Points well taken,
$0-down, No-payment
sooner then later,
washingtonpost.com
Mortgages to Come With Equity Lines Attached
By Kenneth R. Harney
Saturday, July 27, 2002; Page H03
If you have a mortgage, do you really need any other source of credit?
Is there any source of spendable cash that carries a lower interest rate and is tax-deductible as well? Could your credit cards, personal loans, investment accounts and banking relationships all be tied into your home mortgage?
The answers to these questions are swirling in the heads of some of the most creative marketers in the American mortgage business. Large banks, mortgage companies and investors are working on competing versions of a similar concept. In the words of Saber Salam, vice president of mortgage investor Freddie Mac, the idea is: "How do we maximize the benefits and uses of a mortgage -- making it the centerpiece of a household's financial life?"
One of Freddie Mac's largest partners, Wells Fargo Home Mortgage, has been working on a loan concept called Single Source for more than a year. Wells executives decline to discuss the plan because it is still in development, but the idea would work something like this: When you obtained a mortgage, you would simultaneously be given a line of credit equal to the amount of your down payment. You wouldn't apply separately for it, you wouldn't ever have to use it. It would simply come with your basic loan, dormant until you activated it.
Once activated, the line could be used for any or all your credit needs, from car purchases to college tuition. Any balance you put on the credit line would carry a low, tax-deductible interest rate. Better yet, your credit limit would rise as your home appreciated in value.
Periodically, the mortgage company would notify you that based on property value data, your equity credit line had increased by a specific amount. You could charge expenses to your credit line up to that new limit. The limit would always be equivalent to your equity in the property -- giving you a combined mortgage amount plus credit line availability totaling 100 percent of the value of your home.
For example: You buy a $250,000 home and put down $25,000. You'd get a $225,000 first mortgage at 7 percent and a built-in credit line of $25,000, ready for activation. A year after closing, you would get a letter from the mortgage company: "Dear Borrower, based on our current market value estimates for your property, we are pleased to inform you that your credit limit has been raised to $30,000 from the original $25,000." You'd be free to ignore the credit line or to use it to the max. And thanks to federal tax law, the interest you would pay on the activated line would be tax-deductible, as long as the total mortgage debt on the house did not exceed the property's full market value.
Other financial institutions, including nationally known banks and mortgage companies, are working on this general idea but haven't confirmed it publicly. Some banks internally refer to it as their "current account" mortgage. Financial institutions in Britain already offer versions of the plan, and mortgage market experts say consumers here could see something similar within the year.
Still another concept American home buyers might see in the months ahead: a major move toward customizing loans aimed at new immigrants and minority renters. Spurred by President Bush's pledge to turn 5.5 million African American, Hispanic and immigrant households into homeowners during this decade, mortgage companies and banks are rolling out "cross-cultural" lending campaigns designed to accept nontraditional credit standards for mortgage approvals.
Freddie Mac offers a special two-part home loan tailored to meet the religious dictates of Islam for Muslim borrowers who are prohibited from paying interest. Freddie Mac and Fannie Mae both support national marketing efforts targeted to Spanish-speaking households. Washington Mutual Bank is preparing to introduce a no-down-payment "Community Advantage" loan aimed at first-time buyers with incomes 80 percent or less of their area median household incomes. According to Brenda Nettles, senior vice president of credit operations, the program will give immigrants and others with minimal banking histories full credit for paying rent, cell-phone bills, utility bills and retail account bills.
The program will aggressively "reach out to people who normally think they couldn't qualify" for a mortgage to buy a house, Nettles says. It will recognize nonstandard income sources -- part-time jobs, cash-payment jobs and employee assistance.
Wells Fargo is pushing its own zero-down plan for minority and immigrant consumers -- dubbed the National Home Ownership Mortgage. Though "not restricted in any way" to minorities, says Jackson Casey, senior vice president, "that is our target."
Unlike traditional underwriting, the new zero-down plan counts "secondary incomes received in cash" -- seasonal work income, child-care payments, cleaning service income -- to qualify applicants for a mortgage. |
