No-Fee Florida Mortgages: For Real?

Home loan industry competitors are searching for hidden gimmicks, but Bank of America says its “No Fee Mortgage Plus” plan announced Tuesday delivers exactly what the name implies - without raising Florida mortgage rates to applicants.
The new program comes with none of the traditional Florida mortgage and settlement charges - application fee, appraisal fee, credit, underwriting, processing, title insurance, title search, private mortgage insurance, flood certification or closing fees - at “competitive” interest rates.

On a typical loan, these fees can amount to 3-5 percent of the mortgage amount and run into the thousands of dollars.

Bank of America says it is so certain that its no-fee deal stacks up well against competitors’ rate-plus-fee offerings, and is actively urging people to shop the market intensively, with Bank of America’s quote in hand, before making a final commitment.

If an applicant who is approved by the bank for a no-fee loan chooses to close with a competitor, the bank promises to pay that applicant $250.

The no-fee package also comes with a 25-day-or-less closing guarantee.

If the closing occurs later than the deadline, the bank says it will pay the applicant’s first month’s worth of principal and interest.

Is this all for real? How can a Florida mortgage lender eat thousands of dollars in costs without somehow slipping them into the deal somewhere?

So-called “zero-cost” Florida refinance options are readily available in the market, but typically include the origination and settlement charges into the note rate - bumping the rate up by an extra quarter percent.

At least.

Other lenders have offered “guaranteed mortgage package” quotes of rates and fees with no additional charges allowed between application and settlement. But those packages still charge borrowers most of the traditional lender and closing costs.

Floyd Robinson, president of consumer real estate for Bank of America, says it able to offer “a true no-fee mortgage product” in part because of sheer size - $1.5 trillion in assets, 55 million customers nationwide and a $350 billion portfolio of first- and second mortgage products.

That size allows it to create efficiencies and take on responsibilities that smaller Florida home loan institutions simply cannot.

For instance, the no-fee program allows down payments as low as 5 percent for conventional loan products up to $417,000 - and lower for certain “jumbo” loans up to $3 million - without private mortgage insurance.

“We are the investor, and we assume the risk” of defaults or foreclosures on loans with low down payments. Rather than requiring borrowers to pay monthly Florida home mortgage insurance premiums, the bank self-insures risk and charges customers nothing for the service.

Sensitive to any suggestion that the new program loads nominally waived fees into the interest rate, Robinson said “our rates are very competitive” with other mortgage lenders that charge all the usual fees.

Competing Florida mortgage brokers or lenders may be able to quote slightly lower note rates, he said, but when shoppers look at the truth-in-lending “annual percentage rate” (APR) disclosure, “we are confident that we will have the best deal.” If not, “we’ll pay you, no questions asked.”

Robinson said the no-fee approach allows borrowers to choose providers such as escrow, title insurance and closing agents rather than settle with bank-designated firms.

Some competitors are skeptical the new program could do everything the bank claims. Some limitations that Bank of America does include in the fine print:

1. You can’t apply unless you already have an account with the bank, even if it involves minimal deposits.
2. State and local transfer taxes, property taxes and other government levies are not covered by the no-fee guarantee.
3. Nor are prepaid interest or discount points, hazard or flood insurance and homeowners association fees.
4. The program is solely for home purchase loans - primary or second properties. No Florida mortgage refinancing allowed.

SOURCE: San Jose Mercury-News