WASHINGTON - National Cooperative Bank has begun providing loans to condominium and homeowners associations, filling a financing niche that most banks have ignored.
The loans will allow community associations to spread out payments for renovation and repairs for up to 10 years.
Associations usually slap homeowners with big one-time assessments for such capital improvements. The hefty assessments, averaging $3,000 nationwide, sting first-time homeowners and senior citizens living on fixed incomes.
"They just can't come up with that kind of money," said Kathleen Luzik, a bank vice president, in announcing the program. Loans "would lessen the blow pretty significantly."
National Cooperative, a Congressionally chartered bank that lends to cooperatives, is testing its new program in Illinois and the District of Columbia area. But "we intend to branch out as time goes on," Ms. Luzik said.
She said condominiums built in the 1970s have reached the repair-and- renovation stage, providing the bank with an immediate loan market. And 43 million people belong to the nation's 200,000 community associations, she noted.
"It's clearly a growth market," Ms. Luzik said in a press release. "We've just developed a program for a niche ... that nobody else has recognized yet."
Marc Thompson, president of the Association of the District of Columbia Condominium Boards, hailed the program.
"It will offer condominium associations a much more realistic means of financing renovation projects, by spreading the cost out over a number of years rather than requiring a lump sum up-front payment from all unit owners," he said.
Banks have provided comparable loans on occasion, but none have developed extensive programs, Ms. Luzik said. The reason, she said, is that the loans do not fit into traditional categories of lending. They also require a combination of real estate and commercial underwriting guidelines.
Though banks have generally shied away from condominium association loans, Ms. Luzik said she expects that "'unfortunately" other banks will follow her institution's lead.
Her bank already has $10 million to $15 million in prospective loans and is committed to $250 million for the program's first five years.
In addition to permanent loans with maximum maturities of 10 years, National Cooperative will offer credit lines of up to three years. Ms. Luzik expects loans to range from $250,000 to $3 million.
The loans will not be collateralized with real estate. Instead, the bank will hold a security interest in the monthly dues of association members.
"We took a commercial lending approach to real estate," Ms. Luzik said.
The bank will offer both fixed-rate and adjustable-rate loans. The rate will be tied to the interest paid on three- to five-year Treasury bills.
Caroline Blakely, the bank's corporate vice president for real estate, said National Cooperative plans to create a secondary market for community association loans.
Mr. Gardner is an intern with the Institute on Political Journalism, a program of the Fund for American Studies.
