Magazine article American Banker

Bank of New York Unit Decides to Pay Less for 'No-Cost' Loan

Magazine article American Banker

Bank of New York Unit Decides to Pay Less for 'No-Cost' Loan

Article excerpt

Reacting to a problem dogging many mortgage lenders, Bank of New York Co.'s mortgage unit has decided to get tough with "no-cost" home loans.

Arcs Mortgage, Calabasas, Calif., has decided to lower the premiums it pays other lenders when buying no-cost mortgages.

With these loans, all closing costs are folded into the interest rate. The company also plans to raise the rates that its retail agents charge consumers for the loans, said Howard Levine, president of the unit.

No-cost mortgages have become increasingly popular, especially in California, because they allow cash poor consumers to purchase houses or refinance mortgages with little out-of-pocket expense.

Prepayment Perils

The loans, however, carry clear perils for the mortgage industry. Lenders and analysts say the loans are partly responsible for the high prepayment rates that have been hitting servicing portfolios and mortgage-backed securities.

While some observers lauded Arcs' move, lenders voiced doubts about whether it was the beginning of a trend.

"You've got to be competitive price-wise or you won't get business, especially from correspondents," said Brian Casper, chief financial officer of CrossLand Mortgage Corp., Salt Lake City. "People are trying to get as much refinancing business as possible before the party ends."

Mr. Levine, however, is standing firm.

"We will price our loans for economic value, and if someone else wants to undercut us, let the business be theirs," he said in an interview. …

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