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Bank of America doubles down on 3% down mortgages without insurance

Expands "Affordable Loan Solution" for low- and moderate-income homebuyers

Earlier this year, Bank of America, in partnership with Freddie Mac and Self-Help Ventures Fund, began offering mortgages that only required consumers to put down 3% and did not require the consumers to obtain mortgage insurance either.

The program, called the "Affordable Loan Solution" mortgage, is a conforming loan that provides low- and moderate-income homebuyers access to a responsible lending product with counseling at affordable entry prices.

Bank of America said Thursday that the "Affordable Loan Solution" program is proving so successful in its first few months that the bank is doubling its annual commitment to the program – from $500 million to $1 billion.

Bank of America also said that it is enhancing the “mortgage experience” for clients who qualify for an Affordable Loan Solution mortgage, including automated underwriting and improving cycle times.

According to Bank of America, the response to the program has been incredibly positive so far from consumers who may not have been able to buy a home otherwise.

In fact, Bank of America said that more than 90% of the program’s participants are first-time buyers, receiving homeownership financing for the first time.

“Since our introduction in February, the Affordable Loan Solution program has been meeting the needs of LMI borrowers who desire a responsible mortgage product at an affordable entry point,” said D. Steve Boland, consumer lending executive at Bank of America. “We’re especially proud of how the Affordable Loan Solution program has become a popular choice for creditworthy first-time homebuyers, many of whom live in underserved communities.”

With the Affordable Loan Solution program, borrowers are allowed down payments as low as 3% on the purchase of a primary, single-family residence, with no reserve funds required in most situations.

According to Bank of America, borrowers may use secondary financing, such as an affordable second loan, grants, or even cash they have on hand.

Bank of America said that the program also considers non-traditional forms of credit to demonstrate credit history. Loan amounts must be within conforming loan limits, and the applicants’ income cannot exceed 100% of the Department of Housing and Urban Development-area median income.

The loan also requires a minimum FICO score of 660.

To participate in the program, the applicants must occupy the property, and first-time buyers must participate in homebuyer education through a HUD-approved housing counseling agency.

Bank of America originates the mortgages through one of its sales channels, with one of the bank’s mortgage loan officers, based in home loans offices and financial centers across the country, working directly with homebuyers to originate the loans.

Once the loan is originated, Bank of America sells the loans, including servicing rights, to Self-Help, which provides post-closing counseling for any borrowers who may be experiencing payment difficulties.

According to Bank of America, the mortgage servicing immediately transfers after origination to Self-Help’s designated specialty servicer, which is handling all loans regardless of future performance.

Freddie Mac then purchases all of the eligible Affordable Loan Solution mortgages originated via the Self-Help and Bank of America partnership.

Since Self-Help is taking the first-loss position, the loans require no mortgage insurance. 

The companies also said that the Affordable Loan Solution mortgage program includes an “extensive quality control routine” with Freddie Mac that helps ensure responsible underwriting and reduces potential risks to Bank of America and Freddie Mac.

When the program launched in February, Danny Gardner, vice president of affordable lending and access to credit at Freddie Mac, predicted that the partnership between Bank of America, Freddie Mac, and Self-Help will help underserved borrowers – and that’s apparently what’s happening.

"The strength of the Affordable Loan Solution program is how it brings each partner’s special expertise together to address the barriers faced by aspiring homebuyers with limited savings," Gardner said in February. "Freddie Mac is committed to working with industry and community leaders like Bank of America and Self-Help to find better ways for helping eligible borrowers overcome the obstacles that stand between them and successful long-term homeownership.”

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