Mortgage companies are not used to producing home equity loans, but that will soon change if Residential Funding Corp. has its way.
The Minneapolis-based company, a leader in buying and securitizing high-balance first mortgages, has started to buy home equity lines.
The program, dubbed Goal Line, is aimed chiefly at mortgage companies. These players originate roughly half of all first mortgages, but their share of the second-mortgage business is closer to zero," Residential Funding says.
Mortgage companies have favored first mortgages because the secondary market for those loans is much more developed. But Residential Funding says its new program will offer mortgage bankers a ready outlet for equity lines.
Peter T. Paul, president of California-based Headlands Mortgage, hailed the new program as "a truly innovative way" for mortgage bankers to compete in the home equity market.
Under the plan, a company processing a first-mortgage application would sign up the borrower for a home equity line at the same time. That would vastly simplify the paperwork for the equity line.
"One-stop shopping is the operational mode here," said Mark Korrell, Residential Funding's chief executive.
After signing up a consumer, the mortgage company will sell the lines to Residential Funding, which in turn will funnel them on to investors. The first mortgages will be sold just as they always are - either to Residential Funding, another company, or one of the federally chartered secondary-market agencies.
Residential Funding is betting that the simplicity of the process will attract both mortgage bankers and homebuyers.
Residential Funding has made the process easy by creating the forms and specifying the underwriting criteria a borrower has to meet.
Consumers should warm to the convenience of applying for the line of credit without any extra paper work. They should also embrace the convenience of having money available as soon as they move in to their new homes.
But the product will never be available to everybody.
Mr. Korell said a home buyer's loan-to-value ratio cannot exceed 75% on the mortgage and home equity line combined. So, in order to qualify for a line of credit worth 10% of the home's value, the buyer must put make a 35% down payment.
A survey by the San Francisco-based Mortgage Information Corp. shows that only 16% of borrowers last year, including those refinancing, were able to do that.
But Mr. Korell said the business would be boosted because lines of credit will be offered both as a stand-alone product and as an add-on for people purchasing or refinancing homes.
Banks and thrifts without their own home equity line of credit products can also take part in Residential Funding's program.