Helping Homeowners

By Hindman, J. Michael | Independent Banker, May 1998 | Go to article overview

Helping Homeowners


Hindman, J. Michael, Independent Banker


New mortgage program helps you qualify more customers for home purchases

As an independent banker, you know that each customer has different financial circumstances and needs, and you specialize in helping your customers meet these needs. To qualify as many customers as possible for mortgage loans, your bank needs to offer many types of home financing solutions.

Now a new program helps you do just that. IBAA Mortgage Corp., through its partner PHH Mortgage, recently introduced a mortgage alternative program to help you reduce lending barriers, maintain higher Community Reinvestment Act ratings and serve more customers. Known as Credit Solutions, the program is designed for customers who have blemishes on their credit records, higher debt-to-income ratios or need nontraditional forms of income documentation.

Unless your bank has no mortgage loan portfolio, or zero delinquency in its mortgage loan portfolio, chances are you've already been influenced by the growing consumer demand for "subprime" loans. Now, through Credit Solutions, you can make the dream of home ownership a reality for these customers.

SOLVING CREDIT PROBLEMS

Some of your potential home-buying customers may have credit qualifying problems. In previous years, many residential loan officers would have considered these loan applicants too risky to approve. Today, however, 30 percent of all mortgage loans are made to subprime borrowers. These so-called "A" through "D" credit loans are widely accepted because of changing economic patterns, the rise of automated underwriting and greater investor confidence. These days many factors can make mortgage loans "nonconforming," yet alternative investors view these loans as investment-quality purchases. Strong investor acceptance is good news for community banks because it lowers the margin of risk in originating subprime loans.

Often there are reasonable explanations for credit problems. Your bank probably has customers who, because of unforeseen circumstances-such as divorce, a job layoff, forced early retirement, illness or disability, or a death in the family-have accumulated too much debt. Unfortunately, bad financial predicaments happen to many good, responsible people. And when they do, these people often struggle with credit problems.

Credit Solutions is the financing solution for these customers. The program enables them to buy homes as they re-establish their credit standing. For example, one Credit Solutions product is a two-year, adjustable-rate mortgage. The idea behind this product is that it takes people two years, on average, to pay off delinquent debt and regain a clean credit record. Then after two years, these home buyers may be refinanced into an "A" credit, fixed-rate loan that is less costly for them.

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