Houston, We Have a No-Fee Mortgage

One of the biggest players in home mortgage finance has announced a no fee first mortgage product. The implications for credit unions are momentous.

 
 

Get ready for a revolution in the first mortgage business. Bank of America Corp. introduces its No-Fee Mortgage, a product that will fundamentally alter the rules of the first mortgage playing field.

The No Fee Mortgage Plus is a step on Bank of America’s path to becoming a portfolio lender. Positioned as a cross-sales opportunity, it is only available to B of A customers (today), including those with deposit or credit card accounts. Below is a description of the product:

  • No fees - No application, appraisal, loan origination, title, flood determination or other customary fees
  • No Private Mortgage Insurance – No longer required to pay the typical insurance if customers put down less than 20%
  • “Close-on-Time Service Guarantee” – If B of A does not close the loan within 25 days, it will pay the customer’s first month’s mortgage payment, including principal and interest
  • Best Value Guarantee” – If customers can find a better deal, B of A will pay them $250

Offered on a full array of mortgage products including fixed rate, ARM and interest-only, the No Fee Mortgage Plus is one of its “disruptive strategies” to re-invigorate mortgage lending business.

What does this mean for credit unions?
The no-fee mortgage has three implications for credit unions:

  1. Cooperation is more urgent than ever before. If you are not involved with one of the 50+ mortgage lending CUSOs, consider your options now. Without the economies of scale and cost advantages that these CUSOs provide, it will be very difficult to compete under this new model. You may start by checking out Prime Alliance’s article this week on the five-step sniff test for evaluating vendor partners.

  2. Re-assess pricing and fee strategies. The other large participants in the mortgage market including Countrywide, Wells, Wamu, Citi, and Chase will surely adjust their pricing strategies. Evaluate your products and be ready for changes to remain competitive.

  3. Focus more on the HELOC market. If your credit union is unable to compete in this fundamentally altered first mortgage lending environment, reach members through the HELOC opportunity.
 

 

 

May 14, 2007


Comments

 
 
 
  • Let''s not encourage credit unions to focus more on the HELOC market if they feel they can''t compete. Certain credit unions might be intimidated by this information and not even research alternatives. We need to continually encourage credit unions to find ways in which they can compete against programs like this through excellent resources like this.
    Anonymous
     
     
     
  • Mr. Varney makes some good points, however since BofA is offering a $250 Best Price Guarantee to customers who find a better deal elsewhere, seems it would be in the CU members'' best interest to go check out the BofA deal first. Then they would get lowest plus $250 if the CU is indeed able to offer a lower rate.
    Anonymous
     
     
     
  • Keep in mind that the rate for these loans will be higher than the par rate. More than likely, the premium pricing they get for the higher rate will be used to cover the expenses related to the transaction. We can all do the same thing if we have the ability to price using the secondary market. CUSO''s should be well positioned to combat this marketing strategy by leveraging its collaberative strength to the market to get the same kind of gains in pricing and passing those back to the member. We checked pricing the day the first article came out on this new program from BofA and they were about 40 bps higher in rate than what our CU''s offer. That equates to about 90 bps in price, more than enough to cover the expense of the loan for the member, but is the higher rate really worth it for the member? That is for each CU or CUSO to figure out for each member.
    Keith Varney
     
     
     
  • My credit union has offered a very similar program to bofa for about a year now-little interest from members /there are always hidden costs and charges that are NOT typical but still assessed-we need more details on this- I suspect the rate upcharge by bofa may be so high that the customer would be better served to pay itemized costs
    Rick Hirtzel
     
     
     
  • The banks have spent a lifetime on how to increase fees and now they are making a big splash that they are reducing fees. Well, guess what! They can package anyway they want to. They are not going to lose money and they will figure a way to collect from their customers - Pre-payment penalties included.
    Anonymous
     
     
     
