Merrill Lynch Credit Corp. is doing a brisk business in 100% mortgages secured by brokerage accounts, according to a top company official.
"The Mortgage 100 program is accounting for 5% to 10% of our overall volume," said Robert J. Smith, senior vice president of the Jacksonville, Fla., subsidiary of Merrill Lynch & Co.
With the company headed toward total originations of more than $1.5 billion this year, the product is apparently a success.
Relatively Simple Program
The program, rolled out earlier this year, is relatively simple and plays to some simple strengths.
Consumers are allowed to take out mortgages for 100% of the assessed value in the case of refinancings or the lesser of the assessed value or the purchase price in the case of purchases.
To qualify for such a high loan-to-value mortgage, the borrower must open a brokerage account with Merrill with an initial value of at least 39% of the loan.
Borrowers can still make most kinds of transactions, but must keep the value to at least 30% of the mortgage.
Attracting the Wealthy
Why are wealthy homeowners attracted to such a program?
Many have seen the equity in their homes erode as prices have declined, according to Charles Humm, a senior vice president at Merrill Lynch Credit.
These homeowners are effectively trapped in mortgages that often have high coupons. To take advantage of lower rates, they would have to sell securities to raise cash.
Using the Merrill program. they can get a new loan at market rates without "interfering with their investment program," said Mr. Humm.
Others want to maximize the tax benefit of homeownership, according to Mr. Smith.
"Home loans are the last of the great American deductions," said Mr. Smith.
Merrill Lynch offers the loans in sizes of $100,000 to $2 million. Adjustable-rate mortgages are available for loans of all sizes, while consumers seeking mortgages of more than $203.185 have the option of a 15-year or 30-year fixed mortgage.
Pricing is in line with Merrill's other mortgage products. The company is offering a 30-year fixed-rate loan at 7.375% with one point, along with a six-month reduction of 50 basis points as a sales incentive.
Merrill Lynch is securitizing the mortgages and is using a variety of forms of credit enhancement
"For the most part, we use the senior-subordinated structure, but also some surety bonds and other structures," said Mr. Smith.
Merrill Lynch is holding the subordinated or B pieces.