No down-payment, no problem: BoA underwriting $10B in subprime mortgages

Nonprofit teams up with the bank to originate home loans for thousands of non-traditional borrowers

(Credit: Flickr, Mike Mozart)
(Credit: Flickr, Mike Mozart)

Bank of America is giving out $10 billion in mortgage commitments to borrowers with non-traditional backgrounds at a series of events across the country. The fixed-rate loans for 15- or 30-year terms carry an interest rate of about 4.5 percent and approved borrowers put no money down.

The bank is partnered with Boston-based brokerage Neighborhood Assistance Corporation of America (NACA) for the events, which have drawn a crowd of about 10,000 across cities like Charlotte and Atlanta, according to CNBC.

The nonprofit uses “character-based lending criteria” to assess hopeful borrowers’ ability to pay for a mortgage despite poor credit history. According to NACA’s CEO Bruce Marks, “that’s what’s going to help people who’ve been locked out of homeownership to really become homeowners and to build wealth.”

“It’s a national disgrace about the low amount of homeownership, mortgages for low- and moderate-income people and for minority homebuyers,” Marks explained to CNBC.

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NACA’s vetting process includes attending an education session, undergoing budget counseling and submitting a slew of paperwork including income statement and monthly bills. BoA then reviews the applicants who’ve been vetted by the nonprofit to decide whether to underwrite the loan–and they often do.

“When we get those loans with all the heavy lifting here, we’re over a 90 percent approval, meaning 90 percent of the people who go through this program that we actually underwrite the loans,” said AJ Barkley, senior vice president of consumer lending at BofA, to the outlet.

Marks claims that there have been zero foreclosures in the loans NACA has originated.

Since the 2008 crash, most banks no longer issue direct loans to subprime borrowers; instead, the institutions go through non-bank lenders specialized in high-risk loans. Together, BoA, Wells Fargo and Citigroup have loaned $345 billion to such lenders. [CNBC] — Erin Hudson