The area's first conventional graduated-payment mortgage loan program has been instituted for customers of the Yeonas Co..
President John W. Guinee said arrangements have been made with the Flexible Loan Insurance Program of Newtown, Pa., to make FLIP-styled loans available at six Yeonas subdivisions of moderately priced houses in Northern Virginia.
Arrangements also have been made with Hamilton Mortgage and Investment Co. Inc. to fund the loans, Guinee said.
Simply, the FLIP mortgage enables the home buyer to have lower monthly payments in the first six years of ownership by reserving the normal down payment in a savings fund and then withdrawing amounts on a sliding scale to bridge the difference to what would be the usual monthly mortgage payment.
To compensate for the lower monthly payments, however, the home buyer has a larger mortgage. Allan smith, orginator of the FLIP plan, cited an example whereby the purchaser of a $40,000 house normally would place a $40,000 down payment and have a $36,000 mortgage under a convectional (non-government) plan with private mortgage insurance because the loan down payment is less than the usual 20 percent.
"The buyer's $40,000 'down payment' is not used as a down payment but as a reserve savings account to fund some of the monthly payments that increase each year (for rthe buyer) until the normal amount is being paid," Smith added. "By that time, the reserve savings fund, which draws interest along the line, is usually depleted and the payments from there on are made totally by the buyer."
Smith said the conventional FLIP mortgages often enable the buyer to qualify for a more expensive house because of the lower monthly payments. He said that some lenders prefer these loans to FHA graduated-mortgage payments, for instance, because the monthly payouts are stable throughout the life of the loan. In the case of an FHA graduated-payment loan, the lender gets a large-than-usual down payment but a smaller-than-usual monthly payment that increases during the early years of the loan.
Smith introduced the FLIP mortgage payment plan about two years ago and said he now acts as an "educational missionary." His firm gets a fee - which Guinee said is small - to set up a program with a builder and also a small payment per loan from the private mortgage insurer holding insurance on top 20 percent of the loan. Both Smith and Guinee said that the actual cost to the home buyer would be inconsequential, if anything.
Guinee said that the program widens "the market for our homes by making buyers eligible for higher-priced houses." He said the firm's average home selling price was $43,600 in 1973 but now is $75,200. He said the firm's profit margin has narrowed.
With the increasing popularity of the FHA graduated-payment mortgage it is likely that more conventional FLIP mortgages will be made in this area by other builders and possibly in individual home resales.
Smith said that the FLIP mortgates now are being made in 30 states.