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Androscoggin’s Wealth Building Home Loan

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).

androscoggin home loan chart

For a larger view click on the image.

 

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:

 

FHA

30 year*

 

Androscoggin

15 year

2-step**

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
        1 2 3 4 5 6+
45.00 660 4 mo. 100 $450 $755 $909 $1025 $1062 $1062
45.00 660 6 mo. 103 $450 $755 $909 $1025 $1062 $1062