“Bank of America, the country’s largest mortgage lender, is rolling out a large program to finance loans between about $730,000 and $1.5 million, with fixed 30-year rates starting in the upper 5% range. The loans will be available through the bank’s retail network and through its Countrywide Home Loans subsidiary.”

“Bank of America quotes a minimum [down payment] of 20%….[and the new program] requires hefty liquid resources — six months of principal, interest, property tax and insurance payments in reserve — plus fully documented income, solid credit scores and a full appraisal.”

UPDATE: A “tipster” beats us to the editorial punch (at least with respect to impact):

Countrywide/B of A has had that product since October of last year. Rates were in the 6% range.

I suspect that the debt to income hurdles are pretty high to get that rate (you’ll note they don’t mention it…), because it hasn’t seemed to change the market that much in the 5 months they’ve had it.

As we’ve seen with other programs, we expect the Bank of America program to benefit qualified buyers though lower rates but not to have a significant impact on activity or demand.

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Comments from “Plugged-In” Readers

  1. Posted by The Milkshake of Despair

    Its interesting that BofA’s new requirements almost exactly match the standards that I had set myself years ago. No wonder I kept losing to overbids !
    Its good to hear that BofA is making loans at a good rate so those who can afford it can buy a home.

  2. Posted by polip

    if BofA survives this maelstrom, they will find that this element of their new ‘BofA Home Loans’ division will generate excellent, stable returns.
    they are planning on keeping these loans on their books, instead of securitizing them and selling them to the highest bidder.
    Nothing focuses the mind quite like quantifiable risk that cannot be offloaded. It looks like they will make sure that the loans meet stringent tests – borrowers who are creditworthy, capable of making the payments, and homes that will provide collateral to make good on the underlying mortgage, even in the face of an unlikely default.
    Lending long at higher rates (because these are jumbos), being able to borrow at near zero rates (thanks to the ‘crisis’), and doing so in large individual loan amounts provides for a higher rate of return on a larger principal. Like it or not, this is how banks are supposed to make money. Yes, it is boring, but if executed properly, it provides for safe, stable, and very good (but not eye-popping) returns on capital.
    The question will be, especially in SF, are the borrowers with the capacity to pay and the creditworthiness to borrow out there? And more importantly, perhaps, will the risk managers agree with the appraisers that the collateral is significant enough to justify the loan…?

  3. Posted by tipster

    Countrywide/B of A has had that product since October of last year. Rates were in the 6% range.
    I suspect that the debt to income hurdles are pretty high to get that rate (you’ll note they don’t mention it – could be bait and switch), because it hasn’t seemed to change the market that much in the 5 months they’ve had it.

  4. Posted by anon

    What does a full appraisal mean? How is that different from a regular appraisal that is done nowadays?

  5. Posted by San FronziScheme

    Yes, it is very boring sound business.
    1 comment, 1 question:
    1 – The cash reserves requirements are roughly 5% of the purchase price. Per 100K, the mortgage payments will be roughly 4K or 4%, property taxes will be about 0.6% plus insurance that will depend on coverage.
    2 – What about refi? Do you need to have these requirements as well?

  6. Posted by Conifer

    If it includes re-fi, even without cash out, they could do well in SF with this product. There are many people who put much more than 20 percent down, and want to lock in a fixed under 6 percent.

  7. Posted by hillychilly

    I just bought a sfr with BofA with 20% down, 900K loan, 1 point, 5.5% fixed interest rate. I am not rich, and i loved this loan. 5 years from now rates might be through the roof.

  8. Posted by juju

    wasn’t that the standard BofA should have been using all these years before the ninja loan came along?

  9. Posted by beats head against wall

    @hillychilly — not to be asinine, but you ARE rich. VERY rich.
    Based on your description of your loan, your monthly mortgage+taxes are in the neighborhood of $6,200 a month, or $74,400 a year. (To see how I got these numbers, go to http://spreadsheets.google.com/ccc?key=pCrk-tNxy4wMs-8aCqYAwbA&hl=en and put in $1.125M as the home price and $225K down.)
    Let’s assume the mortgage+tax takes no more than 40% of your household income. If that’s true, your household income is at least $186K. That puts you in the TOP 5% of all households in the US!!!
    I don’t begrudge you your wealth, but for God’s sake don’t pretend that you’re not rich. It drive regl’r folks like me crazy!

