Androscoggin Bank of Lewiston, ME introduced the first market rate program Wealth Building Home Loan with a soft launch back in November (called the Wealth Builder Home Loan). The response has been enthusiastic—5 closed loans and a total pipeline (including closed loans) of $3.3 million in the dead of winter—impressive results for a $700 million asset bank. The bank had its formal launch on February 4 (see attached PowerPoint for more detail). The bank added an innovative feature–a 15 year 2-step loan with the bought down rate fixed for 7 years and then stepping up to a pre-set rate for the remaining term (described in detail below).
Also see https://www.androscogginbank.com/Personal/Loans/Mortgage/Wealth-Builder. The February 4 event was attended by about 40 realtors and the bank described the response as “unprecedented” —92% and 8% of attendees said they would be either be “very likely” or “likely” to recommend to their clients (see realtor survey results attached).
The bank also offers a 103% LTV 15 year loan that minimizes the cash needed at closing, while still greatly reducing default risk (see worksheet below).
The chart below compares an FHA loan (96.5% loan + upfront fee, with 0.80% annual MIP) to Androscoggin Bank’s 100% LTV and two-step 15-year loan (no MI). Home price of $100,000 used for simplicity:
|Rate/P&I (inc. MIP for FHA) on $100,000||4%/$535||1.75%/$632|
|Pre-tax annual income/buying power vs. FHA||$27,374/100%||$29,449/93%|
|Net equity after 7 years (10% selling expenses, 2% annual appreciation)||$18,828||$46,798|
|90% LTV reached in month?||54||21|
|80% LTV reached in month?||108||40|
|Payment shock (year 8)||NA||13.3% (1.9% per yr.)|
*96.5% LTV + upfront fee, with 0.80% annual MIP. No use of residual income, based on 28% housing debt-to-income
**100% LTV plus 3 buydown points. Rate fixed for years 1-7, steps to 5% for years 8-15. Use of residual income allows for 2% higher housing debt-to-income (30%).
In this next chart, you will see that the bank has a 100% or 103% LTV, max. 45% DTI, min. 4-6 months reserves, min. 660 FICO, and uses the residual income approach (the residual income #s are the same as used by the VA). This makes for a compelling loan offering, yet results in a much lower risk loan than with FHA.
|DTI||FICO||Reserves||LTV||Residual income $ and household size|