N.Y. Offers 40-Year Loan to Aid Low-Income Buyers
Launder, William, American Banker
A new, 40-year, fixed-rate mortgage may offer an alternative to subprime loans for first-time and low-income homebuyers in New York State, observers said.
The New York State Mortgage Agency said late Monday that it would begin offering the mortgages on May 1 in an effort to promote affordable homeownership in the nation's third-most-populous state.
Priscilla Almodovar, the mortgage agency's president and chief executive, said in a press release that the loans "can help first-time homebuyers achieve their goal of sustainable homeownership" with "lower monthly payments than a traditional 30-year mortgage."
She said borrowers could reduce payments by up to $100 per month compared with 30-year loans.
The product offers a 97% loan-to-value ratio as well as an initial rate 87.5 basis points below the prevailing industry rate for 40-year, fixed-rate loans, the agency said.
Phil Mancuso, an executive vice president at MLD Mortgage Inc., which uses the brand name Money Store, said he saw little downside in a loan that "makes housing affordable in a nonrisky way. ... Adding 10 years to the loan really does not do a heck of a lot to the feasibility of payback," he said.
He doubted, however, that his Florham Park, N.J., company, which gets about 20% of its volume from New York, would offer the agency's 40-year product, since MLD's focus is prime borrowers.
A common criticism of 40-year, fixed-rate loans is that they only marginally reduce monthly payments but make it harder for borrowers to build equity.
Mr. Mancuso said the loans likewise might not be attractive to lenders that specialize in servicing because the borrowers are likely to refinance before the loan is paid in full.
Marian Zucker, the senior vice president of housing programs and policy at the state agency, called the refinancing argument irrelevant.
"This isn't necessarily the type of investment tool for someone who is looking to turn over a home," she said. …