Bargain Basement Sale’s Mortgage Prices

“Huge Sale”
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The next time you start to wonder how someone’s neighbor got their house, think about Fannie Mae and Bank of America with their sweetheart deals.  Yes, you too can work like a slave and toil relentlessly at work until your fingernails bleed, pay the man at his stiff yesteryear terms on your mortgage, and then cringe when you see the Fannie Mae/Bank of America bargain sales on mortgages of the recent go-go times.  Thanks to the Founding Bloggers for their clever investigative find in no less, Fannie Mae’s own documents, Case Study. Bank of America.

“Everything Must Go!
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Here we have the goals of the BofA program.  And the incentives given to bank loan officers who got the loan to home buyer.

Comprehensive program to reach traditionally underserved populations.

The BofA board has established that an outstanding CRA [Community Reinvestment Act] rating is a high priority for the bank. In turn, BofA’s chief executive David Coulter has man-dated “community and minority lending as a clear priority,”…

“Rewards”
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…In fact, BofA has a hierarchical system of bonuses that ties awards throughout the company to community lending performance… In addition to providing monetary compensation for community development producers, BAMG offers other forms of recognition. BAMG has a Platinum Club for high-grossing loan officers. Platinum Club members receive trips and other rewards for their achievement, such as being featured in the company’s employee magazines. If the criteria for the club’s admission were based solely on the dollar value of loan production, community lending loan officers, who deal with lower-valued mortgages, would be at a severe disadvantage. To counterbalance that drawback, loan officers can qualify
for the Platinum Club on the basis of the number of loans originated, as opposed to the mortgage dollar value of the loans.

Here’s the sweetheart deals.  Did you get one of these too?

Arizona has few cooperatives or small multifamily properties; instead, the state is characterized by a housing stock comprising predominantly single-family detached units.  Despite the relatively low price of many of these homes, LMI populations in Arizona, largely Hispanic, find it hard to muster even modest-sized assets for the down payment and closing costs (Schey 1997). One way Bank of America responded to this local challenge was to partner with the National Council of La Raza and Fannie Mae in the Home-to-Own pilot (BofA 1997). This program offered a 30-year, fixed-rate mortgage with a low 5-percent down payment requirement, of which only $1,000 (or 3 percent, whichever was less) had to come from the borrower’s own funds. The balance could come from a gift, grant, or second mortgage. Up-front cash reserves-which usually equal two months of housing payments and which are required under most loan programs-were waived under Home-to-Own, making the loan even more affordable for cash-restricted buyers.

In 1997, Bank of America Arizona initiated a new affordable mortgage program that would supplement the mortgage loan products then available from BAMG (Salgado
1997).  With this new program, borrowers were able to take out a standard 80-percent mortgage loan from BAMG and then receive a 20-percent second mortgage from Bank of America Arizona, not the mortgage company (Tenenbaun 1997).

The second mortgage was intended to cover the remaining amount due on the purchase price-in other words, to create a 100-percent LTV loan. The borrower was expected to  contribute approximately $1,000 to cover the closing costs associated with the loans.
The second mortgage would be repaid concurrently with the first, but the burden of the
added monthly payment was reduced because no mortgage insurance was required.  Moreover, the added payment went to increase the borrower’s equity in his or her new home. Once the second mortgage was paid off, the monthly payments decreased to just those required to retire the first mortgage.

Awesome deal, eh?!

“Let’s Make A Deal”
Image courtesy of http://www.gamesmuseum.uwaterloo.ca/VirtualExhibits/TV%20Games/makedeal/index.html.

And here BofA is selling off the second mortgages, ultimately to Fannie Mae or Freddie Mac.

Bank of America Arizona planned to sell the second mortgages on a nonrecourse basis, at par, to the Arizona MultiBank Community Development Corporation. MultiBank expects to season the second mortgages in portfolio until it has a large enough volume to package the mortgages and sell them to institutional investors, Fannie Mae, or Freddie Mac. This resale will then replenish MultiBank’s funds, thereby allowing it to purchase more second mortgages from Bank of America Arizona (Arizona MultiBank Community Development Corporation 1997a, 1997b).

And that is why, you, the wealthy taxpayers of America, are now the lucky recipients of the massive bill to pay all those Fannie and Freddie mortgages in your neighborhood and mine.

As well as according to SeeSandySays1,

“And pay for the Wall Street Welfare Bill.”

“Hobo Soup.  A jungle recipe.  Fit For A King.”
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See:

• http://74.125.95.104/search?q=cache:H6nqsFg2YjcJ:www.fanniemaefoundation.org/programs/pdf/rep_newmortmkts_bofa.pdf+site:www.fanniemaefoundation.org+fanniemaefoundation.org+%2Bpdf+%2B1999+%2BLa+Raza&hl=en&ct=clnk&cd=5&gl=us&client=firefox-a.  Case Study.  Bank of America.  Fannie Mae Foundation 2000.
• http://www.foundingbloggers.com/wordpress/2008/10/fannie-mae-foundation-documents-case-study-bank-of-america/.  October 3, 2008.
• http://sandysays1.wordpress.com/2008/10/06/october-5-fox-the-benedict-arnold-network/. October 6, 2008.