http://online.wsj.com/article/SB10001424052702304299304577347890053618010.html

By ELIOT BROWN

Co-op City, the nation's largest cooperative housing complex, is in discussions with federal, state and city housing officials to secure a new $600 million, low-interest mortgage that would likely keep Co-op City as part of a middle-income housing program for years to come.

Built in the late 1960s and early 1970s, the sprawling 15,000-unit Co-op City complex in the northeast Bronx has been known as a middle-class stronghold. Moderate- and middle-income families can buy units at discounts to market rates through a state program known as Mitchell-Lama.

But after properties have been in the Mitchell-Lama program for around two decades, their residents can decide to leave the income-restricted program and open their doors to anyone. That allows co-op members in neighborhoods with high property values to cash in through the sales of their apartments.

A new $600 million mortgage for Co-op City in the Bronx, above, could keep the complex as part of the Mitchell-Lama middle-income program.

Such moves became common at other Mitchell-Lama co-ops during the real-estate boom years, which caused government housing officials to worry about the shrinking number of apartments in the city earmarked for middle-income families.

At Co-op City, residents considered exiting from Mitchell-Lama in 2002, a move requiring a two-thirds approval vote. But residents shelved discussions when there wasn't strong backing, and Bronx real-estate values made the economics difficult. Advocates of Co-op City's exiting from Mitchell-Lama—an act known as privatization—have been unable to rally widespread support since.

But should the $600 million refinancing plan now being discussed go forward, it would likely quell such talk from making a return for years. The terms being discussed with federal and local officials call for requiring the property to stay in Mitchell-Lama, says Alan Wiener, a managing director at Wells Fargo & Co., which would issue and oversee the mortgage.

"During this loan, Co-op City has to stay affordable, so you're going to preserve the affordability," Mr. Wiener says.

The management company that runs the day-to-day operations on behalf of the Co-op City residents is recommending the loan, in part because the new financing would be expected to lower interest payments by around $4 million a year, says Herbert Freedman, a principal at Marion Scott Real Estate Inc. His company manages the property and is involved in the discussions about the loan.

Still, the possible new financing has attracted criticism from some co-op members who support privatization and don't want their hands tied. "I would be against it," says Gary Geleski, a public-school teacher and seven-year resident who has urged leaving the program. "They shouldn't have that much power to lock us into that type of agreement."

The loan under discussion is part of a program from the federal Department of Housing and Urban Development aimed at multifamily properties—one that was extended to cooperatives in 2010.

Under the terms being discussed, HUD would back $530 million of the loan, while city and state agencies would back $70 million that would be the first to be lost if the loan defaulted, according to multiple people involved with discussions.

It would be a 35-year self-amortizing loan, they said.