  10. Posted by condo ovner

    Anybody know if this applies to condos with jumbo loans? or only SFR?

  11. Posted by hangemhi

    hillchilly is a regular joe in SF. top 5% nationwide, but probably top 20% in SF

  12. Posted by gowiththeflow

    Second that hangemhi. Folks don’t understand that it costs $350-$400 per month just to park a car downtown for instance. $2500 easy and up to rent a decent 1 bedroom apt. etc. Throw in a $10 glass of wine, $15 and up cheese plates and you can barely get by on less than $40 just to meet a friend for an hour after work for a quick drink. Car insurance is sky high, home owners insurance is expensive, etc. No complaints here, we choose to be here by all means but still.

  13. Posted by anon

    So from someone who is about to refinance a TIC into a condo through the dreaded city conversion process…
    How will the banks treat someone who meets all the above criteria except the 20% piece? The ratios, incomes, credit scores, etc all line up, but with the questionable state of equity these days (all hinging on the appraisal), what are banks doing for those with 10% down but otherwise A paper (on a $722k loan)?
    thanks for any thoughts, and apologies to the editor if this is deemed off topic.

  14. Posted by unearthly

    hillchilly is a regular joe in SF. top 5% nationwide, but probably top 20% in SF
    Closer to the top 10% or higher…
    Distribution of High Income Households

  15. Posted by eakens

    interest rates might be well over 10% in five years. the printing presses are running at full steam right now. it doesn’t come without a cost.

  16. Posted by polip

    hillychilly et al
    correct me if I am wrong, editor, but as I recall the ‘average’ SS reader/contributor has >200k in HHI
    so one man’s rich is another blog’s average
    [Editor’s Note: That’s correct in terms of our readers’ demographics, but our average reader is anything but (average).]

  17. Posted by ex SF-er

    hillchilly is a regular joe in SF. top 5% nationwide, but probably top 20% in SF
    depends on what a regular joe is.
    Assuming that beats head against the wall’s math is anywhere near correct, hillchilly makes more than 89-94% of all San Francisco households
    I would not call that sort of person a “regular joe” (economically).
    we can of course argue about “rich”. Many people may not consider $200k/year rich, but high income. I personally make a difference between annual income and wealth. many people have a high income but low wealth, especially if they squander it on living expenses, or if they are young.
    I have a very high income. But don’t consider myself “rich” because I’ve only had this income for about 7 years, thus haven’t had time to amass wealth.
    If I lived in SF, it’s doubtful to me I’d ever be rich, because too much of my wealth would be lost to housing/living costs, going to gowiththeflow’s point.
    as unearthly showed, and also multiple data sources confirm including the US census and also SF chronicle article from last year: only about 6% of SF HOUSEHOLDS (not individuals) make more than $200k/year, and only about 11.4% make over $150k/year
    it shows what many people know but refuse to believe: incomes are not that high in SF. They are higher than most of the country, but not as high as people think they are. People must stretch considerably to afford housing in SF, and they do it moreso because the city is very desireable as opposed to outrageously high incomes.
    of course, the median incomes of owners is higher than that of renters, due to the 70% rental status of the city… I’ve always been curious to see what the median income and spread of incomes is of owners…

  18. Posted by unearthly

    of course, the median incomes of owners is higher than that of renters, due to the 70% rental status of the city.
    This may be true if you include only homes purchased within the last 15 years. I’ve noticed lots of homes occupied by long term home owners that would skew this number way down. Either way it would be interesting to see a breakdown of incomes of renters versus owners.

  19. Posted by diemos

    “of course, the median incomes of owners is higher than that of renters, due to the 70% rental status of the city…”
    but my understanding is that number has been 70% since long before the current bubble.

  20. Posted by San FronziScheme

    A few links were posted in January about incomes, rent-vs-own demographics:
    To get to the most relevant facts, you can jump straight to the following:
    200K+ households are about 5% (approximation from slide 25). Roughly ~22K households over ~420K.
    The renters are 61% of the population (slide 28).
    The own/rent situation is very mixed I think. Lower income renters/owners are kept in place by Prop 13 / rent control and the turnover on both is a trickle because once you leave the good deals you go back to square 1 at market price on both instances.

