Is no-fee loan too good to be true?

Is no-fee loan too good to be true?
Tucson, Arizona | Published: 05.13.2007

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

On a typical loan, these fees can amount to 3 percent to 5 percent of the mortgage amount, depending on location, and run into 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 that it's urging applicants to comparison-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-days-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 lender eat thousands of dollars in costs without somehow slipping them into the deal somewhere? So-called "zero-cost" refinancings are readily available in the market, but they typically include the origination and settlement charges as part of the note rate — bumping it up by an extra 0.25 percent or more.

Other lenders also 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, said the company is able to offer "a true no-fee mortgage product" in part because of the bank's sheer size — $1.5 trillion in total assets, 55 million banking customers nationwide, and a nearly $350 billion portfolio of first and second home mortgages. That size allows it to create cost efficiencies and take over certain responsibilities that smaller institutions cannot.

For instance, the no-fee program allows down payments as low as 5 percent for conventional mortgages up to $417,000 — and even lower for certain "jumbo" loans of up to $3 million — without private mortgage insurance premiums. The bank intends to keep all or most of the no-fee loans in its own portfolio, Robinson said in an interview.

"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 mortgage insurance premiums, the bank is self-insuring the risk and charging customers nothing for the service.

Sensitive to any suggestion that the new program loads nominally waived fees into the interest rate, Robinson said that "our rates are very competitive" with those of other mortgage lenders who charge all the usual fees. Competing brokers or lenders might be able to quote slightly lower note rates, he said, but when shoppers look at the truth-in-lending "annual percentage rate" disclosure — where all the loan costs are factored into the effective rate being charged for the loan — "we are confident that we will have the best deal." If not, "we'll pay you, no questions asked."

Robinson added that the no-fee approach allows borrowers to choose key service providers such as title insurance and closing agents rather than settle with bank-designated firms.
Some competitors are skeptical that the new program could possibly do everything the bank claims. Steve Cecco, president of Ameristar Mortgage Group Inc. in Albuquerque, said, "There's no way that anybody originates or closes a loan for nothing — it's got to be reflected in the rate or somewhere else."

Mike Bennett, Western regional sales manager for Wilmington Financial, a mortgage subsidiary of insurance giant AIG, gave the program grudging respect.

"I don't know too many people who can compete with it" in its current form, Bennett said. "It's obviously a loss leader for Bank of America." That is, the bank is cutting profit margins and internal costs in order to bring in customers that it can later sell other, more profitable products and services.

Some limitations that Bank of America includes in the fine print:

You can't apply unless you already have an account with the bank, even if it involves minimal deposits.

State and local transfer taxes, property taxes and other government levies are not covered by the no-fee guarantee. Nor are prepaid interest or discount points, hazard or flood insurance, and homeowner association fees.

The program is solely for home purchases — primary or second properties. No refinancers are allowed.

Advice by Kenneth Harney
Kenneth Harney writes an award-winning, nationally syndicated real estate column. Contact him at kenharney@earthlink.net.

When you're selling, all the home's a stage

When you're selling, all the home's a stage

By Stephanie Earls
Albany Times Union

May 12, 2007

It had good bones, so you bought it, certain that -- with a little cash, and some time -- you could make it into your dream home. Fresh paint. New carpet. A gourmet kitchen, and master bath with heated towel rack.

But intentions, even really cool ones, do not equal equity. If the time to resell comes before all your renovation plans could be seen to fruition, it's time to forget about grand dreams.

It's all about getting the biggest return for your short-term effort. Experts say a few quick, affordable updates and decorating tricks can make the difference between no offers and warring bids. Staging or preparing the home, both inside and out, to create the biggest impact and best impression -- can draw in buyers and up sale prices, often for minimal cost to homeowners.

Stagers and real estate agents say the first step when preparing a home for sale is to clean up and clear out.

"The most inexpensive things often get the biggest return," said real estate agent Terry Little. "People are buying space as much as structure."

You're moving out anyway, so you might as well get an early start, said Geri Kissane, owner of Above and Beyond Home Staging in Delmar, N.Y. Like other stagers, Kissane will do the work for you, or just serve as a consultant with you doing the grunt work. All depends on your budget.

"I suggest you get a POD. Put it in your driveway, as you're packing [inside the house], move it out" to the storage unit, she said. PODs, and storage alternatives like it, are portable units that are packed on site then moved to a facility for longer-term storage. Remove personal items from all surfaces.

Put away refrigerator magnets, and pack up collectibles into boxes that can either be removed from the home or, if they're pretty enough, artfully stacked. "We've seen [huge collections of] Hummels, teacups, salt-and-pepper shakers," said Sheila Palmer, who runs Homes Staged 2 Sell in Schenectady, N.Y. "That's not what you want the buyer to see. You want them to see the walls, the beautiful view."

Beverly Tracy, of Beverly Tracy Home Design in Saratoga Springs, N.Y., walks through a client's house sticking Post-its to what needs to go. If you don't have a professional stager, consider asking a friend or relative or anyone you feel can be honest with you to walk through and point out items that might be a turn-off to potential buyers.

Be prepared to make some emotional decisions, and to face the fact that your taste might not be universal.

"It's like, `I know you love your lime green front door, but it's really got to go,'" said Kissane, adding that staging -- and a stager's job -- can be tough on a homeowner's emotions. "I had to tell one family to stop cooking. They did a lot of Indian cooking. The smell permeated the drapes and the wood. [It's] just not appealing to everybody. If you smell it, you can't sell it."

Fix any visible problems that might be a red flag for potential buyers -- such as stained plaster or drywall that could indicate an old leak or settling or other structural problems.

Add fresh paint, in neutral colors, and focus on first-floor rooms and public rooms, like the kitchen, dining room and living room. Clean up the exterior of the home, add potted plants and repair damaged walkways

Even a house that's not in dire need of renovations should be given at least two weeks' prep time.

On the flip side of clutter-clearing, an empty house can leave potential buyers feeling cold -- both physically and emotionally, said Kissane.

"There's the echo factor. It's cold. And they'll see every single little scratch and nick and dent," she said. People can't tell how big the rooms are without furniture.

"Establish a visual reference point. Even if you have two chairs and an area rug, they'll say "Oh, it's furnished and it's huge,'" Kissane said.