Magazine article American Banker

'Flexible 125' Loans Should Help Keep High-LTV Market Booming

Magazine article American Banker

'Flexible 125' Loans Should Help Keep High-LTV Market Booming

Article excerpt

When brokers get together and discuss last year's hottest products, chances are the conversation is peppered with "high-LTV" and "125s."

More than $10 billion of 100%-or-higher loans were expected to be financed in 1997, up from $3 billion in 1996 and virtually nothing in 1995. Analysts predict the figure will top $20 billion this year.

As the numbers climb, a new breed of 125 is hitting the market. These loans are the first with a built-in safety net for brokers and their clients.

Flexible 125s convert an unpaid balance to unsecured debt when a property is sold. And that has consumers and brokers working with 125s breathing a collective sigh of relief. The new 125s offer definitive answers to previously cloudy issues.

"Three million borrowers a year are confused by the home lending process and would benefit from clearer, more concise information," said Ron J. McCord, president of the Mortgage Bankers Association of America, last year.

If that is true of mortgage products in general, think of the confusion about products like 125s, for which straight answers haven't come easily from our side of the table.

The flexible 125 gives brokers positive answers to the questions that clients have asked about 125s-"What happens when I have to sell the property and there isn't enough equity to pay off the loan?" "What about the title?" "Will I be capable of selling this home?"

How many times have you said to a client, "It's determined on a case-by- case basis"?

At the core of the 125 confusion is the issue of mobility.

Owners are staying in their homes for shorter periods. Though most people who take out a 125% loan expect to be in their homes for a long time, the mergers, acquisitions, and layoffs shaping our corporate market have led to more job transfers and unexpected moves.

The new 125s free borrowers from their property in the event of such moves. …

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