Bank of America (NYSE: BAC) has rolled out a new mortgage program that it contends provides low- and moderate-income homebuyers access to a “responsible lending product with counseling at affordable entry prices.” The Charlotte, North Carolina–based bank, the nation’s second largest, on Feb. 22 announced its “affordable loan solution” mortgage in partnership with Self-Help Ventures […]
Bank of America (NYSE: BAC) has rolled out a new mortgage program that it contends provides low- and moderate-income homebuyers access to a “responsible lending product with counseling at affordable entry prices.”
The Charlotte, North Carolina–based bank, the nation’s second largest, on Feb. 22 announced its “affordable loan solution” mortgage in partnership with Self-Help Ventures Fund and Freddie Mac (OTCQB: FMCC).
Self-Help Ventures Fund is a Durham, North Carolina–based nonprofit loan fund, while Freddie Mac is the shortened common name for the Federal Home Loan Mortgage Corporation.
“What we’re trying to do is make people’s financial lives easier,” says Michael Brunner, Central New York market president for Bank of America, which ranks sixth in deposit market share in the 16-county Central New York market, according to the latest FDIC data. He spoke with CNYBJ on April 25.
“The product that we have is designed to help the low- to moderate-income earner be able to purchase a home and purchase a home in a way that makes sense,” Brunner adds.
The marketplace has a “need for more responsible” mortgage products that enable creditworthy homebuyers, who meet certain income limits and other requirements, to become homeowners at an “affordable entry point with comprehensive counseling,” D. Steve Boland, consumer lending executive at Bank of America, said in the bank’s Feb. 22 news release.
“Affordable Loan Solution combines Bank of America’s wide distribution network of mortgage professionals with the borrower support expertise of Self-Help and market liquidity provided by Freddie Mac to provide a new affordable loan option,” said Boland.
FHA not involved
The Wall Street Journal in a Feb. 22 article described the program as one that represents “an end run around a government agency that punished the bank for making errors on similar loans.”
The loan program allows borrowers to avoid private mortgage insurance, which is required for low down-payment loans to protect lenders and investors, the publication said.
“That could make the new loans cheaper than those offered through the Federal Housing Administration [FHA], the government agency that has won big settlements from banks in recent years for what the lenders describe as minor errors,” according to the newspaper.
Bank of America in 2014 agreed to a $16.65 billion settlement with the U.S. Department of Justice for “financial fraud leading up to and during the financial crisis,” according to an Aug. 21, 2014 news release on the department’s website.
The bank had conceded that it originated “risky” mortgage loans and made “misrepresentations” about the quality of those loans to Fannie Mae, Freddie Mac and the FHA, the Justice Department said in the release.
The FHA doesn’t make loans but insures lenders against default on mortgages where the borrower’s down payment is as low as 3.5 percent and the borrower’s credit score is as low as 580, on a scale of 300 to 850.
Bank of America’s new mortgage program takes the FHA “out of the process,” the Wall Street Journal reported. It instead relies on the partnership with Freddie Mac and Self-Help.
How the program works
Bank of America sells the loans, including servicing rights, to Self-Help, which will provide post-closing counseling for any borrowers who might be having payment difficulties.
“Self-Help [Ventures] Fund takes on the servicing from day one … and the education component with the borrower to help them make sure that they’re budgeting and keeping track of this,” says Brunner.
After origination, Bank of America will “immediately” transfer loan servicing to Self-Help’s designated specialty servicer, who will handle all loans regardless of future performance, according to the bank’s news release.
Freddie Mac collaborated with Self-Help and Bank of America to define credit terms and recently approved Self-Help as a seller/servicer to facilitate the rollout of this offering to borrowers.
Freddie Mac will purchase all of the eligible affordable mortgages originated through the Self-Help and Bank of America partnership, the banking company said.
Borrowers may use secondary financing, such as an affordable second loan, grants, or even cash they have on hand. The program will also consider non-traditional forms of credit to demonstrate credit history.
To be eligible, applicants’ income cannot exceed 100 percent of the area median income as defined by the U.S. Department of Housing and Urban Development.
Applicants must occupy the property, and first-time buyers will need to participate in homebuyer education through Bank of America’s Connect to Own nationwide network of counselors.
Bank of America contends that its “affordable-loan solution” mortgage program will include an extensive quality control routine with Freddie Mac that promotes responsible underwriting and reduces potential risks to Bank of America and Freddie Mac.
Contact Reinhardt at ereinhardt@cnybj.com