Lending giants Bank of America Corp. and Citigroup reportedly will offer mortgages at discounted rates to stir more lending among low-income borrowers and those with subprime credit histories. The loans will be originated through a program by the Neighborhood Assistance Corp. of America, a national nonprofit group that primarily assists low- to moderate-income borrowers.
Credit Standards Easing
Under the new program, the discounts, which will be offered on fixed-rate mortgages, will be greater than what banks usually reserve for borrowers with high credit scores, significant assets, and large down payments. To get the discount in the new loan program, the borrowers will have to pay mortgage points, which are upfront fees that lower the interest rate on a mortgage.
For example, if borrowers pay a mortgage point — which is equal to 1 percent of the total loan amount taken — they typically receive a discount of 0.25 percent on the mortgage interest rate. However, under the new loan assistance program, the banks will offer a 0.5 percent discount for a single mortgage point.
NACA, the originator of loans under the program, doesn't require borrowers to have down payments or to pay closing costs. It also approves borrowers for mortgages as soon as 12 months after a default on a loan. NACA conducts in-depth reviews of applicants' payment histories and requires income and asset documentation, according to CEO Bruce Marks.
The banks' move to work with NACA follows on the heels of a $16.65 billion settlement reached by Bank of America with government regulators in August, as well as a $7 billion settlement Citigroup reached in July. The settlements were reached following accusations that the banks sold risky mortgage securities during the run-up to the housing crisis. Neither bank admits to wrongdoing. But the settlements do require that the banks assist struggling home owners, such as lending to low-income borrowers.
The banks, however, say that their decision to issue NACA loans isn't related to the settlements.
Source: “Citigroup and Bank of America Offer Mortgages with Discounted Rates,” The Wall Street Journal (Sept. 16, 2014)
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