One of the most popular offerings in the home equity lending market is about to become available in the primary home loan arena: mortgages that carry no lender fees, no appraisal charges, no credit report, loan origination, tax service, processing, document preparation, courier or any of the other mind-numbing list of add-ons that home buyers get hit with when they close on loans.
Big banks have been selling home equity credit lines this way with booming success. Now some of them are asking: Why not provide the same simplicity to home buyers? Why not make things as easy for people shopping for a first mortgage as we make it for them when they take out an equity line or second mortgage? Every consumer research study says that's what shoppers really want -- quick, simplified home loans with no junk fees.
Starting this month, Bank of America is offering what it calls its "Mortgage Rewards" plan, which essentially brings its streamlined, zero-cost equity line program to people shopping for primary mortgages to buy homes. Initially it will available in 20 states, including Maryland and Virginia, and the District of Columbia. Mortgage industry sources say other large, well-known banks are developing their own versions, so it is worthwhile to look at Bank of America's prototype.
The key to the plan, say the bank's top mortgage officials, is that it has very few moving parts for consumers to puzzle over. The note rate you are quoted as a shopper incorporates every traditional loan origination and settlement fee, except one. Stripped to its essentials, it is a "zero-cost" mortgage -- all fees are rolled into the rate -- except that the buyer must pay title insurance charges, which can vary widely from state to state, and are disclosed at application.
The bank not only will quote applicants the rate and annual percentage rate (APR) mandated by federal truth-in-lending rules, but also plans to urge shoppers to take its quotes and compare them with competitors' loan rates that come with traditional closing cost estimates.
"We think we will come out very well on a head-to-head, APR-to-APR comparison basis," said Bank of America mortgage executive Eric Telljohann, who directs the new program.
Unlike existing competitors in the streamlined home loan market, such as giant ABN-AMRO Mortgage Corp. and General Motors subsidiary Ditech.com, Bank of America's program doesn't quote a fixed-fee "package" of costs along with the interest rate. There is no package as such because all the fees are paid in advance by the lender and incorporated in the rate quote and APR disclosure. The only add-on is the title policy.
Telljohann said the company tried to find a way to fold title insurance charges into the rate, but that insurance regulations in some states made that impossible. To partially offset the title insurance expense, the program provides a $200 credit for closing, and offers lower-fee title insurance through negotiated arrangements with national title insurance carriers.
The head of Fidelity National Financial's title and mortgage services division, Ernest D. Smith, confirmed that his company is aiming for eventual title savings to consumers of 40 percent or more through participation in streamlined, high-volume programs such as Bank of America's.
Telljohann said the cost-cutting effort touches every item in the new loan program, so applicants can expect to save from $2,000 on a 15-year $100,000 mortgage to $3,986 on a $400,000 loan. Some of the savings will be generated by discount bundling deals that Bank of America has negotiated with credit, appraisal and other vendors, Telljohann said.
Other savings will come because the program is targeted at the 33 million consumers who have checking, savings, credit card or other financial relationships with Bank of America. "We already know these people," Telljohann said. That allows the bank to save money in marketing, underwriting, credit risk evaluation and other traditionally costly upfront activities.
Though competitors haven't yet seen the program details, at least one of them welcomed the new entry to the market.
"I applaud Bank of America for making this effort" toward simplifying the loan process, said Garth Graham, ABN-AMRO senior vice president, who supervises his firm's "one fee" guaranteed-cost program.
Kenneth R. Harney's e-mail address isKenHarney@earthlink.net.
