Low Down Payment Mortgages

Low Equity Mortgages

What is a 'Community Second'?

For years States have been raising money through issuing Bonds and using this money to make loans to deserving home buyers who either can't afford or can't qualify for conventional financing. Federal law passed years ago authorized these programs to raise lower-cost money using tax-exempt bond financing. Some County and Municipal governments have also sold bonds with the same goal of funding down payment assistance and closing cost assistance programs for their residents.

A Nice Idea That Sometimes Works

The concept was noble, but the execution was poor. Underwriting guidelines for every program was different. Eligibility rules were vague and often contradictory. Sometimes you could combine money from two or more programs, sometimes you couldn't. Submission directives were confusing, and if the wrong document got into the wrong package there was a real possibility that everything would be declined with no explanation. Nearly always there were several of these complex programs serving each state that were time consuming to compare.

Therefore, only the very patient, bold and sometimes foolish applied for Community loans to buy a house. However, those that did found themselves in homes rather than having to spend years accumulating a bigger nest egg.

Housing Crisis Renewed Interest

The housing crisis brought renewed interest in these generous but rarely used sources of funds. Politicians were already convinced that helping qualified homebuyers afford homes was a great way to raise demand, and reduce the oversupply of housing stock that was pushing values down and alarming voters. Community home loans were an existing and successful (low default rate) approach; the only issue was: how to get more money applied to the problem by making it easier to find, apply for and fund these loans?

The people who administer the funds were happy to relinquish most of the underwriting and secondary market tasks if doing so made their programs more relevant, and the big New York banks were happy to contribute their expertise and access to their balance sheets because they all had plenty of Mortgage-Backed Securities in their portfolios that were worth less every day that the housing crisis went on. If helping the Community money get buyers into homes meant that they could stop writing down their assets, they were all for it.

LoanWindow.net seconds - a Different Breed of Community Loans

It was a big challenge. Before applying for these loans, buyers' eligibility for a program must be determined. Buyers can be eligible for a Community loan on one property, but not another comparable home solely because the properties are located in different subdivisions. It's the combination of a specific property with specific buyer factors like income that determine eligibility. The combination of first mortgage and second mortgage programs that would minimize up-front borrower funds was not easy.

The first piece of the puzzle was a computer program that could store all of the eligibility data for all of the Community down payment and closing cost assistance programs, and spit out possible matches when data about the borrower and property are submitted. With this tool, we can now produce a list of suitable program sets in hours, whereas it used to take days or even weeks to get a handle on what might work.

Solving the Underwriting Maze

The final piece of the puzzle is another piece of technology that solves the underwriting problem. Getting a combination loan program (Community + a 'regular' loan) approved used to require 3 or 4 different review cycles, done sequentially, not simultaneously, each taking up to 3 weeks, and each requiring an approval or at least a commitment to approve from the other entities before issuing a final approval. If one form was wrong or missing, often the entire process had to start all over again.

The logical solution was to have a single underwriting event that ensured that the properly documented borrower and property satisfied all lending requirements, then draw a single inclusive closing package from a single source, and secure the funds to close from a single source.

Then They Outdid Themselves

Easier said than done, but, to make a long and sometimes harrowing story short, it was accomplished. But the team went one huge step further. It's one thing to merge a number of processes into one. It's a lot more impressive to improve the process far beyond the current approach in mortgage lending generally.

An approval with conditions is provided a few days after the start of the process -- that's nothing new. What is new is that if all of the initial conditions are met, the the loan is approved and then closed in three business days. This is not what most home loan applicants -- applying for any home loan -- experience today. Once eligibility is established (in one day) financial market turmoil now makes our Community loans far more certain to close than most other programs -- Community or not.

The Result

Eligibility is determined within a day, and a report generated that lists all programs available to a borrower. The borrower picks a program, talks with us so we can create an application. Within two days of application submission, and approval with final conditions is produced within two business days of an application. This is a single commitment to lend from all parties, along with all conditions required to close. Within three days of receiving the last document satisfying conditions, the loan is closed.

This is how getting financed ought to work.