First public offering backed by co-op mortgages - National Cooperative Bank sells $93 million in mortgage securities

Real Estate Weekly, August 5, 1992

National Cooperative Bank (NB) has sold $93 million in mortgage securities backed by loans to housing cooperatives in the New York metropolitan area. The transaction, underwritten by The First Boston Corporation, marks the first time that underlying, or blanket, mortgages on co-ops have been sold in the public market.

The securities carry the highest credit ratings ("AAA") from two credit rating agencies, Standard & Poors and Duff & Phelps.

"NCB has broken new ground in Co-op mortgage finance," said Grace Huebscher, corporate vice president of the institution. "The sale of our loans to the public market will provide for more efficient financing options to co-ops, and, at the same time, add liquidity to the secondary market for multi-family commercial mortgages. In this way, the public offering is a good deal for both our borrowers as well as our investors."

One of the largest providers of underlying co-op loans in the nation, NCB prides itself on its innovative approach to solving the capital needs of its many customers.

Underlying mortgages are the senior-most debt obligations of co-op borrowers. Co-ops use the proceeds to fund capital improvements or to replace existing debt.

The underlying mortgages have extremely low loan-to-value ratios, averaging less that 20 percent as a co-op and less than 35 percent as a rental property.

Investors in the public sale are institutional investors, including commercial banks, thrifts, several insurance companies and money managers. Since 1986, National Cooperative Bank has sold more than $500 million of its underlying mortgageS in private placements to 50 institutional investors, including major insurance companies.

Huebscher said the securities are attractive investments because they share many of the credit characteristics of mortgrageS to single-family homeowners. NCB primarily lends to co-ops when more than 75 percent of the units are owner-occupied and for the vast majority of these owners, the co-op is their principal residence.