Marketer combines home loan with annuity.

Buying a home as an investment takes on a new twist with the development of something called an asset-integrated mortgage.

It is a traditional mortgage loan coupled with an annuity.

Borrowers initially pay both a down payment on the house and an additional amount that is put into the annuity. The investment can be drawn upon in a time of need and acts as a buffer against sliding property values.

The loan packages are being marketed to lenders by Financial Integration, a Cleveland-based financial products developer, which couples conforming and jumbo loans with the annuities. The annuities are tax-deferred and at fixed rates.

New Products Sought

With loan volume sagging, lenders have been seeking additional products to stimulate originations. Financial Integration says it has signed up a number of large mortgage companies and has several others about to come aboard, but it would not disclose their identities.

A number of other companies also offer or are considering loans combined with an asset feature. Financial Integration said other types of investments could also be used instead of an annuity, but it has no plans to offer alternatives.

The company uses insurance products rated triple-A to guarantee a return of principal. It is working with several insurance companies, including American International Group, New York, and American General Corp., Houston, to provide the annuities. The conforming loans can be sold on a negotiated basis to the Federal National Mortgage Association.

"It looks, acts, and trades like any other mortgage," according to Van Carter, president of Financial Integration.

The company is set to sign an agreement with Fannie Mae to make available standardized forms for lenders dealing in asset-integrated mortgage loans.

Financial Integration is marketing the loans in Maryland and is introducing the product in Ohio this month. It will unveil its program in 20 additional states, including California, Colorado, and those on the East Coast, by the end of July.

The company says the mortgages help lenders because they can approve a larger loan at the same level of collateralization. And they help borrowers, who can tap into the guaranteed interest income of the annuity to make mortgage payments in an emergency.

The loans have some drawbacks, Mr. Carter explained. "You are paying a higher monthly payment so the borrower has to be willing and qualified to pay," he said.

Mr. Carter advises his lenders to make certain that borrowers understand that the loans are a long-term investment and that the underlying instrument is not insured by the Federal Deposit Insurance Corp.

Because the loans carry an investment component, loan officers need to be aware of what the risks and benefits are to the borrower.

Some heavy hitters are getting ready to come on board with asset-integrated mortgage loans, according to Mr. Carter.

"The institutions we're working with originated $50 billion of home mortgages last year," Mr. Carter said.

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