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Bank of America Corp. is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans.
A borrower with a $150,000 mortgage, a credit score of 680 to 719 and a 3% down payment, the monthly cost of the new mortgage would be about $782. A comparable FHA borrower with Bank of America would pay $887 a month.
So what do you think about this new program?
Seems like most lenders are easing restrictions nowadays. Hopefully it doesn't backfire like last time.
@Anonymous wrote:Bank of America Corp. is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans.
A borrower with a $150,000 mortgage, a credit score of 680 to 719 and a 3% down payment, the monthly cost of the new mortgage would be about $782. A comparable FHA borrower with Bank of America would pay $887 a month.
So what do you think about this new program?
I actually think it is funny that BOA calls it a new program as many lenders have had this 3% down conventional mortgage available for at least a year, maybe longer. From what I have seen the rate is higher on these loans and the PMI cost is higher so ultimately the monthly payment is higher.
The example used to compare the BOA FHA program with this "new" program is skewed to show a higher payment for FHA than what you can get on the open market at today's rates including MIP (I estimated $800.92 using the same figures you posted using today rate + .0085 MIP factor). Plus the allowed ratios on FHA are higher which is generally the issue with a borrower in this price range (DTI issues).
The article makes me wonder if BOA had compliance issues with FHA and had to introduce a similar competing program that is a conventional loan in order to stay competitive with this segment of buyers.
Little bit of reasearch shows BOA has agreed to pay the largest settlement in history, $16.5 Billion, to the DoJ and others.
Part of the fine covers FHA loans not in compliance. Here is a small paragraph from the article and a link to the full article:
In addition to the problems with the residential mortgage-backed security programs, Bank of America did not comply with rules for underwritingFederal Housing Administration (FHA) loans to low-income and first-time home buyers. The bank is required to determine whether potential borrowers meet minimum credit standards, but Bank of America endorsed FHA insurance loans to many who did not.
In one instance, Bank of America underwrote a $314,204 FHA loan for someone who lived with a relative and had never paid rent. The borrower had opened a bank account just 12 days before closing the loan, although Bank of America was required to verify two months' worth of bank account statements. The bank also did not verify the income of the borrower, who was put on a leave of absence from their place of employment eight days before closing the loan. The borrower made four payments on the loan before defaulting.
At Countrywide, if the company's automated underwriting system rejected a prospective FHA loan, underwriters tried to game the system by changing the applicant's financial data and resubmitting applications in an attempt to get the system to accept it. One underwriter tried more than 40 times to get the system to accept a particular loan application. (to see full article, click here http://searchcompliance.techtarget.com/tip/Bank-of-America-settlement-exposes-fraudulent-lending-pra... )
So, IMO the reason BOA is now pushing this "new" program has a lot to do with the above settlement for FHA loan underwriting violations.
True. And the fine has to be paid by 2018. Could be totally unrelated to this program that they are advertising now as a new (to BoA) program. I admit I am a bit cynical and to me it looks like they have a looming deadline to pay this enormous fine and the source of the payment is going to come from consumers and not BoA coffers - that's why they are pushing this 'new' program.