  • Let''s not forget that bofa has imposed a pre-payment penalty to further cover the closing costs. That in my opinion, is only a way to increase their profit margin. It''s a win win for bofa with rate markup and the imposed pre-pay. Not very advantageous for the consumer though.
    Anonymous
     
     
     
  • We all know there is NO FREE LUNCH in life. Thanks to Keith for taking a quick look at this. I think everyone should realize that the 25 day turnaround is something each one of us can do. If you read all the exceptions on this you realize that there will not be many service guarantee fees paid. We are currently offering NO PMI with 10% down. Due to the recent SUB PRIME failures I would be surprised that BOA would be doing 100% financing without something being in place.. Just let me know when I can start offering loans for land on the moon. I can''t imagine the appraisal fee on that one! CHECK IT OUT FOR YOURSELF: http://nofeemortgageplus.bankofamerica.com/
    Mark T Pease
     
     
     
  • I agree with Ms. Royston that this new BoA initiative is a direct threat to business as usual in the mortgage industry. BoA has deep pockets and can afford to have these loans be a loss leader to build market share & provide cross sell opportunities for their other banking products. At some point however they will have to bring pricing back to market. In the mean time credit unions need to get focused on products for middle & low income segments of the market such as Fannie Mae''s My Community Loan, the Fannie Mae 103% credit union only pilot program, Expanded Approval products, the CU HELPER loan, (Freddie Mac has similar products as well) etc. Considering we only have 2% of the market there is plenty out there that BoA will not serve with their new product. We need to tout our strengths - Credit Union closing cost are still the lowest by market segment; sign up with PA Real Estate Services and save your members thousands; provide member education; retained servicing, package products with the mortgage to provide relationship account savings, etc. If we stay focused on what we can control we will be fine and still grow our market share in the very competitive mortgage marketplace. As a closing point I do find Ms. Royston''s suggestion that we focus on HELOC''s thus implying that we give up on first mortgage lending is defeatist and absurd!
    Victor Petroni
     
     
     
  • Despite the fact that WE know better, the consumer or member often times doesn''t. It''s incumbent upon us to educate members on the pitfalls of a ''free lunch'' - as Mr. Pease states - and explain the advantages of using the credit union to finance their homes. And we need to do so by whatever means necessary - blogs, podcasts on CU websites, homebuyer seminars, local media, etc.
    Brian Foltz
     
     
     
  • Great discussion!
    Angela Nava
     
     
     
  • Figuring out all the hidden fees and restrictions is not easy, but overall, BOA is offering a pretty good deal. Don''t be afraid to compete - we started offering a very similar product in 2002 and they have just raised the bar slightly. If you are willing to portfolio your mortgages you can and should stay in the game. Offer your members the option and get good at explaining the upside and downside and you should do well.
    Mike Sisk
     
     
     
  • I priced the BoA no fee mortgage plus with all the other offers from at least 10-12 other brokers and companies. The BoA outperforms every other offer - even with its higher interest rate. This is primarily coz much of the interest payments happen at a much later date while the closing costs happen upfront and so there is a cost associated with the foregone funds that could have been reinvested elsewhere. The biggest advantage of BoA is the No PMI (Big scam going out there) and they dont even ask you to take a second mortgage. So its one loan and at least no PMI and only 5% down. I can easily afford to pay 20% down but I''m still going to pay only 5% down and paying the additional interest which is tax deductible (of course I''m in a higher tax bracket. Home buyers should always include the tax benefits of the additional interest payments). So even if the BoA rate is higher by 40 basis points, it is effectively higher by only 27 basis points for me. plus they take place at future dates while closing costs cost you from day 1. Everytime I ask a mortgage broker to match the BoA offer, they start chickening out and start to panic, making excuses "Oh the rates are every high today, BoA must have told you this 1 week back. That''s just a good faith estimate - they cant lock you like we can .Oh your interest payments will be higher". All crap. dont fall for it. Best value in the market is the BoA no fee mortgage plus
    Harvey