Lenders Increasing Loan Variety to Home Buyers : Mortgage Bankers Assn. Discusses Instruments with Lower Yields Marketed for Investors Overseas

Mortgage lenders are increasing the variety of loans they are offering home buyers, structuring some to be attractive to foreign investors who may be satisfied with lower yields than domestic investors, according to speakers at a Mortgage Bankers Assn. (MBA) conference here.

“LIBOR is the newest kid on the block,” said E.S. (Sam) Lyons, senior vice president in charge of the mortgage department at Great Western Bank, Chatsworth. “Wall Street feels it would open up the investor base to include foreign investors.”

Mortgages tied to LIBOR (London Inter Bank Offered Rate on U.S. dollars) would allow the mortgage industry to take advantage of the worldwide popularity of this index among non-traditional investors, making possible lower start rates and lower caps, said William Halapin, vice president of Shearson Lehman Hutton Inc., New York, at the MBA’s National Secondary Market Conference.

Marketing Question

More lenders also are providing larger loan amounts for the so-called jumbo loans.

Whether some of the new loan products, such as adjustable-rate mortgages tied to the consumer price index or to LIBOR, and fixed-rate mortgages that can be adjusted to lower market rates during a “window” period, can be marketed to both consumers and investors, was questioned by industry leaders at the MBA’s second largest annual event.

Robert J. Levin, Fannie Mae senior vice president in charge of mortgage-backed securities, said there’s a “tremendous amount of interest” in LIBOR-indexed ARMs, but that unless they are offered and accepted in volume they can’t be priced competitively.

Meanwhile, Fannie Mae, a major force in the mortgage industry because of its loan purchases, will be watching market reaction to a LIBOR ARM introduced by Shearson, he said.

ARMs indexed to the cost-of-funds for savings institutions in the Federal Home Loan Bank of San Francisco’s 11th District, which serves California, Arizona and Nevada, have become the most common index in California and are spreading nationwide, reported Lyons of Great Western Bank.

Overseas Investors

He predicted that these loans could even be sold to investors in Japan, Australia and New Zealand, making the rate charged to consumers more competitive

Cost-of-funds-indexed ARMs are subject to less volatility than Treasury-indexed ARMs, a loan product common outside of California, said Dennis G. Campbell, senior vice president in charge of marketing and production management at Fannie Mae. Cost-of-funds ARMs thus offer some stability to consumers.

Biweekly mortgages still have not won wide acceptance from consumers or lenders. Only one of the 25 largest mortgage bankers offers them, according to a survey by the MBA.

Biweeklies Still Weak

MBA President John M. Teutsch Jr., who also is president of CompuFund/Network Funding Corp., Seattle, said biweeklies are mostly offered by thrifts and banks because of the use of debit accounts to collect payments.

Campbell said interest in biweeklies has existed mostly in the Northeast and Upper Midwest.

Mortgage originations, which reached $425 billion last year, down from 1986’s $460 billion, are expected to reach only $330 billion this year, Teutsch reported. As a result, mortgage banking firms are overstaffed and thus should be able to provide better services.

“We certainly have the capacity to be very good, very fast and very competitive at what we do,” he said.