Lenders continue to work overtime in their efforts to reach more borrowers by introducing “new” mortgages. But these loans often have a tinge of the old subprime products that helped devastate the housing market nearly a decade ago.
The difference, this time around, is that lenders believe they have a handle on what got them into trouble last time.
Today’s not-so-new loans include one in which the lender wants a mere 1 percent down, another with an institutionalized temporary interest rate buy-down, and a third that allows for a 90 percent loan-to-value ratio without any mortgage insurance.
Also coming to market are loans aimed at immigrant buyers with no credit records, and self-employed borrowers who find it tough to prove their incomes.
Lenders typically want a 3 percent down payment at the very least. But Guild Mortgage is now willing to take 1 percent down from the borrower. The San Diego-based company will make up the difference with a 2 percent grant that need not be repaid.
In addition, Guild will go as high as a 50 percent debt-to-income ratio, and non-borrower household income -- rent from a boarder, for example, or monthly help from a relative -- can be used to qualify.
The company created the product “to make homebuying more attainable for more people, including millennials who are entering the housing market in increasing numbers,” says Guild President and CEO Mary Ann McGarry.
Going Guild one better, Movement Mortgage is offering a no-down-payment loan for qualified first-time buyers. The Movement Assistance Program (MAP) is for rookie buyers who meet specific income and asset criteria based on their need and the median income for their particular market. To reach the necessary 97 percent loan-to-value ratio, the Charlotte-based lender provides a 3 percent grant that need not be paid back. There are no second loans, liens or promissory notes, either.
A MAP loan also comes with opt-in job-loss insurance coverage for two years. The benefit covers up to six monthly mortgage payments due to involuntary unemployment at maximum monthly benefit of $1,500, for a $9,000 total benefit over the coverage period.
Meanwhile, Stearns Lending of Santa Ana, California, is now offering a mortgage with reduced payments for the first two years without any additional cost to the borrower. Under Stearns’ Smart Start program, the rate for the first 12 months is reduced by 1.5 percent. For the second 12-month period, the rate is cut by 0.5 percent. After that, the rate rises to the full rate in effect at the time the mortgage was originated.
Temporary “buy-downs” such as this aren’t unusual. But typically, the seller pays for it. Under Smart Start, though, the lender foots the bill.
“We want to make sure that higher rates do not deter well-qualified individuals and families from reaching their homeownership goals,” says Stearns CEO David Schneider.
When homebuyers have less than a 20 percent down payment, lenders almost universally require that they purchase private mortgage insurance (PMI) to cover the difference between what they put up and the 20 percent benchmark. Buyers pay, but the insurance covers the lenders should a borrower default. Irving, Texas-based Caliber Home Loans is rewriting that rule with Premier Access, a loan that calls for only 10 percent down -- and no PMI.
Also, the company will go up to a 50 percent debt-to-income ratio on a credit score as low as 660. And the loan features an interest-only option, meaning that for a period of time, the borrower need not pay down the principal.
Although Caliber offers the product to someone seeking as little as $100,000, Premier Access is designed “to assist borrowers who are buying or refinancing a high-value property,” the lender says.
Elsewhere, as federal mortgage market regulators strive to address issues facing borrowers with a limited proficiency in English, Bank of the West has launched a new product aimed at immigrants with no credit histories in this country.
Even though they may have good-paying jobs and have the financial means to afford a house, new arrivals to America usually have to wait two years to establish credit or pay cash for their homes. But Bank of the West, based in San Francisco but a subsidiary of the French bank BNP Paribas, will use information from foreign governments plus overseas financial institutions to underwrite their Global Mobility mortgages.
According to the bank’s Thierry Gabadou, who heads its International Banking Group, millions of people come to America with immaculate credit in their home countries, but no credit records in the U.S.
And lastly, there’s Citadel Servicing Corporation. The company claims to be the first lender to re-enter the “battered” subprime mortgage market, and is allowing self-employed borrowers to verify their incomes with only their previous 12 monthly bank statements instead of the usual 24.
Better yet, under the lender’s Alt-A Maggi Plus program, Citadel will accept credit scores as low as 650. But borrowers must show they pay their bills on time. They also must have been self-employed for at least two years.
No first-time buyers here, though: The company says only “seasoned mortgage-payers need apply.”