Home equity credit line lenders have been doing it for two years, and now the concept is migrating to the primary home purchase market: Super-streamlined loans that require applicants to pay none of the usual lender fees -- appraisals, credit reports, document preparation, tax service, underwriting or processing. Yet the mortgages carry interest rates identical to those the lender quotes on loans in the regular market that come with full fees.
Several large mortgage companies are preparing programs that radically streamline and simplify the entire mortgage process, but Bank of America appears to be the first out of the box with an actual prototype. The bank is launching what it calls its "Mortgage Rewards" loan this month. Aimed primarily at its 33 million existing customers, the program dispenses with most of the traditional lender charges paid for by home purchasers at closing. There is no application, appraisal, credit, flood zone determination, tax service or origination fee charged separately to the borrower.
The only charge the bank says it cannot waive, because of state laws and regulations, is title insurance. However, national title insurance companies participating in the program say they will be able to sharply cut their charges as a result of the bank's centralized, high-tech administration of Rewards.
Ernest Smith, head of Fidelity National Financial's title and mortgage services unit, estimated that title insurance savings to Rewards borrowers -- and competing programs expected from other large lenders -- could eventually exceed 40 percent.
Bank of America confirmed that its Rewards loans will carry the same interest rates as its regular market, non-streamlined offerings. For instance, said Eric Telljohann, program director, if the going rate for a 30-year loan at the bank is six percent plus all the standard closing and origination fees, the rate for a Rewards applicant would also be six percent -- but without the fees added on.
Bank of America estimates that on a 15-year fixed rate loan at 5.625 percent, the fee savings to the home buyer would range from about $2,000 on a $100,000 mortgage to $3,000 on a $300,000 loan, and $5,600 on a $700,000 loan. Some of the savings will be possible because the bank will be purchasing discount-priced "bundles" of services from wholesale providers such as First American Corp. and Fidelity National. Other savings will be available from sharply reduced marketing costs because the program will be targeted "in house," to existing customers with banking, checking, and mortgage accounts.
"We know these people already," said Telljohann. Only customers with satisfactory payment and credit histories are expected to be eligible. Nor will the bank use third-party originators -- mortgage brokers -- to produce the loan flow. It will all be done in house, mainly via the bank's network of 6,000-plus retail branches.
As add-on features, the Rewards program will also offer $200 credits to home buyers as a way to offset the title fees at settlement, plus an optional one-year, free "borrower protection" plan which will pay the mortgage principal and interest for up to six months in the event of job loss, or pay off the mortgage balance in case of accidental death. Though competitors in the banking field generally declined comment about their own plans for streamlined, no-fee home mortgage programs, one offered a compliment.
"I applaud Bank of America for making this effort" to simplify the home loan process, said Garth Graham of ABN-Amro Mortgage Corp., a unit of giant international ABN-Amro Bank, which already offers a "one-fee" loan that guarantees applicants a fixed amount of bundled closing and origination charges at settlement.
For more information on the Rewards program, call 1-800-900-9000.
