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In a product rollout that is being unapologetically framed as a slap in the face to the Federal Housing Administration (FHA), Bank of America is unveiling a new mortgage that will enable homeowners to avoid private mortgage insurance (PMI) while making downpayments for as little as three percent.
According to a Dow Jones News Service report, eligible borrowers must have a credit score of at least 660—a level that is above the FHA's requirement—and an income that is below the median where the borrower resides. After originating this mortgage, it to Self-Help Ventures Fund, a Durham, N.C.-based nonprofit, which will then resell it to Freddie Mac. In the event of a default, Self-Help will absorb most of the losses before Freddie Mac also begins to take a loss, while Bank of America has no loss on its books. The new program will operate at a $500 million annual cap.
"We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time," said Bank of America managing director D. Steve Boland, who took a direct jab at the federal housing programs by adding, "We think there are still a lot of uncertainties out there in working with FHA."
Bank of America’s lack of enthusiasm with the FHA can be traced to a 2014 settlement when the Charlotte, N.C.-based lender agreed to pay $800 million to settle claims related to errors on FHA-backed loans. The new program will also take revenue away from the FHA: Bank of America expects three out of four mortgages in the program would have been FHA-backed.