Novel Mortgage Plan Offered

The Hammond Co., a publicly owned Newport Beach mortgage banking company, said Wednesday that it now offers a fixed-rate, 30-year residential mortgage loan with lower monthly payments and a slightly lower effective annual rate than most other mortgage lenders are offering.

The catch is that Hammond, which is putting up to $200 million into the loan program, is charging an up-front fee of 6.5%, or $6,500 on a $100,000 loan --nearly three times the industry standard.

Hammond’s base rate on the loan is 11.875%, well below the 12.5% to 12.75% fixed-rate loans available from most lenders. But Hammond requires borrowers who want the lower monthly payments that its reduced-rate loan offers to pay the 6.5% fee, which boosts the effective annual rate of the loan to about 12.75%.

The standard loan origination fee is between 1.5% and 2%, which boosts the real annual rate on a 12.75% loan to between 13% and 13.25%.

Thomas Hammond, president of the Hammond Co., said Wednesday that the success of the program depends on borrowers’ willingness to trade higher initial costs for a lower monthly payment.

On a $100,000 loan, the new Hammond program requires a 10% down payment plus the 6.5% loan fee, for a total cash outlay of $16,500. A fixed-rate mortgage from a savings and loan would require about $12,000 in cash. The Hammond borrower, however, would have monthly payments that were about $100 lower.

The initial costs of the Hammond loan would be recouped in about four years and after that the borrower would save about $1,200 a year.