  21. Posted by sparky-b

    Owner occupied housing units with a mortgage: 88K
    Incomes over $200K; 22K
    Incomes $150-$199K: 19K
    Rich Foreigners looking to buy: 7
    Trustafarians: 420

  22. Posted by Trip

    Here is another, not totally dissimilar view voiced by others on the near-term outlook for jumbos:
    I agree that there are some nice opportunities for lenders with careful vetting. But unless and until the secondary market for jumbos comes back, they are still going to be difficult to obtain for all but the most qualified borrower. That is simply a return to sanity, of course. The freeze in higher-end ($1M+) sales indicates, I suspect, that there are not that many highly-qualified borrowers. But the verdict is still out as there may be other reasons for the freeze, such as people simply don’t want to buy in a declining market.
    Hillychilly, did you buy that place on Steiner? The numbers seem to fit. That is a really pretty house.

  23. Posted by LMRiM

    Good points somewhere up there in the comments about the distinction between income and wealth (ex SF-er’s post, mostly). If you have a reasonable amount of wealth, and can tailor your income to avoid the high tax burden of California, the Bay Area is a fairly inexpensive place to live in view of the amenities offered. Much less expensive, for instance, than the NYC metro area, or the “home counties” surrounding London (the other two geographic areas that I am very familiar with). The big exception is housing costs, but only for owning real estate. Renting SFRs is remarkably inexpensive, again relative to NYC metro and the English home counties.
    About relative income/wealth of owners versus renters, Dean Baker at CEPR had an interesting report a few weeks ago that got some attention, “The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble” (summary excerpt):
    “These calculations imply that, as a result of the collapse of the housing bubble, millions of middle class homeowners still have little or no equity even after they have been homeowners for several decades. These households will be in the same situation as first-time homebuyers, forced to struggle to find the money needed to put up a down payment for a new home. This will make it especially difficult for many baby boomers to leave their current homes and buy housing that might be more suitable for their retirement.
    Finally, the projections show that for both age groups, the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile. Homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth.”

  24. Posted by gowiththeflow

    Absolutely must not be a W2 in CA.

  25. Posted by Trip

    LMRiM, you really don’t have to convince anyone anymore of how much smarter it has been for you to rent rather than buy in recent years! I don’t think any reasonable person would (or could) disagree with that point.
    Interesting link. A sentence on p. 21 is, I think, the key point: “However, there is a second important factor that also leads to a decline in wealth for this age cohort between 2004 and 2009. As a result of the bubble-inflated values of their homes, tens of millions of families opted not to save during what would typically be their peak saving years.”
    When the rent v. own analysis was more of a toss-up (i.e. before it became way skewed in favor of renting) buying used to be a sensible move because it “forced” saving as principal was paid down. The free-money bubble years turned that concept on its ear as homes became an ATM and owners were dissuaded from saving because they had accumulated so much “wealth” through “appreciation.” So the bubble-popping has been a triple whammy — declining home value, declining retirement portfolio, and lower savings (or even negative savings with equity withdrawals). Renters only experienced one of those whammies.

  26. Posted by viewlover

    and those that owned homes, stocks, and a 401K, we’ll they are really screwed, like me.

  27. Posted by LMRiM

    I’m really sorry to hear about your 401(k), viewlover, sincerely. I had spent a lot of time on SS in late 2007/early 2008 expounding on the idea that the US was going to go into a terrible recession/depression, but even I was surprised at how poorly US equities performed. I had expected as a base case a decline of 30% from December 2007 (maybe 40% from peak october 07 value), and said as much on SS a number of times. However, the ~60% decline for diversified US equities was an outlier. It’s definitely been a trader’s market, and it is likely to stay that way for a decade or longer.
    My guess is that the worst is over, but the choices that have been made by the Bush and now Obama administrations have been absolutely horrifically wrong, and are going to cripple the US for at least a decade and perhaps longer. As markets recover, especially for a USD earner like yourself, I really recommend increasing exposure to Asian equity indices on a mechanical dollar cost averaging basis, fwiw (no, I don’t want to give specific recommendations, but I do want to offer that very generalized advice for those who have found my posts helpful in the past). Best of luck.

  28. Posted by beats head against wall

    Well, I see others have done my work while I slept. Excellent–I love being lazy! 🙂
    FYI, I grabbed the wrong mortgage calculator link. Here is the right one:
    Again, I put in $1.125M as the home price and $225K down.

