New loan product could be 'a game-changer'

by Rachel.Norvell30 Sep 2014
Conservative think tank American Enterprise Institute (AEI) has teamed up with the Neighborhood Assistance Corp. of America (NACA) to create a new approach to home finance that is aimed at helping homeowners build equity more quickly.

Called the Wealth Building Home Loan, the 15-year mortgage features a low fixed interest rate, no down payment, closing costs or funding fees. The product also includes the option to buy down the interest at a quicker half-percent rate.

Edward Pinto, a resident fellow of AEI who helped develop the concept, said he and Stephen Oliner, another AEI fellow, created the loan to serve two goals. The product will provide  “a broad range of homebuyers – including low-income, minority and first-time buyers – a more reliable and effective means of building wealth … while maintaining buying power similar to a 30-year loan.”

Pinto and Oliner worked with Bruce Marks, founder of the Boston-based NACA to implement the new product, which is slated to be available by mid-November in all 30 states where NACA operates. Pinto told The New York Times that he persuaded Marks of the idea at a conference in May.

Pinto told Marks that the affordable, 15-year loan could, with government support, be “a game-changer” for lending. “You’re going from a debt model to an equity model, and that’s a huge change,” he told The New York Times.

Underwriting standards for the loan product are different from conventional lending. NACA underwrites the loans and does not look at a borrower’s credit history, instead looking at recent payment history and residual income, similar to VA loans.

In the first three years of a Wealth Building Home Loan, 77% of monthly mortgage payments pay off principal, while for a 30-year loan, 68% goes to pay interest, said Pinto. The loan provides a 0.75% lower interest rate and more than 90% of the buying power of a 30-year FHA loan.


  • by NACA Online | 9/30/2014 11:04:55 AM

    The Wealth Building Home Loan also has the potential for buying down the interst rate to nearly zero through an extremely strong buydown option. One point (1% of the mortgage amount) will buy down the interest rate by one half percent, four times the buydown rate of many lenders. This is a far more efficient use of athe money compared to a traditional down payment. NACA's counseling and budget analysis also ensures that the home buyer gets a mortgage they can genuinely afford, and the 15-year mortgage has a default rate 70% LOWER than the traditional 30-yera model. NACA plans to have the program rolled out to all of its offices nationwide within 60 days of the announcement.

  • by saleem | 9/30/2014 11:17:33 AM

    how can a low income borrower afford a 15 year amortized mortgage, when they can barely make the 30 year amortized payment.

    so even if this is a non-QM product, whats the max DTI?

    wouldn't this force the borrower to buy less of a house due to the higher payments?

    the big problem in my market (SF bay area) is the high purchase prices and low income borrowers not being able to compete.

  • by MortgageLoans | 9/30/2014 11:29:23 AM

    I don't understand the effectiveness of this for a broad spectrum of homebuyers. If the goal is to help low income homebuyers, is giving them a 15 year mortgage with a much higher payment going to help? Even with historically low rates buyers are having trouble with payments calculated on a 30 year amortization. I think this has very limited appeal for the market it is targeted towards.


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