Mortgage Lenders Getting Creative as Rates Edge Upward : Real estate: New programs lure borrowers with small down payments, fee discounts and other enticements.
With interest rates moving higher and the refinancing boom subsiding, many home lenders in Southern California are launching new mortgage programs that they hope will drum up business and lure customers in time for the spring home-buying season.
The new programs offer everything from small down payments to discounts on loan fees and are aimed at home buyers rather those who simply want to refinance existing mortgages. Some are also designed to aid homeowners hurt by falling property values.
Rates on fixed, 30-year mortgages have jumped to 7.44% from 7.25% a week ago and are now more than half a point above the 25-year low reached last fall, according to HSH Associates, a mortgage research firm in New Jersey.
“The refinancing wave seems to be over, so lenders are getting more aggressive and offering more deals to keep business coming in,” said Earl Peattie, president of Mortgage News Co., a Santa Ana-based research firm that tracks lending rates.
Although the new loans come with strings attached, analysts say they are also bringing relief to cash-strapped buyers who have been hurt by rising rates.
Irwindale-based Home Savings of America fired the latest salvo in the home loan wars Friday when it said it would begin a new program offering borrowers down payments as low as 5%.
Although some other lenders offer similar programs, Home Savings added two new wrinkles: The down payment can be a gift from the borrower’s parents or other immediate family members, and up to $300,000 can be borrowed under the program.
Most other low-down-payment plans require borrowers to put at least a few thousand dollars of their own money into the transaction. They also normally limit the loan amount to about $200,000.
Home Savings spokeswoman Samantha Davies said the new plan should attract first-time buyers who have a good income but need their parents’ help to come up with the down payment. Since the thrift will loan up to $300,000, it can even be used in high-priced communities such as West Los Angeles, Davies noted.
The program may also appeal to current homeowners who would like to buy a more expensive house but cannot because the long decline in property values has wiped out much or all of their equity.
With their equity eroded, the money they would get from selling their home would have to be used mainly to pay off the existing loan--leaving them without enough cash to buy a new house.
“There are other low-down-payment loans out there, but they’ve got so many restrictions that they eliminate an awful lot of buyers,” Davies said. “We’re going after the good, credit-worthy buyers who just need help in raising a down payment.”
Home Savings made its announcement a few days after Calabasas-based ARCS Mortgage said it would begin offering what amounts to no-money-down financing for the 850,000 members of the California Public Employees Retirement System.
Under the program, CalPERS members can borrow their down payment from the pension fund, then get a loan from ARCS to cover the rest of the purchase price. “It’s another way to get around the down payment hurdle,” said Howard Levine, the mortgage bank’s president.
With rates rising, Pasadena-based Countrywide Funding Corp. has been heavily promoting its “Lock ‘N Shop” program that allows home buyers to lock in their interest rates before they even decide on homes.
The rate is guaranteed for 30 days: If rates go down while the borrower is still house hunting, he gets the lower rate. “Your rate can go down, but it can’t go up,” said Greg Lumsden, Countrywide’s executive vice president.
Of course, all three programs have their drawbacks.
Home Savings will make only adjustable-rate mortgages under its new program, while ARCS’ new program is open only to CalPERS members. Countrywide’s 30-day rate lock puts pressure on shoppers who might like more time to choose a new home.
While other lenders are also offering various enticements, some are not advertising them to the general public.
Nick Layana, a mortgage broker and president of N.J. Layana Mortgage in Fullerton, said two of the lenders he represents recently notified him that they are willing to trim hundreds of dollars off the fees usually charged to borrowers to generate new business.
But the lenders are not advertising the discount, Layana said. Instead, they are giving brokers a choice of keeping the money to fatten their profits or passing the discount on to clients.
“I’m passing the savings on to my borrowers, but I’m not sure everyone else is,” Layana said.
Layana said buyers should keep the disclosure statement they receive when they first apply for a loan and then compare it to the paperwork they get when the loan is actually funded. “If the closing papers show that the broker got paid more than the disclosure statement said he would,” Layana said, “ask him to give the excess back to you.”
Rising Rates
Following a long period of decline, rates on 30-year, fixed-rate mortgages have begun to climb.
National weekly average:
Feb. 25: 7.315%
Source: Federal Home Loan Mortgage Corp.