  29. Posted by gowiththeflow

    It will be interesting to see what transpires regarding the drop in value of the US$, unease in holding US government bonds etc etc. I have been reading that China has been calling for new global currency due to concerns.
    LMRiM agreed regarding US being crippled for some time. If a new global currency is created(not that it will be) does you opin change regarding where to invest? Or would this strengthen your thoughts even more relative to increasing asian exposure?
    Any thought on the introduction of new global currency actually happening.

  30. Posted by LMRiM

    I think the talk about a new currency regime is just a smokescreen. I doubt it’s serious – the players are too tied in to the USD, especially China/East Asia. They’d like to keep the value of their $$ as high as possible so that they can buy real assets on the cheap in upcoming depression imo. After that, who knows. Ultimately I do think the USD is toast.
    There is a lot of talk about the “need” for the US to devalue the dollar to inflate away the external debt being accunukated. Possibly, but I wouldn’t be surprised if in the medium- to long-term, the US external debt is simply forgiven in exchange for political concessions from the US. Would it really be that different from when the banana republics get their debt periodically “forgiven” by the wealthy G-7? (I know, “G-8”, but I’m old-school ;))
    As for what sort of political concessions might be required for such a transfer, well, let’s just say I wouldn’t want to be an “anti-colonial” in Africa (lots of resources) or a believer in democracy in Taiwan or Korea. I guess if you want to make an omelette, you have to break a few eggs 🙂 People who reflexively think that US hegemony (pax americana) has been bad “ain’t seen nothing yet”!
    Regardless of currency machinations, I still lean towards a bet on future Asian productive capacity. Currency is just the tail of the dog in the end anyway. The choices the US is making is going to crush it economically. It’s a mathematical certainty IMO.

  31. Posted by Rob

    I just refinanced with B of A on a Jumbo loan, 30 yr, 6% and no points. I shopped around and they are the only game in town in the Jumbo market with some reasonable rates and requirements.

  32. Posted by unearthly

    What was your LTV? Also did you have any secondary loans involved?

  33. Posted by gowiththeflow

    What about betting on future Indian productive capacity?
    RE: Jumbo Loans.
    Glad they increased the conforming limit again. End of 2008 I was able to get a 6.125% Fixed 30 year no points 729,750 in combo with a small Equity line of which I fixed. Increased conform rates typ fall between standard conf and jumbo so if the jumbo keeps falling maybe it will help push the 2009 inc conforming rates down too. I think this could help a great deal in SF and CA in general. Question is when will the banks initiate it – most have not raised the limits internally yet. If banks follow the 2008 model they will wait until the last few months of the year(when they have all organized so they can offer the product – wink wink) giving those that want to take advantage of it a very small window of opportunity to do so. I am guessing they are nervous to initiate such any quicker as the 2008 models – some not all may now easily fall into the stimulus forced write down plan as they were backed by the FM’s which was crammed down this year. On the flip side maybe they will push the inc conf product harder, put more of these on the books this time around knowing it equates to a larger amount of money/laons being insured by the gov? Will be interesting to watch.

  34. Posted by M

    Rob — how much did B of A require in down-payment/equity?

  35. Posted by anono

    This BofA product has been around a while. I did a jumbo refi in late October at 5.375. I paid a point to get it but they had 6% for no points also. I paid the point to get into a lower 30 year fixed rate from a five year arm at 6%. Minimum LTV was 80% and the best rates were available only with 75%. Also needed six months reserves. I know a couple of other people who refied through BofA in December and January with similar experiences.

  36. Posted by Rob

    Unearthly and M,
    My LTV was about 75/25 and that included a second. The appraisal process was eye opener as they only took in consideration of sales comp within last month and didn’t take in any sf or upgrades.

  37. Posted by Rob

    Unearthly & M,
    My LTV was about 75/25 and that included a second. The appraisal process was eye opener as they only took in consideration of sales comp within last month and didn’t take in any sf or upgrades.

  38. Posted by anono

    Interesting about the apprisal Rob.
    I thought BofA juiced our appraisal a little (used list price of similar place that seemed too high) to get the deal done. However, it did help that the assessor had recently refused to lower our tax assessed value as the appraiser actually used that as part of the valuation basis.

  39. Posted by Rob

    I was a bit surprised my comp was on par literally with a house that is 1000 sf smaller with no upgrades one block away. Funny thing is I started with Wells Fargo first on the re-fi and I didn’t qualify with their LTC ratio (they wanted min. 75/25). I belive WF has since exited Jumbo market.

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