Bank of America Goes Around the FHA
Bank of America Corp. has announced a new-mortgage product that with as little as 3% down and no requirement to carry private mortgage insurance.
This loan would be a direct competitor to the Federal Housing Agency’s mortgages that offer low down payment and insurance provided by the FHA. The FHA in turn requires lenders to certify the loan packet is accurate.
IN the aftermath of the foreclosure crisis, the FHA successfully went after Bank of America and other big banks based on irregularities in the loan packets of FHA insured loans. FHA settlements were in the hundreds of millions of dollars. Cases against other banks are pending.
Bank of America appears to have learned its lesson and wants to compete with the FHA instead of working with the agency.
This mortgage product may be less expensive for a number of reasons including the fact that homeowners do not have to mortgage insurance which can totals hundreds of dollars per month depending on the loan amount. Investopedia writes that private mortgage insurance typically costs between 0.5% to 1% of the entire loan amount on an annual basis. Therefore, a $150,000.00 loan could cost as much as $1,500.00 per year. The equivalent of one month’s mortgage payment.
Eliminating that cost would be a great boon for low income individuals for whom $1,000.00 is a great deal of money.
It iwll be interesting to see what happens with other banks. Bank of America could spear heard a new niche that increases mortgage options for the less fortunate.