The National Cooperative Bank, pleased with the success of its first sale in the public market of securities backed by loans to housing cooperatives in New York, plans another one by the end of the year.
"We were getting to the point where the pricing of private placements seemed too high for us, so we sought the efficiency of the public market," said Grace A. Huebscher, president of the NCB Mortgage Corp., a subsidiary of the bank. She said total costs, principally brokerage fees, were twice as high for private placements.
"We expect the secondary market for these securities to grow as more product becomes available and more investors are attracted to this market," said Ira Wagner, director of the mortgage group at First Boston Corp., which underwrote the $93 million deal.
The loans are on the actual buildings, not to the members of a cooperative. They have loan-to-value ratios, typically averaging less than 20% as a co-op and 35% as a rental property.
Because of the decline in interest rates, loan volume has been high, Huebscher said. She said the bank already has exceeded its 1991 level of loan volume in New York and will easily establish a record for new loan originations for the institution. The bank cannot have more than 30% of its assets in real estate, a fact which made it necessary to sell the New York mortgages. Currently its real estate portfolio is about $200 million, Huebscher said.
The pool of mortgages in the first public sale was split evenly between those with 10-year and those with 15-year maturities. Seventy percent of the loans were on properties in Manhattan.
The soft condition of the New York real estate market has caused some concern about the financial stability of co-ops. The New York State Attorney General's office, however, estimated that less than 2% of the more than 5,000 co-ops in the New York area have defaulted.
The default problem has been laid to a small number of sponsors who took on significant leverage and were caught in a cash squeeze when the market weakened and sales of apartment units slowed, Huebscher said.
She said NCB has avoided highly-leveraged sponsor-conversions and so the bank has experienced no significant credit deterioration. In New York, it has never experienced a default or foreclosure and has had only two serious delinquencies, both of which were resolved, she added.
Washington-based NCB was formed by Congressional charter in 1978 to finance a variety of cooperative enterprises. The institution was privatized in 1981, and funds previously appropriated by the federal government were converted to long-term subordinated notes, with future funding obtained in the capital markets.
