Five mortgage lenders have announced that they will begin marketing a new type of loan that combines a traditional mortgage with a fixed-rate annuity.
The lenders, which include heavy hitters like Keycorp and Directors Mortgage Loan Corp., are offering the "asset-integrated mortgages" in a program with the Federal National Mortgage Association.
Fannie Mae - formally the Federal National Mortgage Association - said it would buy the loans from the lenders on a negotiated basis.
The arrangement signals heightened interest by the agency and provides the lenders with a secure outlet for the loans.
With the new product, a portion of the down payment funds an annuity-that builds in value as the mortgage is paid down. Ultimately, the annuity pays the borrower a lump sum or a series of monthly payments.
By choosing the loans, "consumers in effect are able to put their down payments to work for them," said Frank Demaris, vice president of product development at Fannie Mae.
The mortgages are conforming or jumbo loans at fixed or adjustable rates that are bound with an investment - in this case an annuity.
The annuity allows the borrower to accrue equity outside that of the home's value and, depending on the investment size, consumers could build equity up to the amount of the original loan.
"Consumers no longer have to depend solely on appreciation of their property to build equity," said Van P. Carter, president of Financial Integration Inc., Cleveland. "Instead, their down payment is invested into the annuity that can provide tax-deferred, compound interest."
According to the terms, borrowers must put down a minimum cash down payment of 5% and as little as 10% more to purchase the annuity.
If the amount of the annuity and the down payment equals 20%, then the investment can be used in lieu of mortgage insurance.
Cleveland-based Keycorp was the first major lender to offer the proprietary asset-integrated mortgages developed by Financial Integration, which markets the loans to mortgage lenders. Keycorp will offer the mortgages in northeastern Ohio before marketing them nationwide.
BancPlus Mortgage Corp., Hamilton Financial Corp., and Inland Mortgage Corp. have come on board as well, expanding the marketing reach of the program to more than 50 cities.
Thomas A. Wolfe, a senior vice president at Society Mortgage Co., a Keycorp subsidiary, expects that within a few years, 10% to I5% of Keycorp's borrowers will choose the package over traditional mortgages.
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