The mortgage pipeline could swell by an additional 50,000 loans under a new program that cuts closing costs by eliminating the need for a year's mortgage insurance premium, one lending expert predicts.
The new program being robed out by G.E. Capital Mortgage Insurance Corp. claims to reduce closing costs 9% to 22% while increasing the cost of a monthly mortgage payment by about $3 a month. For example, it said, a borrower who makes a 5% down payment on a $100.000 home usually would have to pay $570 in mortgage insurance premium at closing but only need pay $51 under the G.E. system.
It's available now in Illinois and California and will come on line elsewhere during the next four weeks as state insurance departments authorize the program, a G.E. official said.
The heavily promoted program represents one of the bigger steps forward lately in what seems like an inexhaustable campaign toward a cheaper, deeper and more efficient market. Another innovation will become better known late this week when National Cooperative Bank announces the securitization of a special series of loans to low- and moderate-income people.
G.E.'s program probably won't need much time to become a standard. Freddie Mac pledge to support the product, and Countrywide Funding Corp. endorsed the system. It also helped develop the plan.
"The biggest obstacle to [home buying now] is the upfront cost," said Ralph Mozilo, Countrywide's executive vice president for underwriting and compliance, at G.E.'s June 23 news conference. "I would estimate that a good 50,000 households a year would be able to buy houses that couldn't before.
"From a lender's perspective, we're getting an opportunity to make more loans," Mozilo continued.
According to Ray Webber, who developed the monthly payment plan, mortgage insurance companies have had the technology to create this system for the past half-dozen years but haven't been able to do so because, automated monthly processing of mortgage insurance premiums is relatively new.
That automation is crucial, because it gives G.E. the ability to analyze how the borrower is doing and adjust for any risk to the mortgage insurance. In fact, monthly rather than annual checkups make it possible for G.E. to intervene more quickly and work out solutions to a borrower's payment problems, G.E. officials said.