New flat-fee mortgage from BofA

As Bank of America Corp. phases out the Countrywide Home Loans brand -- you can read what I wrote about in The Times today -- the banking giant is rolling out interesting twists on its own mortgage offerings.

The bank today unveiled a flat-fee plan to allow people buying homes to see beforehand exactly how much they will pay for all closing costs. Those costs include the annoying application and processing charges by lenders, along with fees charges by such service providers as appraisers.

Bank of America will have three flat-fee tiers -- $1,995, $2,495 or $2,995 -- depending on the state. California, as if you had to guess, is in the most expensive tier.

So far, the program is available in full-service Bank of America offices but not the former Countrywide Home Loan offices acquired last year when the Charlotte, N.C., bank bought Calabasas-based Countrywide Financial Corp. And for now, it’s only for purchase loans, not the refinancings that have, at least temporarily, made home lending a boom industry again.

The idea is to make the flat fees available eventually for refis and at the home-loan offices, Bank of America Home Loans President Barbara Desoer said in an interview.

In 2007, Bank of America attracted attention with a no-fee mortgage. But consumers tended to regard that loan with some suspicion, on the theory that you can’t get something for nothing, Desoer said.

Many competitors were offering similar no-fee loans two or three years ago, but these days few lenders have been offering promotions of any kind. Indeed, said Inside Mortgage Finance publisher Guy Cecala, "today mortgage lending is very expensive."

That fact should help Bank of America attract attention with its new plan. Still, as Cecala added, in an environment in which borrowers are out to capture 30-year rates at below 5%, the bank will have to compete on low rates as well as on low fees.

As if to address that issue, Bank of America's new approach includes a satisfaction guarantee. If a person decides that another lender’s loan is better after shopping at Bank of America, the bank will write them a check for $250, Desoer said.

Because Bank of America is so large, the moves are likely to attract high interest from consumers and perhaps force rivals to adopt similar programs, said Greg McBride, a senior analyst at the financial information firm Bankrate Inc.

McBride praised another Bank of America offering I described in today’s article -- a plain-language, one-page summary of loan terms to be provided to borrowers when the bank originates a mortgage and again when the loan closes.

That’s a big deal, he said, because of how many consumers complain that they didn’t understand loan terms. McBride said that on government-mandated disclosure forms, key terms can be buried where the borrowers may not see them.

-- E. Scott Reckard

Foreclosures increase for prime borrowers

An alliance of mortgage servicers is reporting a jump in prime-loan foreclosures from January to February. From Inman News:

HOPE NOW put the number of foreclosure starts on prime loans during February at 157,000, a 25 percent increase from the month before. Foreclosure starts on subprime loans fell by 5 percent, to 86,000.

The record 243,000 foreclosure starts recorded in February represented a 12 percent increase from the month before and a 36 percent increase from a year ago.

Not every home headed for foreclosure ends up there.

Nevertheless, completed foreclosure sales of homes purchased with prime loans jumped 86 percent in February, to 56,000. Foreclosure sales of homes bought with subprime mortgages fell 16 percent, to 32,000.

The 87,000 foreclosure sales for the month represented a high point not seen since July, when 92,000 foreclosed homes were sold.

Completed foreclosure sales as a percentage of starts rose to 46 percent, up dramatically from the recent low of 30 percent in December. The percentage was even higher for homes purchased with prime loans -- 54 percent, compared with 25 percent in December.

Although not unexpected, it's dramatic nonetheless, and another sign that the housing market is still on the downward slope.

-- Lauren Beale

Thoughts? Comments?

Photo: Chris Rank / Bloomberg News  

Prime mortgages heading south in Southern California

"The Growing Foreclosure Crisis" in Saturday's Washington Post looks at prime mortgages defaulting in Riverside County and elsewhere:

Before Robin Bohnen and her husband, Shane, bought a $1.16 million Mediterranean-style house in an upscale Southern California suburb two years ago, they were not cash-strapped, debt-ridden or credit-impaired.

Now they are all of the above. Soon they also may qualify for one more distressing category: home lost to foreclosure....

They cannot afford their $6,400 monthly payment, and in this plummeting market, they wouldn't make enough on a sale to pay off their mortgage or recoup the 20 percent they put down to buy their Riverside County home.

They're "underwater," industry parlance for borrowers who owe more on their mortgage than their houses are worth. They have joined the growing line of homeowners seeking a break from their lenders.

Both the departing and incoming administrations in Washington have promised help on the foreclosure front, but providing help requires federal regulators to get their collective arms around the size and shape of the crisis. That isn't easy. No one agency collects information on every loan, every borrower and every delinquency.

But interviews and a Washington Post analysis of available data show that the foreclosure crisis knows no class or income boundaries. Many borrowers ensnared in the evolving mortgage mess do not fit neatly into the stereotypes that surfaced by early 2007 when delinquency rates shot up. They don't have subprime loans, the lending industry's jargon for the higher-rate mortgages made to borrowers with shaky credit or without enough cash for a down payment.

The wave of subprime delinquencies appears to have crested. But in October, for the first time, the number of prime mortgages in delinquency exceeded the subprime loans in danger of default, according to The Post's analysis.

This trend shows up most acutely in California and other high-growth regions, such as Arizona, Nevada, Florida and pockets of the Washington region....

And there's more trouble on the way, continues the Post:

The foreclosure crisis hasn't played itself out. The next wave looms in the form of a new batch of adjustable-rate mortgages scheduled to reset over the next two years. Unless the market comes back with a roar, which is unlikely, more borrowers will struggle to hang on to their homes.

Southern California was the epicenter of the housing bubble, in many ways. Four of the largest lenders had offices there, and Riverside County became a showcase for how communities can create wealth through real estate. Now the county is a case study of what can happen when the only industry in town is growth itself.

Even today's lower rates will be a hefty upward adjustment for some homeowners. For example, real estate agent Carol Byrd, quoted in the story, bought her Riverside home three years ago for $525,000 with a teaser rate of 1.5% for the first five years.

--Lauren Beale

Thoughts? Comments?

Photo:  A foreclosure sign sits in front of a home in Moreno Valley in Riverside County. Credit: Francis Specker / Bloomberg News