Norwest Mortgage is expanding its nonconventional mortgage product menu, adding prepayment-penalty mortgages and a home equity line of credit for correspondents.
The new offerings are aimed at customers who either don't qualify for conventional loans or are seeking an alternative.
"We would have to broker out loans or send customers elsewhere," said David Bialzak, vice president of structured finance at Norwest Mortgage, a Des Moines-based unit of Norwest Corp. "Now we have the capability to offer our own products."
Prepayment mortgages offer discounts on points, closing costs, and other charges, but lenders impose a fee on borrowers who pay off the balance before a specified time. The loans often are targeted to first-time homebuyers who have decent credit but lack the cash for a down payment on a traditional mortgage.
Until now, Countrywide Credit Industries, the industry's biggest wholesaler, was the largest offerer of prepayment loans. With the entry of Norwest, the top retailer, the loans may become more mainstream, industry analysts said.
Norwest will begin offering the prepayment mortgage in July through its subprime lending unit, Directors Acceptance.
Western thrifts pioneered the mortgages in the early 1990s, partly because California law clearly allows the penalty structure. Some states either ban or limit the penalties.
Prepayment-penalty mortgages are not for every lender. There is a limited secondary market for these loans, so lenders have to keep them in portfolio and hold capital against them.
The advantage is that the customer will continue to make payments longer, making it easier for the bank to recoup origination costs, analysts said.
Also, this summer Norwest Mortgage will launch home equity lines of credit through its correspondent and wholesale lenders, Mr. Bialzak said.
Home equity loans allow borrowers to tap the value in their homes. A growing number of mortgage lenders are adding the products, which range from reverse mortgages-geared to elderly borrowers-to debt-consolidation loans backed by the borrowers' stake in their homes. Norwest's offering is a home equity-backed credit line, available to correspondent and wholesale clients.