of directors of Harbour Square, a cooperative complex at 500 N St. SW, to finance the purchase of individual units there.
Although banks have granted co-op mortgages on a spot basis here before, American Security and the Cooperative Housing Association say this is the first time cooperative financing has been organized for an entire cooperative in Washington. In New York City, where banks have financed co-ops for years, such agreements are commonplace.
The Habor Square board sought such an arrangement because long-term financing for co-ops has been almost impossible to secure here. Under the agreement, American Security will make loans of up to 75 percent of the purchase price of a Harbour Square unit, minus the existing mortgage or a maximum of $50,000, whichever is smaller. The minimum loan is $5,000. Terms range from a minimum of five years to a maximum of 15 years. Interest is at market rates. Collateral is stock in the cooperative.
Prices of apartments at the 13-year-old complex range from about $45,000 to $200,000. At least half of the owners have assumable mortgages that were issued by the original financing institution at approximately 6 percent, said Marge Harding, a Harbour Square owner who has sat in on the negotiations. Where there is an assumable mortgage, what American Security offers amounts to a second mortgage, although the bank calls it "a first lien on the other purchasers' proprietary interest in the cooperative."
Where the mortgage is not assumable and especially where the purchase price is elevated, the owner will still have to get additional financing. Most often this takes the form of a personal loan from a relative or a pledge taken back by the previous owner, Harding said. No loans have been made yet through the new arrangement.
As for co-op financing by savings and loan associations, this week a government regulation giving parity to individual cooperative apartments in mortgage lending contracts went into effect. From now on thrift institutions may consider co-ops the same as any other residence, although the collateral for such loans is not the property itself, but shares of stock in the cooperative association plus a long-term lease.
The Federal Home Loan Bank Board action follows by several months the removal of the 12 percent interest rate ceiling in the District on mortgage loans, including co-ops. Yet this is something of a hollow victory for those Washingtonians who have been waiting a long time to get conventional financing for individual units.
Although the legal way has now been paved, the economic situation is such that lenders are not about to venture into the new world of co-op financing when they don't have enough funds for their main customers, house buyers.
Moreover, legislation to amend the charter of the Federal Home Loan Mortgage Corp. is stalled in conference. according to a congressional aide. The mortgage corporation buys loans from savings and loans to free up their funds. Co-op specialists such as Jeffrey Spragens, president of FCH Services, believe few lenders will be willing to get into co-op financing until there is a secondary market for these loans.
Interest in cooperative apartments has been spurred by the fact that they are still cheaper, on the whole, than detached houses, rowhouses or condominiums because so many co-ops are in pre-war, unrenovated buildings.