REPORTING FOR DUTY
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Oct
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Fannie Mae Foundation Documents – Case Study Bank of America
October 3, 2008 | 3 Comments
Check out this passage from a document marked dated in 2000, titled “Case Study: Bank of America”. (Emphasis added):
Despite the relatively low price of many of these homes, LMI populations in Arizona, largely Hispanic,find it hard to muster even modest-sized assets for the down payment and closing costs (Schey 1997). One way Bank of America responded to this local challenge was to partner with the National Council of La Raza and Fannie Mae in the Home-to-Own pilot (BofA 1997). This program offered a 30-year, fixed-rate mortgage with a low 5-percent down payment requirement, of which only $1,000 (or 3 percent, whichever was less) had to come from the borrower’s own funds. The balance could come from a gift, grant, or second mortgage. Up-front cash reserves—which usually equal two months of housing payments and which are required under most loan programs—were waived under Home-to-Own, making the loan even more affordable for cash-restricted buyers.
In 1997, Bank of America Arizona initiated a new affordable mortgage program that would supplement the mortgage loan products then available from BAMG (Salgado 1997). With this new program, borrowers were able to take out a standard 80-percent mortgage loan from BAMG and then receive a 20-percent second mortgage from Bank of America Arizona, not the mortgage company (Tenenbaun 1997).
The second mortgage was intended to cover the remaining amount due on the purchase price—in other words, to create a 100-percent LTV loan. The borrower was expected to contribute approximately $1,000 to cover the closing costs associated with the loans.
The second mortgage would be repaid concurrently with the first, but the burden of the added monthly payment was reduced because no mortgage insurance was required. Moreover, the added payment went to increase the borrower’s equity in his or her new home. Once the second mortgage was paid off, the monthly payments decreased to just those required to retire the first mortgage.
Bank of America Arizona planned to sell the second mortgages on a nonrecourse basis, at par, to the Arizona MultiBank Community Development Corporation. MultiBank expects to season the second mortgages in portfolio until it has a large enough volume to package the mortgages and sell them to institutional investors, Fannie Mae, or Freddie Mac. This resale will then replenish MultiBank’s funds,thereby allowing it to purchase more second mortgages from Bank of America Arizona (Arizona MultiBank Community Development Corporation 1997a,1997b).
Wow. That’s a really good deal.
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[...] Read the rest of this great post here [...]
Unbelievable.
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