Magazine article American Banker

B of A Easing Terms on Its New 3%-Down Loans

Magazine article American Banker

B of A Easing Terms on Its New 3%-Down Loans

Article excerpt

Bank of America and Fannie Mae are upping the ante on low-down payment loans.

The San Francisco bank announced it would loosen terms on its 3%-down loans-the lowest down payment loans commonly made by mortgage lenders and purchased by secondary-market agencies.

Under the new program, low-income borrowers may use gifts or grants for a third of the down payment, or 1% of the home value.

The loan's terms also allow borrowers to use more of their income for mortgage payments, so they'll need less income to qualify.

Fannie Mae, formally the Federal National Mortgage Association, will buy the loans.

Brenda Taylor, vice president of BankAmerica Mortgage, said the bank was confident that the new loans, like other affordable mortgages, would perform well.

The bank is making up for the new flexibilities by tightening credit standards on two other fronts. Borrowers will be required to have cash reserves equaling two months of mortgage and insurance payments, versus the one month required for the standard 3% down program.

The loans will also be more heavily insured, Ms. Taylor said.

Loans with low down payments, which have proliferated in recent years, have higher delinquencies, according to Fannie Mae, Freddie Mac, formally the Federal Home Loan Mortgage Corp., and mortgage insurers.

Bank of America, however, has steadfastly maintained that its portfolio of affordable-housing loans don't show the same performance problems.

Ms. Taylor made that point again last week. …

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