Bank of America just sent my wife a pre-approved mortgage offer. Aside from the fact that she isn’t working at present, I thought the terms were interesting:
1. It’s for a combo 80/15 loan with 5% equity required.
2. The first is a 30-year fixed with a maximum rate of 7.810% (may be lower based on credit score).
3. The second is a 15-year balloon (I’m guessing with a 30-year amortization schedule, although it doesn’t say) at a maxixmum of 9.978% (again may be lower based on credit score).
4. This offer is only available to low- or moderate-income borrowers.
Now here’s the best part. Make sure you are sitting down before reading it!
5. The maximum debt-to-income ratio (total monthly debt payment/total monthly income) is …
Total debt amount per month is what it said, so I assume it is just principal and interest. But what difference does it make? It’s still a suicide loan, albeit of a less complex type than the Option ARM.
If you add on the TI and HOA, you could be at 65 – 70% DTI? After the loan recasts, you could be at 100% or 110% DTI? What a ;bunch of schmucks to give a loan like that!
BTW,the most surprising question of omission at the Senate Hearings was “Who is holding the MBS, and what is the risk to the financial system when these loans recast?”
I am certain that anyone with a 60% – 70% DTI loan will default within a few months. And I refuse to qualify that statement with “in my opinion”.
The 60% ratio they mentioned generally takes into all debt (including taxes, insurance, hoa fees and other fixed monthly obligations such as credit card debt, car loans, etc.)
What BofA (and a number of other banks) are being pushed (yes, pushed or pressured) to do are make more loans that fit more of a Community Reinvestment Act (CRA) criteria either based on location or income criteria.
The loans they are most likely extolling/promoting here are not option-like arms. Many banks are being prodded into serving their communities and just like everything else they feel compelled to keep “reaching out further” in order to get the business in the front door.
I’d liken it to the big auto manufacturers trying to sell more high mileage cars in order to be able to continue manufacturing and sell the big suv’s a couple of years back.
Larry J. at the Senate Hearings, one of the panel members explained that people are qualified on a debt/income ratio of over 50% on ONLY the principal and interest, NOT including the taxes, insurance, HOA, etc.! I find this abhorrent. (spelling- okay, this may find its way into the TRACK house thread)
That’s why I was asking about the language on that advertisement, since we can no longer assume that lenders include all fees in their DTI calculation. I am as surprised as you are.
Larry, you are absolutely right on this. Banks are so pressured to provide financing to low income borrowers that they have to exceed their standard risk preferences. The banks of course turn around and sell the loans as high yield, high risk MBS. Sure, there will be some defaults but not all.
.
