Bank of America and GE Capital Mortgage Insurance Corp. have one-upped the government's FHA program with a first-ever no-down-payment mortgage program targeting low-income borrowers.
The bank has put up $500 million to make home loans to low-income borrowers or buyers in low-income neighborhoods.
"There is a segment of our customers that we didn't serve as well as we wanted to," said Stephanie Smith, national manager of commercial lending at BankAmerica Mortgage. "They don't have cash to close but have good credit history."
GE Capital will provide mortgage insurance, and this would be the first time a private mortgage insurer has guaranteed zero-down-payment loans, a GE Capital spokesman said.
The Department of Housing and Urban Development's FHA program does not have a no-down-payment plan.
BankAmerica's Neighborhood Advantage Zero Down home loan is designed to help potential homebuyers with excellent credit history but little available cash, the bank said.
The new program requires significantly less out-of-pocket cash to complete a home purchase than is required with a 3%-down mortgage or a Federal Housing Authority loan, the bank said.
For example, a borrower buying a $100,000 home would need only $2,028 to close the loan, versus $4,996 for an FHA loan or $5,219 for a standard 3%- down loan.
In addition, the product doesn't pose any more risk to the insurer than other mortgages, the GE Capital spokesman said.
Bank of America will pledge 3% of the home's price in order to satisfy state insurance regulations that prohibit GE Capital from insuring loans for more than 97% of a home's value.
GE Capital used information from its OmniScore data base to evaluate the riskiness of low-income borrowers.
"There's no correlation between low income and credit quality," the GE spokesman said, "and good credit goes a long way."
To apply, a borrower must have annual income of 80% or less than the median income for the area where the home is located or must buy a home in a low-income census tract.
"HUD welcomes any initiatives that will help get people into homeownership," said a Department of Housing and Urban Development spokesman. But he said the program won't replace the work that the FHA does.
Last year, the agency insured $67 billion of loans to low-income borrowers, most through its 3%-down program.
