A California lender is taking high-loan-to-value mortgage products in a new direction with a loan that travels with borrowers when they move.
This new hermit-crab-style debt instrument, dubbed the Portable 2nd by lender Stuart-Wright Mortgage Inc., allows borrowers to move without paying off the loan-even if they've borrowed up to 135% of the old home's value. Once their in the new home, the second mortgage balance is transferred-for a 2-point fee.
The loan's portability will reduce its risk, said Bruce Rodriguez, chief executive, who calls Portable 2nd the "next generation of the non-equity mortgage."
Homeowners will no longer feel trapped in a home because of their debt, making it less likely that they will simply walk away, he said.
High-LTV loans, which allow homeowners to borrow above their equity, have been a rapidly growing business. Consumers often use the cash they take out to consolidate credit card debt or pay off other bills.
New products like the Portable 2nd are a sign that the market is getting more competitive, said Jeffrey Evanson, analyst for Piper Jaffray, Minneapolis. High-LTV "lenders are going to seek more unique products to differentiate themselves."
LaPalma, Calif.-based Stuart-Wright is also allowing a combined loan balance of $750,000. Previously, combined balances have been limited to $500,000. Borrowers can take up to $150,000 in cash out, and loan approval takes only 10 to 15 days.
Since Stuart-Wright introduced the product in June, its broker and correspondent network has expressed a "lot of interest," Mr. Rodriguez said. "Two days ago we got in 131 of these loans."
The company will be securitizing the loans on the secondary market, using Paine Webber as underwriter.
Analysts have debated the riskiness of high-LTV loans since the products joined the mainstream about a year ago. Some, like Oppenheimer's Steven Eisman, have argued that credit scoring is not enough to reliably judge a loan's performance. To him, the latest product is a sign that the market is "starting to get a little crazy."
Mr. Rodriguez said that Stuart-Wright's borrowers on average have a high Fair, Isaac & Co. credit score of 700.
Stuart-Wright is "doing nothing more than American Express does when they give someone a platinum card," Mr. Rodriguez said.
Analysts have made much of a rivalry between Stuart-Wright and another firm headed by Mr. Rodriguez' son.
Todd Rodriguez, 29, is chief executive of fast-growing Preferred Mortgage, Irvine, Calif., which has been operating under a cloud: The California Department of Corporations is trying to revoke the company's license, saying it defrauded borrowers.
Analysts point out that Preferred Mortgage is staffed with former employees of Stuart-Wright. But the senior Mr. Rodriguez laughed at the idea of a rivalry.
"He runs his business, I run mine," he said. "In some instances he kind of outgrew himself-but that's not unusual with that kind of rapid growth. He's accomplished an amazing feat."